This term has always confused people. Just like the bitcoin itself. And if bitcoin is so-called digital gold, blockchain is a digital public ledger also created by Satoshi Nakamoto. No one knows yet, whether it was a person or a group of people.
Let’s start our blockchain tutorial with a description of the blockchain. As we can see, a compound word ‘blockchain’ is derived from ‘block’ and ‘chain’. Or simply it’s a ‘chain of blocks’. Those blocks are linked to each other and perform some kind of a net.
Blockchain Tutorial Main Concept
So blockchain is a shared ledger that stores information about anonymous transactions in a distributed manner. Once information is entered there, it can not be changed or deleted. That means it is possible to just add new data into the system.
The verified algorithm goes like this:
But to make this blockchain tutorial a bit easier, let’s compare blockchain with a computerized spreadsheet. This document consists of 4 columns: name, amount, who made this entry and when it was added.
As we can see, a block is a ‘current’ part of a blockchain, with records of all the recent transactions. When the block is finished, a new one is immediately generated. The blockchain can contain numerous blocks connected to each other in a chronological order.
Every block contains a hash of the previous one. The blockchain has complete information about different users’ addresses and their balances right from the genesis block to the most recently completed block. What is important, those blocks are added through cryptography, which keeps the data safe from being copied.
WHAT IS HASH?
However, сhecking and updating numerous spreadsheets turned out to be a very difficult situation. Especially when there are too many people wishing to make new entries.
That’s lead to a new idea. From now on the changes in blockchain are formed by the participants’ computers. The provided computing power helps to maintain the ‘spreadsheet’ by performing calculations and verifying transactions.
The easiest way would be to check for a single mathematically unique value in each document. And that is when we come up to hashes and the Hash value.
Each spreadsheet owner has a unique numerical ID and if we add all the necessary data it would be stored as the hash value for the first entry. So the value itself derives by a formula from the spreadsheet’s columns. The same formula is used for the following entries. As a result, these blocks form a chain of true hash values.
And once again: if anyone tries to forge the preceding entries into the spreadsheet, he or she will have to face the failure. Changing all the records in the existing chain is too much for all spreadsheet copies, which is not possible.
WHAT ARE NODES FOR?
So-called ‘nodes’ are also an integral part of a blockchain. Nodes use a client that performs the task of validating and relaying transactions. In other words, they get automatically downloaded a copy of the blockchain as soon as joined the blockchain network. Finally, each connected computer receives a verified information with records of every transaction ever executed.
All together nodes perform a second-level network with a completely different vision of internet functions. Moreover, every node joins the network voluntarily and becomes an “administrator” of the blockchain.
Moving ahead, I’ll add that nodes participating in the network have a chance to win or mine Bitcoins. It goes like all nodes try to solve the computational puzzles and get the reward. As a result, new block continues to appear in 10 minutes or so.
The most important part of our blockchain tutorial shows that each node in the network owns a full copy of the blockchain.
WHY IS DECENTRALISATION BETTER?
Being an innovative technology, blockchain was planned to be decentralized and independent from the government. In this case, decentralization means that the network operates on a user-to-user or most often used peer-to-peer basis.
Let’s find out the difference.
The centralized system has a single authority: all nodes follow the commands of one single person or, in this case, yellow dot. And the decentralized system does not have a single authority. There are several end nodes (blue), connect to secondary nodes (yellow) which are also connected with one another.
As it was mentioned above, the most common use of the blockchain stands for the cryptocurrency. So far, all those tokens and coins are not issued or controlled by a central authority. That really helps digital currencies to take a few steps forward from fiat financial model and remain decentralized.
But it is not the only sphere. With the ability of decentralization, blockchain technology offers us the power to provide secure operations and create new businesses.
WHERE CAN BLOCKCHAIN BE USED?
Nowadays many tech startups adopt the blockchain technology aiming for decentralization.
Some companies already succeeded in using blockchain to create their products and services. Yet, we can apply blockchain not only for economic structures but also for non-financial spheres.
Blockchain technology could easily provide a new easy-to-access and secure cataloging system online. Patient’s health information would be cryptographically encrypted and stored safely until one of the doctors needed it. Some companies like Patientory or Factom have already tried to release this idea.
Many countries try to attract tourists’ attraction. And now they use blockchain technology to gamify the attention. Despite this, some countries have already obtained cryptocurrency-themed sightseeings like Crypto Valley in Switzerland. That is how blockchain technology helps to promote tourism.
There is a Food Supply Chain 2.0 created by Food Blockchain XYZcan. It consists of sensor systems, smart contracts and blockchain technology. Foodcoin, its token, allows people worldwide transactions without paying attention to fees and rate fluctuations changes.
In 2017 I’ve heard about some dating ICOs or other projects aiming at developing communication skills between users. The blockchain base makes them easy of access, useful, and reliable.
Blockchain technology has also established itself in the charity sphere. Cryptocurrency is one of the fastest and safest ways to perform donations. Moreover, if we want to help some minor countries – it is the best way. AidCoin or GiftCoin might set the examples. Aid agencies are interested in cryptos’ potential as corruption does diminish the value of government aid distributed through banks.
Whether you are a cryptocurrency trader or just a cryptocurrency enthusiast, I consider it a very helpful part of the blockchain tutorial. All in all, blockchain technology is here to revolutionize most of the spheres of our life.
Finishing this blockchain tutorial I would like to give a few advantages of the blockchain technology we reviewed today. To sum up, blockchain technology represents a new way of sharing guaranteed data between all the parties involved in a particular project. Yet, it is not the only thing blockchain could be proud of.
When working with delivery, one can make records on the blockchain. It would easily show where an asset came from and every stop it had. The transaction data could help to prevent fraud.
Trusting each other becomes easier if everyone has access to the same information. And a single digital ledger seems to be the right thing to unite people. Moreover, transactions via blockchain could be completed faster and more effectively.
No third parties
It is a priority for businesses when they do not need third parties or middlemen to interfere. Instead, you would have enough ability to trust your partner using the documentation distributed on the blockchain.
With the help of smart contracts, a blockchain construct can be used to automatically validate and sign the agreements or something like them. That would definitely save the company’s time and money. If interested, one of the so-called blockchain solutions is CREDITS.
Security services have been trying to adopt the blockchain technology for a while. And applying it suppose to be a big step forward for both stock exchanges and cryptocurrency exchanges.
In fact, HitBTC already uses blockchain for their operations.
Hope you find this blockchain tutorial useful. And remember: the potential applications for blockchain technology are almost boundless.