Blockchain Technology and the Crypt currencies are two most rapid platforms today where standard transactions can be performed by users. But Blockchain is slowly replacing the current system due to some issues and it is getting popular almost every passing day. So, this is necessary to know the issues with the current banking system and How Blockchain can help you in resolving those issues gracefully.
In this blog, we will understand what is Blockchain, the reasons for its popularity, and a detail architectural guide to Blockchain so that you can understand each and every concept related to the Blockchain technology in depth. Let us have a quick look at the topics covered in the blog first.
In easy words, Blockchain is a series of blocks where information is stored in each subsequent block. This is a technique to timestamp the digital document and after this, you could not revert them back or temper them.
With Blockchain, the information can always be exchanged securely in terms of money, contracts, or property etc. The good news is that you don’t need any banking system for information exchange. Once data is recorded successfully within blockchain, you cannot modify it quickly.
Further, Blockchain is the software protocol that will not work without an internet connection. In simple words, this is meta-technology that affects various other technologies too. The major components of the Blockchain technology include – software app, database, and a few computer systems that are connected together. Sometimes, Blockchain is named as the virtual currency or it can be named as the digital token too. However, most people are talking about the distributed ledgers only.
Cryptocurrency and Blockchain technology have become two of the most popular and parallel terms, for which people have started investing and even it has replaced legacy investment platforms. Now, as this system has started replacing the older one or banking system, then it clearly means that there will be some issues with the current system and therefore we will now explore and discuss the problems of the current banking system. Currently and even from last many years or decades, people are using banking to invest their hard-earned money. But in reality, this banking system has also some of the issues that may become a problem for the customers and therefore they try to use some other platform for investment. Commonly seen problems with the banking system were:
It is also known as double spending, that is basically an error in digital cash scheme where the single digital taken is spent usually twice. If someone has only $500 in the account and he wants to do two transactions from this account of more than the current account balance say $900, by falsifying the digital tokens that are associated with digital transactions than the transaction will be known as Double Spending. Here, the user may complete the transaction without any required balance.
As the use of internet banking is increasing, so as the total number of cases of fraudulent transactions are also increasing day by day. Even the total amount of frauds has been increased for millions of dollars. Even the bank accounts have been hacked by the hackers for fraud transactions.
In the year of 2007-08, it happened that banks landed much loan and mortgages to the people and at last, they didn’t pay the loan amount and it resulted in the heavy loss. Such cases resulted in the loss of around $11 Trillion worldwide. Many times, internal frauds and crashes also keep on happening in the banks. Such transactions in the financial organizations are going on just for the sake of trust on the middleman.
Due to the financial crisis, common men have to face big financial problems and so they need a system that can provide them with a reliable and perfect system and that is what Blockchain has offered to them.
Now, these have some of the common issues with the current banking system and are the reasons due to which people started believing in Blockchain like platforms. So, we will see how Blockchain has overcome these problems and benefited the people:
Here Blockchain ledger that contains complete transaction details that are associated with Blockchain. All registered Blockchain users can download the list of complete transactions of Blockchain. The complete transaction list can be downloaded since initiation of the transaction. Here, the user can download the complete transaction list but the details of people, involved in these transactions cannot be accessed by anyone and it remains anonymous.
Unlike banking system Blockchain is a decentralized system and is not controlled and governed by Central of Federal Authorities. In this system, every member is responsible for the growth or fall of the system. Here the whole authority power is not handled by a single person, even by the complete system and they all are in charge of the system.
In Blockchain transactions, no fee is included or applicable in only certain Blockchain variants just some minimal fee is applicable. But the transaction fee for Blockchain transactions is not that much and is quite less than that of banking transactions. In case if any transaction priority is there than an additional fee needs to be paid by the customers.
Now, as we have discussed the issues with the current banking system and the features that are offered by Blockchain technology, so you may have been understood what Blockchain technology is. In our next blog section, we will discuss the reasons for the popularity of blockchain and why it is going to lead the digital market soon.
