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Introduction
We heard about so many disruptive technologies, and blockchain is one among them. Blockchain and bitcoin are the buzzwords that we come across often. The number of people has been increasing over the years who wish to explore blockchain and invest in it. In this Blockchain Tutorial, we are going to discuss blockchain, bitcoin and driving factors that made blockchain so powerful. You will become familiar with the blockchain concepts such as cryptography, the process of creasing blocks, mining & Network and all other concepts interlinked with blockchain technology.
History Of Blockchain
The word blockchain was first conceptualised by a person (or group of people) known as Satoshi Nakamoto in 2008. The reason behind developing blockchain technology was to create a highly secured public ledger for all kinds of transactions on the network. Nakamoto has made significant developments to build the blockchain, and the outcome is a Hashcash method to add blocks to the system without any kind of authorization of the third party.
Blockchain main intention is to eliminate all those intermediates such as banks, governments and mediators. It is going to be an economic revolution in the financial industries. The blockchain is allowing us to record the different types of information such as financial transactions and any information that has a value in nature.
Before entering into the blockchain, tutorial let’s discuss the problems associated with our current banking and financial systems.
Problems associated with the present financial system
A major portion of our finances is handled by financial institutions such as banks and other financial intermediaries. These Financial intermediaries charge the costs for carrying out our transactions. The higher the amount you transact, the more the fees you are liable to pay.
Online Frauds:
We frequently hear about the hacking news of bank accounts by the hackers to steal the money of the innocent people. It includes hacking of credit & debit cards and net banking as well. Every year the amount we are losing due to financial hacks is billions of dollars.
Financial crises:
Financial institutions main motive is to earn profits by investing the funds of people somewhere else; otherwise, it is not possible for them to survive. Banks have spent money in various industries in the form of granting loans, due to losses and many other reasons they haven’t repaid back. In the year 2008 financial institutions have faced a most massive crises, and the amount that they have lost is close to 11 Trillion dollars worldwide. It’s just one of the famous examples, but we frequently hear how banks fall into crises even due to internal emergencies.
The above mentioned are the some of the serious issues faced by banks, and let’s think what if a new financial system comes into a system where problems are eliminated and where no middlemen are required to carry out our financial transactions. That’s where Blockchain comes into the picture.
What is Blockchain?
To put it simply blockchain is a chain of blocks which contains valuable information. The primary motive behind this technology is to time stamp the digital documents, so it is not possible for the unauthorised people to backdate them or tamper them.
The blockchain is being used for various transactions such as money, contracts, property, and a lot more. One can transact over this network without the need of third parties such as banks, governments, and other financial agents. The data which is recorded inside the blockchain is highly secured and immutable in nature.
The blockchain is a software protocol similar to SMTP for email. To work with the blockchain, we need internet. The blockchain is the system which made of different other particles such as a database, software application, some connected computers etc.
In this blockchain tutorial, we are going to learn what made blockchain more powerful and how it works. And also we are going to cover the topics like bitcoin, cryptocurrency, the process of creating blocks, network & mining and even all significant concepts of blockchain. Let’s get into the topic without wasting much time.
What is Cryptocurrency?
Cryptocurrency is defined as a virtual or digital currency that uses cryptography( the art of writing and decoding codes) to protect the transactions over the network. It is challenging to counterfeit the cryptocurrency because of its high security. There are many popular cryptocurrencies available in the market are decentralised systems and works on top of technology called blockchain. Which is a distributed digital ledger shared on different computer networks. The unique and powerful feature of cryptocurrencies is that it does not require the intervention of middlemen such as governments and banks.
There are different Cryptocurrencies available in the market, and the first and the most popular one is Bitcoin. Some of the currencies have derived from Bitcoin or its children currencies.
What is Bitcoin?
Bitcoin is the first and the most popular cryptocurrency in the world which was released in the year 2009, and it is defined as the primary currency which exists electronically.
Bitcoin is a decentralised peer to peer network which means there is no special authority involvement such as government or political authority interference in issuing the bitcoin. Even Though there is no central authority to operate this, it still works in an organised way.
