11.1.2.6 explain the function and operation of Blockchain technologies
Blockchain technology
A blockchain is a decentralized, distributed, and oftentimes public, digital ledger that is used to record transactions across many computers so that any involved record cannot be altered retroactively, without the alteration of all subsequent blocks.
What are the features of Blockchain?
All transactions are written on the ledger
Transaction irrevocability
Distributed - means there is no central authority
Easy to share data on transactions, contracts, etc.
Encryption for privacy and security
The reliability of using a blockchain is that:
It is not owned by a single entity, so it is decentralized
The data is cryptographically stored inside
The blockchain is immutable, so no one can tamper (interfere) with the data that is inside the blockchain
The blockchain is transparent so you can track the data if they want to
Blockchain can be described as
collection of records
linked with each other
strongly resistant to alteration
protected using cryptography
The three pillars of Blockchain technology
The three main properties of Blockchain technology which have helped it gain widespread acclaim are as follows:
Decentralization
Transparency
Immutability
Pillar #1: Decentralization
Before Bitcoin and BitTorrent, we were used to centralized services. The idea is very simple. You have a centralized object that stores all the data, and you will have to interact exclusively with this object to get the information you need.
Another example of a centralized system is banks. They hold all your money, and the only way to pay someone is through a bank.
The traditional client-server model is a great example of centralized service.
Centralized systems have a core authority that dictates the truth to other participants in the network.
Only privileged users or institutions can access transaction history or confirm new transactions.
Decentralized systems do not have the power to dictate the truth to other network participants.
Each member of the network can access the transaction history or confirm new transactions.
Pillar #2: Transparency
One of the most interesting blockchain concepts is transparency. The blockchain provides privacy while being transparent. Why do you think this is happening?
The person's identity is encrypted and represented only by his public address. In the transaction "Anwar sent 3 BTC", you can see only "1MF1bhsFLkBzzz9vpFYEmvwT2TbyCt7NZJ sent 3 BTC".
The following screenshot of Ethereum transactions shows this:
This way, while a person's real identity is protected, you will still see all the transactions that were made to their public address. This level of transparency has never existed in the financial system before.
Pillar #3: Immutability
Immutability in the context of a blockchain means that once something has been entered into the blockchain, it cannot be changed. This prevents financial scams.
The reason the blockchain gets this property is due to the cryptographic hash function.
In simple terms, Hashing means taking an input string of any length and outputting an output of a fixed length.
In the context of cryptocurrencies like bitcoin, transactions are accepted as input and passed through a hashing algorithm (bitcoin uses SHA-256), which results in a fixed length result.
As you can see from the table, the output will always have a fixed length of 256 bits.
But even if you make a small change to your input, the changes that will be reflected in the hash will be huge. Example (SHA-256):
When entering, only the case of the first letter has changed, and the hash has changed radically.
Questions:
Exercises:
Research information on the application and prospects of using blockchain technology. Write down your opinion in 3-4 sentences.
Exam questions:
Question 1. Explain what is a Blockchain.(Marks: 2)
Answer. A: A blockchain is, an immutable time-stamped series record of data(1) that is distributed and managed by cluster of computers(1).
Question 2. Describe who controls the blockchain?(Marks: 2)
Answer. An open blockchain network has no central authority(1) — it is the very definition of a democratized system. Since it is a shared and immutable ledger, the information in it is open for anyone and everyone to see(1).
Question 3. Name three pillars of blockchain technology.(Marks: 3)
Question 4. Describe where Blockchain technology is used. (Marks: 1)
Answer. Initially, used for Bitcoin and other cryptocurrencies blockchain has now found use cases in several industries including finance, real estate, and health.(1)
Question 5. Explain one feature of blockchain technologies. (Marks: 2)
Answer.
Cannot be corrupted (1)
every node checks transaction’s validity when added. (1)
/Decentralized technology (1)
there is no governing authority or a single person looking after the framework. (1)
/Enhanced/high security (1)
no one can just simply change any characteristics of the network for their benefit. (1)
/Irreversible (1)
no one can take a public key and come up with the private key. (1)
/Distributed ledgers (1)
a public ledger will provide every information about a transaction and the participant. (1)
/Consensus (1)
every blockchain has a consensus to help the network make decisions. (1)
/Faster settlement (1)
a user can transfer money relatively faster, which saves a lot of time in the long run. (1)
/Transparency (1)
everyone can see all completed transactions and their public address. (1)
(Max: 2)
Question 6. Give one example of an area where blockchain technologies can be used. (Marks: 1)
Answer. financial transactions (1)/ user identification (1)/ cybersecurity technologies (1)/ banking institutions (1)/ government organisations (1) / cryptocurrency (1)
