We talked about Why it is the right time to be a Blockchain developer in our previous post. In this post series we will give you brief introduction to Blockchain and its terminology.
Let’s first build some perspective, why Blockchain technology is created and what was the actual use case , the use case is to do business transactions between two entities with out any intermediaries but first we need to understand the history and current state of our transactions and how we solve this problem and how we get here.
How do we get here?
We can start with what is the basic idea here, An entity A needs to get some resource X in exchange for some resource Y from another entity B. This idea brings us Bartered System, then to Trade System using money (Bank notes), and eventually introduces banks everywhere for save keeping of money and as a trusted third party which facilitate transactions between/among parties.
Flaws with Current System
Every transaction you do on the internet, there is always some banking channel involved, well not really this trend is changing, people are using more and more some kind of virtual currency like bitcoin, Ethereum or ripple etc. all build on Blockchain, why people are moving away from traditional banking channels, and moving towards Blockchain based virtual currencies, we will answer some of related concern next.
Privacy of Your Data
Banks log every transaction you make, they have all the information about you, remember when opening a bank account, which could be used to profile you and they could get really interesting facts about you. Well start with your search history and Try what does google knows about you
Blockchain gives you privacy and you can make transactions over the internet with peace of mind, while it solve one problem it also introduce some other issues
Which ever channel you are using for transactions, that specific channel have ultimate control of your data. They will give you terms to agree, and if you are not agreed with the terms, then mostly probably you can’t do direct business through them and left with in person exchange of resources. Once you do the business they control your data and you are bind with the agreement.
Blockchian is distributed system and it can enable us to create publicly shared, verifiable ledger and gives you complete control over your information.
2. Delay in Transactions and Fees
In a typical transaction you send money from your bank to another bank, your bank talks to another bank and there could be many banks in between if your are doing international transaction, this introduce some delay and also there is transfer fee attached to it and there is exchange rate fluctuation among different currencies and so on and so forth.
Blockchain solve this Problem by eliminating these third parties cross border and cut down on transfer fee for your transactions.
This was all in the context of banking transactions, there are so many other use cases listed in my previous post.
Now remember that recession 2008 and Bailout of Big Banks, you lose money even though banks failed but you paid the price and all that.
By now you should have a pretty good idea about the flaws of current system and need for some solution to these flaws.
Main thing to consider is that Blockchain is still considered work in progress, it did not yet completely figure out to replace current systems. Although it gives you amazing benefits that allows most companies to bring some innovation in respective field.
Now we will move to Blockchain terminologies, this will bring you the understanding and potentially use cases in your organization that could be better solved with Blockchain. We will start with the example of Bitcoin as it is the first implementation that most of people know and it is using Blockchain concepts underneath.
Bitcoin is cryptocurrency a form of electronic cash, it is decentralized digital currency without any central bank, and money can be sent from user-to-user or peer-to-peer on bitcoin network without any intermediaries.
The most relevant research paper about bitcion is Bitcoin: A Peer-to-Peer Electronic Cash System
We strongly suggest to review it for deep understanding of, what is the issue, solution of the issue, and opinion.
Bitcoin handles the trusted third party with cryptographic proof. Which is also called proof of work, the network will be secure against any transaction reversal as long as collective computational nodes CPU power of the network is more than any nodes which are cooperating with attacker.
Terminologies and Concepts
Hash is a way to map variable size of data to a fixed size data. Why hash is important, will come to this point later on.
Let’s understand by an example of calculating Hash for below data using SHA512:
Data : 1234
Hash (SHA512) : D404559F602EAB6FD602AC7680DACBFAADD13630335E951F097AF3900E9DE176B6DB28512F2E000B9D04FBA5133E8B1C6E8DF59DB3A8AB9D60BE4B97CC9E81DB
Now SHA512 is name of the algorithm and number 512 denoted the bits in the final result. Point to note is that even if you change 1 character in data or order of character the hash will be different and the hash value will be the same for same data regardless of number of times you generate it. Now this case will be true for data which have millions of characters the hash you will get, will have same length in our case 512 bits.
Now Hash have a unique place in bitcoin world, it is a way to verify that the data haven’t changed.
We will continue to tell you terminologies in next couple of posts and then we will move to development area of blockchain.