Bitcoin holders can transfer their coins via a peer-to-peer network. The transactions of bitcoins are tracked on a giant digital ledger called blockchain, and it records every bitcoin transaction. The blockchain blocks are build based on the encrypted Markel trees. It allows us to detect fraud or corrupted files. Blockchain has a capability to prevent all other blocks from causing the damage from the corrupted blocks.
What are Smart contracts?
A smart contract is just like a traditional contract and exists in a digital format. The smart contract is also known as a crypto contract, and it’s a computer program which has got the capability to control to transfer of digital currencies or assets between the people. A smart contract not only contains rules and regulations same as traditional control but it also enforces all the regulations or actions. When any party to the contract breaks the rules automatically, it enforces the legal actions.
The smart contract takes the input as information and compares it with rules laid down in the contract and execute the same. For example, it makes asset information whether it goes to the other person or it should be returned to the person. These smart contracts are stored on the blockchain network.
What smart contracts do?
Smart contracts are becoming smarter day by day their potential has been extending from a simple transfer of assets to a wide range of activities such as legal processing, insurance claim processing, crowdfunding, and financial derivatives etc. In future Smart contracts are going to revolutionise the financial and legal industries by eliminating unnecessary tasks and charges.
Smart contracts not only automating the tasks but also working towards achieving control behaviour, real-time auditing and risk calculations, etc.
Blockchain Architecture
Let’s get to know about the blockchain architecture and how it works.
What is a Block?
A block is a part of blockchain which is used to store the data inside a blockchain, storage mechanism based on the type of blockchain.
For example, A bitcoin blockchain consists of data such as sender, receiver and the number of bitcoins needs to be transferred. Let’s assume, it contains the information of two people such as Rakesh has to send 500 bitcoins to Dheeraj. So now the blockchain includes the information of sender as Rakesh receiver as Dheeraj, and the amount needs to be sent is 500 bitcoins, that’s how bitcoin holds the data.
As the blockchain consists of many numbers of blocks and the first block of the chain is called as Genesis block, and each block is linked to its previous block and holds the hash of the last block.
What is Hash in blockchain?
The Blockchain technology is powerful because of its security and unalterability, the reason behind this is hash. Hash is a function to protect the data in a block. Each block has a hash, and it is the same as a fingerprint. Hash is the key to know the information recorded in a block. If an attacker wants to change the info on it would result in a change of hashtag so the other chains will not be opened.
Every block in blockchain has the following data.
- Data
- Hash
- Hash of the previous block
In the above image, the block one is considered as a beginning block, and it doesn’t have a previous hash, block 2 contains the hash of block one, and in the same way block, three does. This is how all the blocks in the network contains the hashes of previous blocks, and this feature makes blockchain a secured system.
Types of Blockchains
Blockchain has created massive hype in the industry and different organizations such as companies, governments and consortiums have entered this segment to develop and use the blockchain in their field. To have a clear understanding lets us know different types of blockchains available in the market.
There are mainly three types of blockchains available and have emerged after the introduction of bitcoin to this world. They are,
- Public Blockchain
- Private Blockchain
- Consortium or Federal Blockchain
In Spite of blockchains as mentioned above even there are other types of blockchains available which are Public-permissioned, and Private-permissioned blockchain etc., to make this topic understandable and straightforward let’s discuss the details of all three blockchains
Public Blockchain:
As the name itself resembles that it is made for the general public participation. To put it just it is made for the people, by the people, and to the people. This network is free from all kind of restrictions and anyone on the network can participate in the activities like reading/writing and auditing. And it is highly transparent, and anyone can review anything at any given point of time on a blockchain network.
We all get a doubt when there is no centralised authority, and everyone have access to the entire network them who will be there to take care of it? In public-blockchain the network uses Proof of work (POW) and proof of stake (POS) etc., to validate the block.
Private Blockchain:
Private-blockchain is a network in which only authorized people are allowed to create a new transaction on the chain (writing permissions). That’s how a private-blockchain is a closed private network, especially helpful for the organizations to store and securely transfer the valuable information. It is required to decentralize or distributes among the users for creating an environment where everyone can have access to it. The extent of how one can write ( add a chain) or view (read) is decided based on the design and the requirements of an organization.
