History and Working of Blockchain Technology
As a young technology, blockchain is having a rippling effect in various sectors, from finance to manufacturing and education.
History of Blockchain Technology
The idea of blockchain technology emerged back in the 1990s, when an electronic ledger was used to digitally sign documents, making sure that the documents signed had not been changed. This idea is the basis of blockchain technology, which was then implemented by Bitcoin, the first digital cash, and was presented in an initial paper describing Bitcoin electronic cash solutions . This paper was published pseudonymously by Satoshi Nakamoto; the actual author(s), or the owner of the first Bitcoin, is still is a mystery. There are various other currencies now, which are all based on Nakamoto’s blueprint, with variations. After the successful start of Bitcoin as the first use case or application of blockchain, the technology became linked with Bitcoin, and, as a result, people believe that the two terms are same. Also, some people believe blockchain technology is used only for monetary transactions, which is incorrect and changing only slowly. Other currencies or schemes used blockchain technology before Bitcoin, but none was successful enough to become popular. One big reason that Bitcoin used blockchain was the direct transaction between users, without the need to involve a third party. Bitcoin is therefore a distributed currency, rather than being controlled by a single entity. Blockchain also enables users to be pseudonymous, meaning they are anonymous, but their accounts are publicly observable, with all their transactions. This has enabled complete transparency for transactions. As people’s trust in this system keeps increasing, more currencies have started entering the digital world. Businesses have also started using digital currencies, to deal with untrusted and unknown users and to avoid sending the same digital asset to many users.
Working of Blockchain Technology
Blockchain combines various technologies; three of them are [8,9]:
Cryptography of Private and Public Keys
For blockchain technology to work safely, every transaction needs to have a digital identity. These identities are created by using a combination of private keys and public keys. This combined identity is the digital signature used in blockchain [10,11,12,13,14].
Public Distributed Ledger (Peer-to-Peer Network)
Blockchain technology works with a peer-to-peer network. When a transaction is started, it goes through all the computers in a network and is only processed with the consensus of a majority of the computers in the network [15,16].
Program or Protocol (Rules)
Rules are required before computers are allowed to become involved in blockchain. These rules are called the protocol or program, with reference to a blockchain network. In the digital world, this protocol is a mathematical puzzle that a computer solves in order to accept or deny blockchain transactions. It is also known as “data mining.” Every blockchain transaction is a piece of data, in the form of a block that contains an individual user’s digital signature and all the other information about a transaction. As illustrated in Figure 7.1, an easier way to explain the workings of blockchain technology is with an example: person A, sending money to person B.
FIGURE 7.1 Simple Working of Blockchain Technology.
Every transaction in blockchain is represented as block, so when a person A sends money, the block is broadcasted to every node (peer) in the network. The block is always timestamped. so that users can verify the authority of the data. The hash value present in the block is very important information, when verifying transactions by nodes. Nodes can be any computers on the network participating in blockchain. They might be participating in blockchain for various reasons, and one important reason is mining, where the computers participating in blockchain solve a mathematical puzzle, to participate in the transaction. If successful, they receive a share of the transaction. This process is called the proof of work, which can change depending on the technology used and vary from time to time . The nodes verify varied information contained in the block and make sure that the transaction is valid. The protocols used in proof of work must be validated by each node. If the protocols are not met, then the transactions are denied by the node. Once enough nodes approve the transaction. the transaction is then approved, and the block is added to the blockchain. The processing of a transaction might take from a few seconds to minutes or even longer, depending on how the blockchain technology is set up. The hash value stored in each block is very important. In fact, it is critical, because this is what helps maintain network security. In the digital currency world, when a hash is solved, it generates coins, so each computer participating in the blockchain network try to solve as many hashes as possible, so they can mine more currencies. But because of the proof of work, the balance of currencies mined in blockchain is maintained [18,19].