Blockchain — Say Bye to Traditional Ledgers and Currencies
A ll humans buy and trade items every day of our lives such as the food that we are going to eat or the Starbucks drink you buy every morning (which is clearly not me 😅). Every time we buy a new item we keep track of the exchange of goods and services. At the beginning of trade, keeping track of exchanges was not difficult, but now as we transact a lot of items every day, it is hard to keep track of these exchanges. This can cause errors, fraud, and misinterpretation. This is where Blockchain comes in. You may have heard this word before, but what is it actually?
What is Blockchain?
In today’s complex world of many services and activities, keeping track of things is very daunting and slow in the age of information. Blockchain is a revolutionary and foundational technology that can enable solutions to address these challenges. Let us imagine we are keeping track of a diamond’s journey from the mine to a person’s hands. One diamond alone would go on a long journey involving manufacturing, legal, financial, and many other processes. Following just one diamond may not be that hard to track but trying to track thousands of the diamonds every day is complicated to do. This is where blockchain can help.
At its most basic level, blockchain is a chained link of information blocks. It is the digital information (block) that is stored in a public or private database (chain).
Blockchain is similar to Google Docs, where we can create a document and share it with people. When the document is shared it is distributed instead of copied which creates a decentralized chain that gives everyone access to the document in real-time. All of the changes are available to everyone so no one can change anything without everyone knowing.
How does Blockchain work?
Blockchain has three main components to it which are the blocks, nodes, and miners.
Blocks:
Every chain consists of multiple blocks and each block has three main components to it. The first component is the data which is all the information that is stored in the blocks. Another component in a block is a 32-bit number called a nonce. The nonce is randomly generated when a block is created, which then generates a block header hash. The last component is called the hash which is a 256-bit number wedded to the nonce.
When the first block of a chain is created, a nonce generates a cryptographic hash. The data that is stored in the block is tied forever with the nonce and hash. This is similar to a person’s name, where the person’s name is like the nonce and hash and the person is like the data. The person’s name is a way to describe the person and refer to the person later down the chain.
Nodes:
The most important concept of blockchain is decentralization where no one person or organization can own the chain. Instead, it is a ledger that is distributed by the nodes connected to the chain. Nodes can be any kind of device that maintains copies of the blockchain and keeps the network functioning.
Every node has its copy of the blockchain and the network algorithm must prove that every newly mined block is approved to be updated, trusted, and verified. Blockchains are designed to be transparent, so every action in the ledger can be easily checked and viewed by anyone who has access to the ledger. Each person is also given an identification number that shows all of their transactions.
Miners:
Miners are people who create blocks on a chain through a process called mining. In a blockchain every block has its unique nonce and hash, but also references the hash of the previous block in the chain, so mining a block isn’t easy, especially on large chains.
Miners use software to find a nonce that generates an accepted hash. This is extremely hard to find because a nonce is 32 bits and the hash is 256 bits, making there around four billion combinations of nonces and hashes. The miners have to find that special nonce that matches the corresponding hash.
When a change is made to any block in the chain it requires re-mining not just the block with the change. This makes blockchain hard to manipulate or change. Finding the special nonce requires a lot of time and computing power so not everyone can find it easily.
When a block is successfully mined, the change is accepted by all of the nodes on the network and the miner is rewarded by payment.
Bitcoin and Ethereum
Ethereum and Bitcoin are two of the largest companies that are using their blockchain to create a cryptocurrency. Ethereum and Bitcoin are very similar as both are digital currencies that are traded in online exchanges. Both of these tokens are decentralized and use blockchain.
Bitcoin:
Bitcoin was launched in January of 2009 which offered the promise of a secured online currency without any central authority, unlike government-issued currencies. Bitcoin was not the first company to make an attempt at an online currency, but at the time it was the most successful. It has come to be known as a predecessor in some way to virtually all cryptocurrencies which have been developed over the past decade.
Over time more and more people began to accept its decentralized currency. Although it is not officially accepted as a medium of payment its cryptocurrency has managed to get better as it gets regularly scrutinized and debated.
Ethereum:
Blockchain is not just being used to create digital currencies but it has many other applications as well. Ethereum was launched in July of 2015 which created the largest open-ended decentralized software platform. Ethereum allows the deployment of smart contracts and decentralized applications to run without any downtime or fraud. There are a bunch of applications that could be run on Ethereum creating endless possibilities.
Difference:
Etheruem and Bitcoin are very similar to each other but they have some major differences as well.
- One difference is that Ethereum’s network contains executable code while Bitcoin’s network is mainly just to keep track of transactions.
- Another difference is that Ethereum’s time to create a new block takes only a few seconds while bitcoin takes a few minutes. This is mainly because while Bitcoin used miners to mine the blocks and make sure they are correct, Ethereum gets rid of miners completely.
- Another difference is that Bitcoin and Ethereum have different overall aims. Bitcoin was created as an alternative currency to national currencies and makes Bitcoin’s overall aim to be a medium of exchange and a store of value. While Etherium was created to facilitate immutable, programmatic contracts, and applications by using its own currency.
Current Problems with Blockchain
While blockchain is an amazing technology that has a lot of applications, it also currently has some major problems.
- Blockchain uses encryption to provide its security, which means it uses complex algorithms to run. This immense security comes with a cost as it takes a lot of energy to run. For example, Bitcoin in 2019 alone used as much energy as 159 countries.
- Another problem is that blockchain is super secure so it is slow and takes a long time to run. For example, Bitcoin transactions can take several hours to complete, which means there can be problems when a person would need to pay for a small thing like a cup of coffee.
Blockchain: A Revolutionary Technology
Blockchain provides security and privacy to most applications that we use every day and is transforming the way we use and trade money through cryptocurrencies. Currently, it is being used primarily to run cryptocurrencies such as in Bitcoin. It can also be used to create ledgers and keep track of things such as in Etherium. Blockchain is being used for tracking food through its source to the kitchen table to ensure and bacterial outbreaks can be tracked and mitigated easily. It’s being used to track health records and medical supplies to ensure accuracy. Smart contracts in blockchain are forming the bases of IoTs and smart devices to automatically manage various things like smart energy grids or sensors at homes and workplaces. Blockchain is slowly becoming the most revolutionary piece of modern technology and as it improves so will it’s ever-increasing applications to which it is applied.
Hi, I am Nivan Gujral! I am a 14-year-old, who is passionate about the intersections between AI and aerospace. Send me an email at nivangujral@gmail.com if you would like to further discuss this article or just talk.
