Most of us, at some point in time, would have made a purchase over the Internet using a credit card. Apart from the convenience of using a credit card, the other significant aspect is using the issuing bank as an intermediary to enforce trust between the consumer and the merchant. If the merchant fails to deliver the promised merchandise, you can always refuse to settle the payment with the credit card issuing bank. Obviously, this enforcement of trust by the intermediary comes at a nominal cost called transaction fees. Apart from credit cards, there are several such business workflows where intermediaries act as the trust providers between two transacting parties for a small fee. Now, would it not be more efficient with regards to cost and time, if both the transacting parties could implicitly trust each other without having to pay an intermediary for the transaction. Enter Blockchain…
Blockchain, as a concept, is a distributed public ledger containing transactions that are governed and maintained by specific protocols through consensus of the nodes participating in its network. The term Blockchain is often used interchangeably to describe both the blockchain network (network of nodes) and the distributed ledger (chain of blocks). That being said, let’s examine the above definition more closely in parts.
Blockchain, as the name suggests, is fundamentally a data structure that is comprised of blocks linked together as a chain. A block is a data structure in which the transactions are grouped together to form a logical container. This chain of blocks i.e. ledger is public as every node has the exact same copy and can access any transaction of any account.
The nodes participating in a public blockchain network do not have to obtain permission to authenticate themselves as part of the network. Anyone in the world would be able to join the network and function as a full node as long as they have network access and are able to identify themselves to the network. There is also another form of blockchain network implementation that is private in nature. In this case, access is administered by a central administrative entity within the network.
Another interesting aspect of blockchain is that, it is a peer to peer distributed network where all the nodes in the network are deemed equal to each other. They perform the exact same set of operations and maintain the exact same copy of the ledger across all nodes. Transactions within a block in the blockchain network are maintained through mutual consensus among nodes participating in the network. A block of transactions is only added into the distributed ledger when a majority of the nodes approve of its validity. Once the consensus is arrived and the block of transactions are added to the distributed ledger, they become immutable and cannot be changed by anyone within the network.
Having explored the various features of blockchain technology, let’s now try and explore the benefits that this technology brings to the table. Despite all the interest that blockchain has garnered over the past few months, let us examine a few of the most important ones below.
As the entire blockchain network is peer to peer, there is no central authority who is required to verify transactions being executed on its network. The transactions are verified in a democratic way by soliciting consensus from the majority of the mining nodes. This eliminates the need for the trust factor associated with intermediaries like the ones handling financial transactions in today’s world. Additionally, as all nodes share the same copy of the ledger, this acts like a single source of truth for the participants of the network.
The transactions executed on a blockchain network which have been mined are inherently secure and immune to tampering. Even if an attacker node wants to change the details of the transaction in a particular block, he/she will have to recalculate the block ID with the tampered transaction information. It will also need to repeat this process for all the blocks preceding the tampered block in the chain. By this time, the network would have continued to form more blocks in the chain with the original block ID.
To overpower the blockchain network, the attacker will need to control a majority of the nodes and obtain at least 51% of the computational nodes of the network to form a dishonest consensus. This would turn out to be so expensive that even if the attacker does manage to subvert the said transaction, the net gain achieved might be negative. The strongest security feature of the blockchain network is the fact that everyone knows how to defeat it, but no one can in isolation.
The blockchain network being a distributed peer to peer network, will share the copy of the ledger with every other node in the network. This fundamentally means that there is no single point of failure. The moment a node dies, the rest of the nodes will continue to mine newer blocks without interruption. The moment the node is resurrected, the latest copy of the ledger will be shared with the new node and the block creation process will continue unhindered. As long as a few nodes are operational in the network, the transactional history will continue to be preserved.