In the section, we will discuss the reasons for the popularity of the Blockchain Technology. It will make you sure why Blockchain is leading the digital market recently.
Let us understand the Blockchain architecture by understanding its major components –
Let us move ahead and discuss the each of the components one by one for the Blockchain architecture.
In simple words, Blockchain is a set of blocks that further stores data. The type of data stored within a block depends on the nature of Blockchain. The first block in the chain is the genesis block and the rest of the blocks are added subsequently. If you take the example of Bitcoin block then it contains the information about the sender, receiver, or the total number of bitcoins transferred as shown below in the image.
If you belong to the technical background then you must have a sound knowledge of cryptography, public key, private key etc. Even if you are from non-IT background then don’t panic, we will discuss the public key cryptography here. The information is exchanged between users on the basis of keys where the private key is kept a secret to the users and the public key is available to everyone.
Data is first encrypted and one digital signature is added before it is transmitted over the network. The digital signature is given a hash function and it can be encrypted by the private key only. On the other hand, data is decrypted by the receiver using the private or public key. This is the way how data is exchanged across a network.
Each block has a hash function and it can be quickly understood with the help of a fingerprint that is unique to each block. It has the capability to identify the particular block and its content too. A hash value is created as soon as the one new block is added to the chain. If any changes are made to the block then its hash value will also change surely. Therefore, the hash function can be used to detect changes within a block. If the value of hash function changes then the block has been modified by some user recently. For every modified block, there is data, hash value, and the hash value of the previous content. The changes to a block will quickly make the previous block invalid.
Every single person connected to the network has a unique copy of the ledger but there is not a centralized copy. If the things are still boggling your mind then let me help you in understanding the concept well what is ledger and how it is helpful. Take an example, where you need to send ten bitcoins together to your friend. Your balance is 974.65 and there are 37 credits in the account of your friend. Here, your balance will be deducted by ten bitcoins and it will be transferred to your friend account immediately.
With the Blockchain technology, the same concept can be implemented quickly. There is no mediator and number of blocks can be added based on your convenience. The ledger is distributed across the network and there is no central location to store the data. Everyone connected to the network can access the copy of the ledger independently and the final copy will be the collection of all distributed ledger.
Are you surprised, who is adding blocks to the Blockchain and who is the owner of the ledger or everyone can access it? If yes, proof of work concept hits here to the best. It will give you the complete details about the block like hash function value, ledger owner, and more.
The last step in the Blockchain architecture is to reward the user who has created the latest block. With incentives for validation, the new rewards can be created quickly and assigned to the users who deserve it the most.
Bitcoin and Blockchain are usually misunderstood when used together. But they are not the same but Bitcoin is one of the most popular applications of Blockchain.
Actually, Bitcoin is a cryptocurrency that is a digital payment system that is invented by a group of programmers, earlier it was named Satoshi Nakamoto. This digital currency does not exist physically, but can be used like any physical currency.
You can use this currency to buy things and is like digital cash that exists as bits on computers. It exists only on the cloud that may be PayPal, Citrus or Paytm. Even they are just virtual currency but can be used as real or actual currencies, while transferring funds through the web.
In the case of the Bitcoin system, transactions take place between users without the presence of any intermediary users. These transactions are recorded in a public distributed ledger and verified by the network nodes. As no central repository or single administrator is involved in the system, so it is a decentralized system. Unlike normal currency, Bitcoins can be created when required.
Bitcoin creation limit is 21 million of which 17 million has already been created. For a block of valid transactions, a Bitcoin is created or added to the Blockchain. Through a number of mathematical and encryption algorithms, fake Bitcoins are avoided usually.
With this discussion, the blog comes to its end and I am sure you must have liked the blog. Here, we focus on blockchain basics and its architecture the most. If you wanted to know how to build a career in Blockchain and what is Learning path for Blockchain then check out our Blockchain certification program that has been prepared carefully be expert educators. This is a live training program that will help you to learn Blockchain in depth and achieve the mastery over the technology.
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