Blockchain -All you need to know Pt.I
Another medium blog about the blockchain? Yes, but what a blog! Basenode.io’s approach is different from most other publications on the subject. This is neither a superficial description of the blockchain and its applications nor a technical book for computer scientists. It’s about the concept: what are the ideas behind the blockchain, why is it needed at all, and why does this seemingly anarchic system work so well? We recommend this blog to anyone who wants to learn about the blockchain comprehensively — and understand it this time.
Take-aways
- The blockchain is considered by many to be the most significant technological development since the invention of the Internet.
- It is a purely distributed peer-to-peer system in which records (blocks), which are constantly being expanded and updated, are chained together using encryption methods.
- Distributed systems consist of a larger number of independent computers that are networked and work together.
- The purpose of the blockchain is to maintain integrity in distributed systems.
- In a purely distributed peer-to-peer system, mediating instances are eliminated.
What is the Blockchain? Blockchain is on everyone’s lips. Its supporters describe it as the most significant development since the invention of the Internet. The term “blockchain,” first used in 2008, refers — in short — to a “purely distributed peer-to-peer system of ledgers” in which data records, which are constantly being expanded and updated, are chained together using encryption methods. Because these data records are also called “blocks,” the term “blockchain” is derived from this.
The blockchain is a peer-to-peer system accessible to all.
Compared with centralized systems, the decentrally organized blockchain is considered simpler and, above all, more secure. This is because each block added to the chain always contains important information that is taken from the previous record. This information serves as documentation and grants a high level of security. The fact that this information is chained and always automatically copied and passed on means that subsequent manipulation, i.e. attempts to forge older data records, are impossible. Fraudsters would inevitably have to manipulate all blocks within the chain, and this is considered impossible. Thus, the blockchain finds particular acceptance in the sensitive area of accounting and financial transactions. It is also the technical basis of cryptocurrencies, such as the best-known example Bitcoin.
The software architecture of the Blockchain: The blockchain should establish trust, establish reliability, protect against manipulation. How is this technically possible? For this, one concept is very important: integrity. It stands for the fact that all data in a computer system is complete and correct, that the system functions without errors and that it is secure. The software architecture used for the blockchain is a so-called distributed system, which consists of a large number of independent computers working together to achieve a common goal.
Integrity is an important non-functional aspect in any software system.
In a distributed system, individual computers can be replaced without immediately affecting the overall process. It is therefore better protected against data loss than a network in which a central computer supplies all connected computers with data. However, a distributed system also requires a functioning network at all times and places higher demands on the coordination and communication of the individual computers.
Special case of peer-to-peer systems: A special case among distributed systems is the peer-to-peer system (peer = equal, meaning that the computers in the network have the same rights, i.e. there is no hierarchy). In a purely distributed peer-to-peer system, individual computers, known as nodes, act directly with each other in a network without using intermediary services from a central instance.
As part of a peer-to-peer system, users make their computers available as nodes of the system.
However, there are also centralized peer-to-peer systems that use a central database to coordinate the nodes. One such was the well-known Napster file-sharing system, which provoked an upheaval in the music industry because it enabled the sharing of songs in compressed MP3 format and eliminated the previously centralized music industry as a middleman. In the system, a central computer managed a kind of register of music titles stored on the network.
Security and reliability: One aspect of peer-to-peer networking is particularly important: the management of transactions by peers without a central intermediary. Once you become aware of this aspect, it’s easy to get an idea of the areas in which distributed systems could have revolutionary effects similar to Napster. Think of the financial sector, for example. After all, money exists only to a rather small extent in the form of tangible bills and coins, but primarily in the form of abstract numerical codes. Until a few years ago, banks and other financial service providers acted as intermediaries in financial transactions and were well paid for these activities. The possibilities offered by peer-to-peer systems make this increasingly superfluous. There is a technical term for the elimination of intermediaries: disintermediation.
The integrity of the system is needed to meet user expectations and justify their trust in the system.
However, if a peer-to-peer network is to be used for financial transactions, a number of problems arise: Sensitive data is continually exchanged in a distributed system, which can pose a security risk. Moreover, it is not known how reliable the nodes are and whether some peers may have bad intentions and want to misuse and forge the sensitive data. Reliability and forgery resistance are thus key problems. They must be solved to ensure that trust in the system remains — because otherwise it will inevitably dissolve. The blockchain offers the solution here: It ensures the integrity of the data in a distributed system mentioned at the beginning.
How the blockchain works: The blockchain helps map property within the network and ensure its transfer to other participants. It records who owns what in a kind of digital ledger. The individual participants have private cryptographic keys with which they identify themselves as owners.
The effort to change the entire blockchain data structure is intentionally very high.
However, a single ledger could be lost or tampered with. Therefore, the ledgers in the blockchain are copied to each node. The blockchain must also prevent digital property values from being present more than once when they are copied, because this would cause them to lose their value, just like duplicating banknotes in a photocopier.
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M.Sc. Ehsan Allahyar Parsa is head of marketing at the Blockchain Founders Group — a venture capitalist & company builder backing Basenode.io. In 2020, he was ranked as one of. the “Top 100 Shapers” in the DACH region. Further, he speaks 10 languages and has traveled to 30+ countries, of which he has already worked in 9 spread over 3 continents. He has already been honored by the Chancellor for his social & political commitment at the tender age of 23. As a sought-after international speaker, the serial entrepreneur is renowned for his speeches on numerous stages like the German Shark Tank Primetime TV Show (DHDL) and the United Nations General Assembly in New York. Feel free to contact him via Mail , Instagram or LinkedIn.
