“The blockchain is the financial challenge of our time. It is going to change the way that our financial world operates“ – Blythe Master
The internet is an invention that has derived a new way to solve a problem for us, whenever we face one. Take the examples of communication, transportation, unemployment etc. internet has come up with Voice over IP, online Taxi services and created millions of jobs. But some of the most significant innovations have been brought in the financial field. Online banking, Transaction were all big in effect, but the most important financial leap was the invention of cryptocurrency that has taken the world by surprise, Bitcoin is a famous example. All of this is based on the technology called Blockchain Network. so question come how does blockchain work?
Blockchain technology is probably one of the best inventions ever, beaten only by the invention of the internet itself. It allows two or more parties to exchange value without the involvement of a bank or a central authority. Blockchain technology itself besides having countless advantages is not a new technology it is just a combination of previous technologies being put into a better use. Blockchain comprises of a community of networks all of which can see every transaction that has been done using the blockchain.
The most famous use of blockchain technology is Bitcoin, so lets see how it works!
It is the most discussed application of the blockchain network. It is a digital currency that can be used to exchange products or services online. Basically, it works in the same way as any currency like dollar, euro or any other national currency, that is useless unless it is being used to trade goods and services around. More is the used of any currency in the market more will be its value.
Now what bitcoin does is that it keeps a track of how many bitcoins any person owns in a ‘ledger file’,But this ledger file is not concealed like a private database rather it is given to every person that uses that network so that everyone can see the executing computations by anyone. This creates what s known as ‘Digital Trust’. No one can hide or lie about a transaction because everyone has a copy of the original transaction. Each computer in a network represents Node in a chain.
If some thing goes wrong in a transaction via a blockchain network you have no one to complain like you do in a bank, However, the blockchain is designed in a way that no trust is needed; the security of the system is ensured by mathematical functions and code.
A deal between two friends is much easily made rather than one being made between strangers that is because of trust. Trust is the risk judgment between the people involved in a deal. In the digital financial world trust means to show identification and give or receive authorization. In case of blockchain network digital trust is ensured by a system of public and private keys also called cryptographic keys.
If two people wants to connect and do a transaction on a blockchain network, they will use their cryptographic keys to ensure their identities whilst making a transaction. The public and private key combine to make a digital signature that is unique for every transaction made by every peer in the block chain network.
No one can complete any transaction in the blockchain network without a ‘wallet’. Wallet is a program that allows you to store your own personal bitcoins or to exchange them. Since only the owner is supposed to see its wallet and use the coins it is also secured with the cryptographic keys.
The cryptographic keys work in a very secure way. If any message is sent out for a specific public key, everyone an see it but not decrypt it. Only the person with corresponding private key can decrypt the message. However if you want to spend your bitcoins you will have to broadcast a message with your private and as only you have access to your private key the transaction is digitally associated to your profile using your digital signature. Digital signature is a string of text and hash resulting from your transaction and private key. However, it is unique for every transaction made so if you change your transaction however slightly it may be, a new digital signature is formed as a result. This is done so that no potential hacker or attacker can change the amount of bitcoins you are sending.
Also see : Unlimited Guide on DevOps Process Flow
All the transaction related to bitcoins are grouped into a block. Each block contains a number of transaction and the address to next and previous blocks. This creates a linked list type data structure, which puts one block after another in chronological orders to create a chain of blocks; hence the name Blockchain.
Is this network really safe? Lets find out. Anyone can pass digital security by concealing its location using a VPN or a TOR network and receive a bitcoin transaction by using a public key. Also bitcoin system allows you to create any many wallets as you like and there is no way to know who owns all these wallets.
The total number of possible bitcoin addresses is 2¹⁶⁰ = 14615016373309029182036848327162830196559325429
this big number protects the network from any possible attack while allowing anyone to create number of wallets. However there are some flaws in the chronological time stamps of blockchain networks which have been previously exploited by attackers in the past by issuing transaction from 1 of their own wallet and then reverse transaction back to his own account.