Blockchain offers a lot more than a simple decentralized network. Other features of the blockchain such as cryptography enable the organization’s high security than the traditional protocols. The private blockchain is employed in an organisation for the activities such as for developing new cryptocurrency, for voting platforms, valuable data transfers, and to maintain accounts.
Another best feature of the blockchain is that if the authorised people want to hide the information from viewing particular people, we can easily do that. Blockchain saves time and money of the organizations which ever uses it.
Consortium Blockchain:
This is entirely different from public and private blockchains in terms of its functionality. In consortium blockchain group of similar companies or individuals comes together to form a network and takes decisions that benefit the whole system. This kind of groups is called as consortium or federation of the blockchain.
Let’s take an example here, let’s say there are top 20 financial institutions from all over the world have decided to make a decision regarding the consortium in which code of transaction or verification or decision is to be voted or verified by more than 15 organizations to add it to the blockchain, this is how it works.
Blockchain Features
Blockchain has got its first success when the cryptocurrencies have used it as a means of the platform. Let’s look at the various features that made the blockchain most powerful technology.
1) Blockchain as a data structure:
It is a continuously growing record of information, stored in digital blocks. Bitcoin uses the Blockchain network to store its transactions. In the beginning, these transactions start with a single block known as genesis block. The blocks of the system will eventually increase to the proportionate to the growth of data. This chain of blocks has named it as a blockchain.
This kind of inter-linked data structures are there in usage since from many decades to process the word and photography, but none have got the massive hit as blockchain did. And blockchain is more importantly powerful and an immutable block of chains.
2) Immutability and Tamper detection:
The data stored in blockchain is unchangeable and secure due to cryptography. Each block is identified by a unique string of characters which is generated by the cryptographic hash function. Each time the hash function takes any amount of data as an input and give the fixed length of a string as output. The exact range of the output is called hash. In the chain, each block is linked to its previous block (known as the parent block) and stores the hash of the parent block. So even if a little misinformation in giving the input would result in creating an entirely new hash output. So it is easy to trace if any new kind of hash function is produced because it has to go through the consensus. This hash function enables in easily tracing the areas where it was tempered.
3) Decentralized Ledger technology.
We often hear that blockchain is a decentralized digital ledger which means the information entered on the blockchain will be shared among the people who are on the network and connected to LAN or Internet. A user is notified every time a new block is added to the system so that they can have the latest version of the ledger. With the help of decentralised blockchain, many industries have got benefited such as real estate, stock exchanges, personal identification, and many more.
4) Relative User anonymity:
Even though the blockchain is transparent and one can see the transactions of others, it maintains some decency by keeping the user identity hidden. The public key cryptography allows the blockchain to be shared across the globe by maintaining some anonymity. When it comes to bitcoin blockchain, its a public ledger one can easily trace the transactions if he or her identity is known. Other cryptocurrencies have already tackled this problem by developing various algorithms.
5) Data protection on blockchain:
In traditional data storage, we need to enter the data manually, and there are a lot of chances to manipulate the data. But blockchain is quite different and secure. One can store their bitcoins by using public/private keys on the distributed ledger. A customer can pay the fee by using their private key, and the merchant can receive the money by sharing his public key with the customer. Once the transaction is over the merchant can have full rights over the coins. The data on blockchain is stored on multiple devices across the world, and if one goes down or attacked by the hacker’s other systems never allow them to manipulate anything over it. That’s how powerful is it is.
Blockchain advantages
There are many industries like finance, hospitality, governments, supply chain, etc. are implementing blockchain to innovate and to moderate the business by disrupting the traditional system. There are many benefits which are avail from implementing the blockchain in their organizations because of the following reasons.
1) Greater Transparency:
The blockchain is transforming the transaction histories more transparent, and it happens because blockchain is a distributed or shared ledger between the participants on the network. As all individuals are required to share the same documentation as opposed to personal copies. Shred version can only be updated on the consensus basis, which means everyone has to agree upon it. If you want to make changes to any transaction, it demands alteration of all subsequent records.
2) Enhanced security:
There are many ways to explain how blockchain is powerful than all other traditional record-keeping systems. In blockchain, the transaction has to be agreed upon before they recorded. Once the transaction got approved, it will be encrypted and linked to the preceding chain. The information recorded in the blockchain will be shared with the network of computers, so it is tough for hackers to hack or alter the data recorded in the chain. Security is a big concern in any industry, and the blockchain is taking care of this issue by eliminating all your worries.
