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Blockchain 101: A Developer’s Perspective

Thought leaders of our 21st century have called the blockchain the greatest invention of the last 200 years. We will examine the whys of such a powerful claim and move on to understanding the structure and the DNA of a blockchain.

A Quick Introduction


Disrupting Trust

Blockchain is how you eliminate the need for a "trusted third party". It doesn’t matter whether this third party is a Financial Institution, a Website (e.g. AirBnB), or even a government.

Instead of trusting an "authority", the blockchain allows you to trust a network. In order words, it's a machine that is completely trustable because it lacks human biases and influence.

The machine is designed to be fair, accurate and accessible to anyone. This network, or the machine, or the blockchain can be articulated as "God’s Trust" (analogy taken from the Higgs Boson God Particle).

Is it Really a Big Deal?

For the first time in the history of the Internet, we are able to transfer a unique piece of digital property (an asset) from one person to another with:

  • Full security – blockchain is 20 times more secure than your credit card transactions   
  • Proof – anyone with access to the Internet knows that the transfer has occurred
  • Legitimacy – the sender as well as the receiver can’t deny that they were the parties involved in the exchange.

Blockchain rides on 20 years of research & development into cryptographic currency, 40 years of research & development in cryptography, and the solution of the Byzantine General Problem (which had bafffled computer scientists for decades).      

Web 3.0

The most popular protocol of the Internet we know today – World Wide Web (www.AllTheWebsitesInTheWorld.com) is the Web 2.0, an information space fueled with social interactions. Its core element is nothing but data.

Web 3.0 is here (well, almost!) which is "an economic space". Anything of value (from ebooks, to songs, to money–e.g. Bitcoin–to passports, house leases) can be traded between parties with an infrastructural cost that is 20 times less than the status quo.

Web 3.0 is composed of economic systems, in other words "Systems of Value".

Key Elements of a Blockchain


A Peer-to-Peer Network   

When your computer is connected to someone on the other side of the world, and you share resources, you have formed a Peer to Peer Network. BitTorrent is a classic example.

Public Key Cryptography or Asymmetric Cryptography

A user has a Private / Public Key pair:

  • The Public Key (think of it as your mailing address, or email address) is used by other people to send you things or verify your identity.
  • The Private Key, as you may have guessed is your mailbox key, or email password. Only you have access to it. If you lose it, there is no recovery.

 Asymmetric Cryptography is used to fulfill three objectives:

a)    Authentication (a malicious party can’t masquerade as someone else)

b)    Non-repudiation (participants can’t claim that the transaction did not happen)

c)    Integrity (the transaction receipt can’t be modified)

Mining

Mining is how the network is secured, and how new coins are bought into the economy. Mining is the reason why you don’t need a trusted 3rd party.

Back in 2011 anyone could become a miner – you, me, your grandmother, and mine lots of Bitcoin. Nowadays, a professional mining operation with millions of dollars of hardware is required.

When your computer is connected to the Peer to Peer network you can choose to be a miner – someone who verifies transactions in the network, in other words you have become the trusted 3rd party.

Details of mining are out of scope for this article, but more information can be found here.

Cryptographic Hashing

Mining depends on hashing in a way because hashing lets you compare large datasets easily. It will produce "same size unique output" for any given input. Ex:

Your shopping list (Input) -> Hash Function -> xgh65as (Output, a 7 letter string)

Your whole Harry Potter book (Input) -> Hash Function -> hjki6sh (Output, a different 7 letter string)

Hashing algorithms are one-way functions meaning that it is easy to produce the outputs and almost impossible to reverse engineer the inputs. As result of this, the random computers in the network can verify the transactions with full security in the process of mining.

Verified Aggregated Transactions: Blockchain

When a transaction occurs, it will be verified by the miners in the Peer to Peer network. When a miner verifies a transaction, she is awarded new coins as a reward for all the hard work (which is usually the computing power spent). This is how new coins are minted.

A new verified transaction is put on top of the last one (like a reverse link list). This is the distributed ledger which is called Blockchain.

The distributed ledger, aka the blockchain, is a byproduct of all the verified transactions in the Peer to Peer network. This ledger is available at any computer connected to the network (as long as the user decides to make it a full node).

A Few Important Concepts  


Double Spending

If you bought a song from the iTunes library and gave a copy of it to your friend, you have "double spent" the song.

Fraudulent transactions on the Internet are most usually perpetrated via credit card. Ex: When you buy a pair of headphones with your credit card, VISA or MasterCard checks on your behalf if a) it was the correct amount b) the recipient and the sender are accurate. For this they will charge a 1-3% service fee. But if someone has a picture or your credit card (both back and front), this person can easily conduct transactions from your card UNTIL you file a complaint.

Raw cash can’t be double spent (at least not without risk, as forgery is illegal). If you gave me a $20 bill, then you can’t possibly give it to another friend - as you only have ONE original copy. This is called a "peer to peer" transaction, and is the idea behind transactions on a blockchain network. Hence, cryptocurrencies like Bitcoin are called ‘internet money’. Your credit/debit card was never meant for the Internet, but cryptocurrencies were.

Proof of Work System

If you sent me a genuine email, you must have spent 5-10 minutes writing it. But if you are spamming 100 people with the same email, it won’t take you more than a few seconds to send the other 99. Based on this assumption of "time required to complete a certain process", I can reject your other 99, label you as a spammer, and prevent you from sabotaging other users in the network. This is an example of a Proof of Work system at work (pun intended).

Currently most of the popular blockchain networks have a Proof of Work algorithm to verify transactions. Miners have to spend an immense amount of "computation time and resources" to verify a transaction on the blockchain network. This secures the integrity of the blockchain (or the distributed ledger) and prevents fraudulent transactions.

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Blockchain 101: A Developer’s Perspective
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