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Blockchain Basics

By Rahul Rohra, Bath Blockchain
The only constant thing in this world is change. Those are the wise words of
Heraclitus, a Greek philosopher, who would never know the full extent of its
A few years ago, in 1989, Sir Tim Berners Lee gave birth to the internet by
inventing the World Wide Web (as we all know it, www). His intention was to
give people anywhere in the world access to information at any time of the day.
It was meant to be royalty free and controlled by the user.
Since then, the world has moved far from decentralisation by the involvement of
multiple authorities like ICANN (International Corporation for Assigned Names
and Numbers) that have several functions; one of them being management of
website domain names. Tech giants rule the big data ecosystem and are heavily
monetising their users’ data. These involvements are attractive to hackers, since
the data is located in one location.
On that note, history repeats itself.
As of 2009, decentralisation in the world was a myth until Satoshi Nakamoto
graced us with bitcoin, a peer to peer decentralised currency using the
blockchain technology.
Using a few daily life examples, the blockchain and 2 of its key applications are
explained below:
Let’s think of Bob and Alice as 2 friends (sorry to all the developers, I just had
to) living in London. A few of the scenarios they face will be highlighted
throughout this article, to explain how blockchain could make their lives easier in
the long run. These include travelling, paying taxes, remittances and anything
related to their daily life.
1st scenario:
Bob and Alice finish work on a Friday and decide to go out. They arrive at the
club and are asked to show their IDs. Unfortunately they left them at home and
are not allowed into the club.
What if there was a way for them to prove their age, without having to show
their physical or digital IDs?
This is where the blockchain comes in.
So, what-chain?
The blockchain is a permanent ledger that records transactions. It works on a
consensus algorithm, where each participant (computers, also called nodes) on
the blockchain network has a copy of the ledger and a majority of 51% have to
validate the transaction for it to be added. Cryptographic techniques (a hash)
are used to secure the transactions in a way that only the parties involved can
view it. This technology allows people to trust each other, without knowing
them, to share a record of events. There are a pair of keys to secure one’s
digital wallet for storing data and money. A public key is what senders get in
order to send the money and a private key that remains with you to access your
wallet. One data block includes a hash (the cryptographic security measure),
timestamp, data, public keys of the receiver and private key of the sender and
reference to the previous data block.
Now, Bob and Alice have verified their government ID documents using the
blockchain, so it is permanent. Bob has a digital certificate that proves he is
above 18 and never needs to show his ID document (physical) again. His wallet
on his mobile phone is his ID. So, that’s 1-2 documents less in your physical
2nd scenario:
Bob has family in Bangladesh and needs to wire money as soon as possible. He
transfers GB Pounds to Bangaleladeshi taka and sends it to his family. This
implies a transaction cost, excessive time taken to transfer, reliance on a third
Companies like Western Union are also susceptible to attacks stopping the
money from being transferred.
Enter: Bitcoin
Bitcoin is a peer to peer currency that is cryptographically secure and operates
independently of any centralised authority. Transactions take place from user to
user without the involvement of an intermediary (such as a bank). This is done
by the underlying technology – blockchain.
Once a transaction has been requested, it goes to all computers on the bitcoin
network (around the world and called nodes). A majority of the nodes have to
verify the transaction for it to be added on to the blockchain. This process of
decentralised verification of transactions is called mining. If the technology gets
hacked, only Bob’s private keys can be used to view the transaction (data
protected by the hash). So, it is highly secure.
Bob’s family receive the money in bitcoin in a few minutes. The main idea
behind using Bitcoin is not relying on a centralized authority for money storage
or management.
There are several cons to doing this like changing fiat currency to Bitcoin is a
slow process and not many people accept it as payments. However, the industry
is rapidly developing with scaling solutions and user friendly products to use
Bitcoin and other cryptocurrencies in.
3rd scenario:
Alice has a bet with Bob on the result of a football game – the El Classico. The
winner gets £50. They wait for the game to end and manually transfer the
money or hand over the cash.
Enter: Ethereum
Ethereum is an open source, blockchain based decentralised computing platform
featuring the smart contract functionality. A smart contract is the coded version
of a physical contract. It serves as a platform for the development of
decentralised applications (or dApps) performing various functions like apps
today do but without relying on centralized companies prviding cloud storage,
etc. There are currently more than 1,000 dApps built on Ethereum’s blockchain
for various use cases including games.
Alice can now use a dApp that facilitates betting using smart contracts on the
Ethereum blockchain and enter the details of the contract. Once the result is out,
the money automatically gets transferred to the winner.
Here are some resources to learn more about blockchain:
What is blockchain?
How does the bitcoin protocol actually work?
Blockchain economy (some applications)
Ethereum in 25 minutes