What is Blockchain?
Blockchain is a kind of shared database distributed among nodes in a network. It’s also the fundamental technology for cryptocurrencies. This post will take a deeper look into blockchain technology and explore its history, functions, and impact.
History of the Blockchain Idea
There are several versions of where the idea for blockchain came from. One appeared as an article by Stuart Haber and W. Scott Stornetta in the Journal of Cryptology in 1991. N. Szabo wrote another in 1997 titled “Formalizing and Securing Relationships on Public Networks”. Both articles presented the basis of what we now know as blockchain today. But, it would take another decade before these theories were put into practice.
The most famous presentation of blockchain appeared in 2008 with Bitcoin. In an article titled, “Bitcoin: A Peer to Peer Electronic Cash System” an elusive author called himself “Satoshi Nakamoto” presented a new way to electronically send and receive payments.
What was unique about this new idea was that transactions could happen between individuals, eliminating the need for an intermediary. Digital signatures provided users with a way to verify transactions and the people they were doing business with. This blockchain would operate on a “Proof of Work” (PoW) system.
Proof of Work
In brief, a POW blockchain functions as follows:
- New transactions are sent to nodes in the blockchain
- Nodes store these transactions and organize them in a block
- Nodes compete to solve a PoW problem
- The node that is first to solve the problem sends this info to the rest of the network
- If the solution is correct, other nodes accept it
- Acceptance is demonstrated when nodes start work on the next block
An alternative to the PoW system is Proof of Stake.
Proof of Stake
The idea is to use “staking” as a way to determine which node gets the right to extract the next block. In the Proof-of-Stake approach, the nodes also try to choose the data in search of a result less than a certain value. In this case the complexity is distributed proportionally according to the node balance. In other words, according to the number of coins (tokens) on the user’s account.
Thus, a node with a large balance is more likely to generate the next block. The method is quite attractive because of the small computing requirements.
A few years after Bitcoin’s release, Vitaly Buterin published the Ethereum Whitepaper. The whitepaper explained the ins and outs of this new blockchain. Like Bitcoin, algorithms control the POW problem difficulty to regulate block creation frequency.
Cryptography, from the Greek word “κρυπτός”- meaning “to hide” and “to write”, is the science of mathematical methods to ensure the confidentiality, integrity, and authenticity of the information. There are a few basic cryptography methods that show its versatility.
- Numbers: Turn something normal into an “abracadabra”, predict the reversibility of transformations.
- Hashing methods: Also turn something normal into abracadabra, but provide for the irreversibility of transformations.
- Electronic-digital signatures: Allow a single person to generate such “signatures” (digits) for electronic “documents” that no one else can.
- Protocols: A sequence of actions to achieve certain goals (user authentication, digital signature, proof of knowledge of a secret, etc.)
Cryptography and Bitcoin
Bitcoin uses three different cryptographic methods to create its public/private key pairs. We use crypto wallets to buy, store, and send crypto like Bitcoin. Crypto wallets have two kinds of keys. The public key shares your identity with others and encrypts transactions. It lets whoever you’re transacting with verifying your identity.
The private key decrypts transaction data when sent to others. The private key is proof that you own the public key. With it, you can sign and confirm transactions.
You can think of your public key as a bank account number and your private key as a pin number. The account number identifies you but the pin gives you access to the account. You should keep the pin private.
The Byzantine Generals Problem and Consensus
Byzantium. The night before the great battle. The Byzantine army consists of x-number of legions, and each of them is subordinate to his general. Also, the army has a commander-in-chief who commands the generals.
But, the empire is in decline, and up to a third of the generals (along with the commander in chief) may be traitors. In the night, each of the generals receives an order from the commander-in-chief to act in the morning. There are two possible options for the order: “attack” or “retreat”. If all honest generals attack, they win. If they retreat, they manage to save the army. But if some of them attack and some retreat, they will lose.
Since the commander-in-chief could also be the traitor, his orders should not be obeyed unquestioningly. If each general acts independently of the others, the result may be bad. Obviously, they need to exchange information with each other (about the received orders) to coordinate actions.
The Byzantine General Problem is a good analogy of how difficult it is to agree (find consensus), between decentralized systems. Bitcoin solved this problem using its PoW mechanism and blockchain. Since Bitcoin’s set of rules are objective (verifiably true) there is no disagreement about which transactions or blocks are valid. With such a system, all members can agree on one truth.
As you can see, blockchain provides the world with a new way to do business. From its birth in Bitcoin to its many forms today, blockchain has eliminated the need for third-party intermediaries. It has created networks of mutual trust where transactions can be verified in an instant.
BRing.finance is proud to take part in the blockchain legacy. We offer our own blockchain products, such as liquidity pools, on both Ethereum and Binance Smart Chain. If this article has piqued your interest, head over to our website to find out more.