3) Increased efficiency and Speed:
Traditional or paper-based processing takes a long time to trade, and that is prone to commit errors and needs third-party intervention to complete a transaction. Blockchain eliminates all these processes by automating tasks and requires no mediation, with this will get improved and faster results. As it is shared between the different parties & transparent hence there builds automatically trust. That’s how it improves the efficiency and harness the speed.
4) High Traceability:
If your organization is into production that has to undergo complex supply chain and you know how hard it is to find the details of the products such as where it has started and where it needs to return in case of any default. Blockchain helps the supply chain departments with its audit mechanism on, where a product journey has started and every stop it made on its journey. This continuous record on the network will help you in secure authentication and prevention of fraud.
5) Reduced costs:
The ambition of every business is to make profits by reducing unnecessary costs. Eliminating prices would result in improved profits. Blockchain eliminates the fees paid to intermediaries. Trading on blockchain will give you more trust because it is immutable and excludes the middleman charges.
Roles and responsibilities of blockchain engineers:
Before getting to know what roles and responsibilities a blockchain developer is going to play let’s have an idea over who is a blockchain developer first.
Who is a blockchain developer?
A blockchain developer is similar to a software developer, and he is responsible for developing and maintaining of blockchain protocols, designing architecture of blockchain systems, developing web applications and responsible for executing the smart contracts is called as blockchain developer.
Types of blockchain developers
Based on the specific work they perform the job roles have been categorised into two types which are
- Core Blockchain developers
- Blockchain software developers.
Roles of Core blockchain developer:
A core developer is responsible for the tasks such as designing, architecture, and security of the blockchain. He/she is responsible for the following core tasks.
- Designing and developing of blockchain protocols.
- Developing consensus protocols and creating security patterns for the network.
- Developing the best network architecture.
- Maintenance of the entire network.
Roles of Blockchain software developers:
This role is similar to the typical web developer. A blockchain software developer uses the architecture and protocols made by core developers to develop the apps. These people are responsible for developing the decentralised applications, or Dapps with the help of blockchain technology. They are responsible for the below tasks:
- Development of Decentralized network
- Development of smart contracts.
- Development of front end design for Dapps.
- Managing the entire stack running on their Dapps.
- Backend development related to the blockchain.
Career outlook and salary
According to the US Bureau of Labour Statistics (BLS) surveyed blockchain career growth and it projected that there going to be a 24% growth rate for software developers during 2016-2026. The BLS estimated that an average salary of a software blockchain developer would be $103,560. Day by day the demand for Blockchain developers will be increasing consistently.
Blockchain Use case
Here we are going to discuss the Blockchain use case in IoT.
Internet of things is a technology which is considered as one of the significant breakthroughs of the present technological world. It helps in interconnecting various devices and systems thereby to help in developing smart cities and to support the autonomous vehicle revolution. We know well how important data is to function the IoT devices. So blockchain protects the IoT data from falling in the hands of hackers.
Blockchain distributed ledger helps the Internet of things in recording the vast amounts of data produced by the IoT devices to draw the insights out of it for constant development. Blockchain has the capability to store, analyse and transfer the valuable data. It acts as a host for the public and private sectors.
In the public sector, IoT Devices are used to develop the infrastructure and to update the collection system such as collecting the municipal taxes etc. In private sector Blockchain based IoT helps in logistics management, Warehouse tracking, and data performance efficiency.
Blockchain has developed a crypto token especially for fulfilling ever growing IoT needs, with this IoT has emerged as a powerful, scalable technology that uses IoT devices to validate the transfers by using this distributed ledger. It enables the secured transfers at the cost of zero charges.
Conclusion
The blockchain is a powerful digital ledger which is making drastic changes to disrupt the traditional systems. It has changed many industries with its intervention, and a lot needs to be done. In this tutorial, we have discussed various concepts that are associated with blockchain. I hope this Tutorial has helped you in gaining some knowledge and removed all your doubts about this ever-growing chain. Happy learning!