This article is first one from the series considering the basic concept behind working of Block Chain Technology.
Introduction : What is Block Chain Technology ?
- As the name signifies, Block Chain is basically a chain of blocks which helps in securing the information transparently and securely. It is done by performing pre-programmed operations on that information.
- The purpose of Block Chain Technology is to eliminate the need for “trusted” third parties such as payment processors like Banks in case of financial transactions. Block Chain records and stores every transaction that occurs in the network. Therefore, because of features like Transparency and Security a Bock Chain is regarded as "Open Ledger".
- In a Block Chain, the network architecture is not a central server based for information storage and retrieval but it is Peer to Peer (P2P). When we view concept of working of P2P we may find that it is not a network of computers, but a network run on computers. The information is not stored in a central server but sliced and distributed all over the nodes thus making it distributed and highly secured. Due to this virtue it is more properly called a "Distributed Ledger"
- As above mentioned features Open and Distributed Ledgers, Block Chain can be described a innovation as a “transfer of trust in a trust-less world” referring to the fact that the entities participating in a transaction are not necessarily known to each other yet they exchange value with surety and no third-party validation.
For this reason, the Block Chain is a potential game changer.
Working : How Block Chain Works ?
At its core, Block Chain is a database of all the transactions happening in the network. The main virtue of this database is that it is distributed i.e. it is not governed or maintained or stored by anyone party or single computer/server but it is stored on many computers all over the world. Each node have complete details of all the transaction happened in the network till date.
To keep the transactions up to date, this database is constantly synchronized and for its security most sophisticated methods of cryptography are applied.
It contains following 4 features :
- Transparency - Being publicly available as open-ledger.
- Distributed - Same information distributed among all nodes/participants.
- Synchronized - All nodes/participants have updated and same information for each transaction using mining.
- Secure - By concepts of Cryptography.
Thus in short Block Chain works as a network of computers all of which must approve a transaction that has taken place before it is recorded in chain of computer codes. Whenever a new transaction is done, its details are recorded on the public ledger so that anyone on the network (Internet) can see and validate.
Let we take each of above features in detail to understand working of Block Chain Technology :
1. Open Ledger :
Block Chain provides chain of transactions which is available open and public. Thus everyone on the network can see that where is the money/resource and how much amount. As ledger is open i.e anyone on the network can see the details so by this everyone can validate any transaction and also authenticate the one.
2. Distributed Ledger :
It means each transaction detail is distributed among member nodes i.e each node on the network hold a copy of all the transactions instead of having just a centralized system.
For this it is must that all the copies of the ledger should be synchronized and all the participants must see the same copy/version of the ledger. This virtue leads to the third concept of the block chain.
3. Concept of Mining :
This is the concept behind synchronization or entry of each transaction into the ledger.
Miners are special nodes which can hold the ledger. These minors compete with each other to add the transaction into the ledger. In case of any transaction (valid one) the minor has to calculate that if the sender has enough amount to send and then whoever minor makes its entry first into the ledger will be awarded some fraction of crypto-currency as processing fee.
Whenever a sender (node) make transaction to any receiver (node) it broadcast the details of the same all over the network. Everyone on the network immediately see that some transaction is about to take place. Till the transaction is not added into the ledger, it is regarded as a invalidated one. And the concept of minors take place at this point.
As already mentioned, the minors are the special nodes holding the ledger. The task of minor be to listen the transaction that is about to take place. They take this invalidated transaction and the task is to check validitity and put it into the ledger first. Whoever minor do this work first, is awarded a financial reward i.e. the fraction of crypto-currency as processing fee.
To validate any transaction the minor has to find a special key, that will enable the minor to take the previous transaction. By accessing the previous transaction the minor matches details to its records and find if the the transaction can take place or not. (As like when we make NEFT to anyone bank first check our present balance.)
By accessing the previous transaction the minor will be enabled to lock the new transaction. Here in finding the special key the minor gives its time and computational power because the key is random in nature. The minor repeatedly keep on guessing the key till it find the first key that matches. It is like a random puzzle. So whoever the minor do this work first, it get the financial reward.
Asap the minor find the key, he opens its own ledger and after validation make entry of the transaction block and publish the results all over the network. It means the minor authenticate the validity of the transaction and he publish the key that enables everyone on the network (including other minors) to add the transaction to their own ledgers.
Conclusion :
Thus we can conclude that a blockchain is a globally available "chain of blocks" which resides in a distributed computing architecture where every network node executes the same transactions (or records). The group of such authenticated transactions results into blocks.
These blocks become part of the global chain only when they satisfy the "rules" of the blockchain. The “rules” of the blockchain not only ensure that only one block can be added at a time but also ensure that every block contains a mathematical verification that justifies its existence with the previous block.
The mathematical proof guarantees that the blocks are not tampered by malicious third parties and thus provide security to the network.
These “rules” allow everyone that is running the blockchain software to agree on every single block or say on every single transaction of the blockchain. The blocks that make up the blockchain are commonly termed as the Block-Chain’s “distributed database”.
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