Ever wonder if there's an easier way to complete transaction not having to deal with online wallets, banks and third party applications? Well it's possible thanks to Blockchain!
Here is everything you need to know about The Blockchain Technology.
Imagine 3 friends- Phil, Ted and Sam made up for dinner with you. After they are done, you pays the bills. All of you decided to split the expenses amongst each other. Now, on the next day, one of your friends sent his share to you through online money transfer, the transaction goes through without a hitch. Then the others send their respective shares to you but their transactions don't go through. The bill transaction cite some issues at the bank. Why?
Bank transaction could fail because of;
Technical problems or problems at the banks
Accounts were hacked
Daily transfer limit reached
Additional charges or fees
To solve this problems, the concept of cryptocurrencies came to existence.
Cryptocurrencies are a form of digital or virtual currency that run on a technology known as BLOCKCHAIN.
Thanks to Blockchain, cryptocurrencies are immune to:
Counterfeiting
Don't require central authority
And protected by strong and complex encryption algorithms.
And in a market of more than thousands of cryptocurrencies like Ripple, Ethereum, Bitcoin Cash and so on. One reign supreme - Bitcoin!
Let's go back to the previous example, your friends send you 2 bitcoins each for their contribution to previous night's dinner. Let's assume 3 of them have 3 bitcoins in reserved while you have 5 Bitcoins.
First, Phil sends 2 bitcoin to you. Then a record is created in a form of a block. The transaction details between them is permanently inscribed in this block. This record also holds the number of bitcoins each of your friends own.
After Phil's transaction, you have now 7 bitcoins and Phil has one. Following this, Sam and Ted send 2 bitcoins to you. A new block is created for each of this transactions. This blocks holds the transaction details as well as how many bitcoins Sam, Ted and you have in reserve. This blocks are linked to each other as each of them takes reference from the previous one for the number of bitcoins each your friends own.
This chain of records or blocks is called a Ledger. And this ledger shared among all your friends which acts as a Public Distributed Ledger - this forms the basis of a blockchain.
What happens if Phil has only 1 bitcoin left and tries to send 2 more bitcoins to you?
The transaction will not go through. It is because that all of you has a copy of the ledger and it's clear that Phil has only 1 bitcoin left. All of you will flag this transaction as invalid.
A hacker will not be able to alter the data in the blockchain because:
Each user has a copy of the ledger
The data within the blocks are encrypted by complex algorithms
All of this is made possible with the help of Blockchain Technology.
Blockchain can be described as a
collection of records
Linked with each other
Strongly resistant to alteration
And protected using cryptography
Let's have a closer look at the bitcoin transaction between you and Phil and find out how it works.
Every user in the bitcoin network has two keys.
Public Key
An address that everyone in the network knows of like email address of the user
Private Key
A unique address that only the user has knowledge of like a password.
First, Phil passes the number of bitcoins he wants to send to you along with his and your unique wallet address through a hashing algorithm. All of this is part of the transaction details.
These details are encrypted using an encryption algorithms and using Phil's private key. This is done to digitally signed the transaction and to indicate that the transactions came from Phil.
This output is now transmitted across the world using your public key. With this, the message or the transaction can be decrypted only by your private key which only you has knowledge of.
Different cryptocurrencies use different hashing algorithms. While Bitcoin uses SHA256 algorithm.
This transaction and several other similar ones are taking place all around the world. This transactions are validated and then added block by block. The people who validate this blocks are called Miners.
Four blocks are validated and added to a Blockchain.
Miners need to solve a complex mathematical problem. The miners who solve this adds the block to the Blockchain and is rewarded 12.5 Bitcoins.
The process of solving the complex mathematical problem is called Proof of Work.
And the process of adding a block to the Blockchain is called Mining.
With this, you and your friend's wallets are updated just like every person in the network who has completed a transaction.
Now that you know about Blockchain and its important concepts, should you use Blockchain for a transactions? Will Blockchain rise to be the most used transaction method in the world in the near future?
Image Source: IT Chronicles
Thank you for reading ❤️
Thank you ❤️ @TheRandomRewarder