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Introduction to Blockchain

According to dotcominfoway the global blockchain market is expected to be worth $20 billion in the year 2024. Currently, 69 percent of banks are experimenting with blockchain technology to make their services more secure, seamless and transparent. Its sudden rapid growth has made majority of techies and enthusiasts curiously inclined towards it. In this tutorial, we will guide you through the main concepts of Blockchain, the need of blockchain, its workflow, Smart contracts, tools used, Hyperledger composer, setting up of private blockchain and its use cases.

Here we have the list of topics if you want to jump right into a specific one:

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What is Blockchain?

What is Blockchain
Blockchain, as the name suggests, it is nothing but a linear chain of blocks, it is a digital ledger, that holds information of transactions taking place over the web. Every block contains data in the form of coding that is organized in a chronological manner.

Block containing information

This is the simplest definition to understand blockchain.

Why Blockchain?

There can be hundreds of reasons about why we even need blockchain, it can be used in cloud migration, education sectors, Digital ID’s, Voting & Data Sharing and many more due to its anonymity, immutability,and security.

Why blockchain

It means once a function/code has been locked into a blockchain and passed through the server, it cannot be changed. Similarly, since the code/function can’t be tampered with, results are also the same and can’t be tricked. Hence, it brings you a sense of security. Watch the following video for better understanding of blockchain.

Lets explore the banking sector to understand how blockchain is impacting it.

Need of Blockchain in Banking Sectors

Need of Blockchain in Banking
Today, the Internet takes a huge part in the way we connect to people in the network, make transactions seamlessly. It has changed the way of money handling and the major bottleneck we face in today’s transactions are:

  • Imposing high transaction fees
  • The problem of Double Spending
  • Fraudulent and Hacking Issues

The blockchain is revolutionising the way of managing data and databases. The traditional database has the individual authority that governs it, it is not a decentralised entity like Blockchain.

For example, let’s consider this diagram below:

Need of blockchain

A person wants to transfer an amount of $100 to someone, but it is supposed to pass through a Trusted Third Party like a Bank or Financial Service Company and in this case, they charge a transaction fee of 2% from the person receiving the amount. Now if this is an amount of $10,000, then the 2% of the transaction fee would be the deduction of $200, that means the amount received by the receiver would be $9800.

So, based on such scenarios blockchain plays a crucial role in the Banking sector.

Here are a few ways it impacts the banking sectors.

  • Fast-paced Financial Transactions

fast paced

As we know that most of the third party in banking sector consumes a lot of time to transfer the amount from one account to another, sometimes it takes few days to even more than a week to receive the amount from receiver’s end. These transactions take place via the payment gateways, which do charge an amount along with the time-consuming processing. As a solution, if these payment gateways are replaced by blockchain technology then the transaction process will take place in a matter of seconds between the parties involved.

Fast paced financial

Hence it eliminates the need for using the time-consuming payment gateways resulting in fast-paced transactions.

  • Financial Transactions at lower prices:

Financial transaction
As we discussed above that elimination of third-party and involvement of blockchain technology leads to the elimination of time-consuming transaction processes which eventually lower the cost of the financial transaction. The reality behind the transaction charges is that the long time needed for completing the transactions results in high financial charges.

So, it benefits the various business as well as an individual while performing the financial transactions on daily basis or frequently.

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How does it work?

The blockchain is the most Disruptive, Digitized and Decentralised technology. The Blockchain technologyis majorly used to verify digital currencies transactions. In this system, there is no single centralized authority but everyone existing in the block can verify its authenticity.

Types of Blockchain

 

Public: Public transaction within existing blocks. Examples – Bitcoin, Ethereum, Dash, Factom
Consortium: Controlled by a consortium of members. Examples- Ripple, R3 & Hyperledger1.0
Private: Requires an invitation. Examples- Multichain, Blockstack

Now let’s see what Blockchain consists of:

  • A Hash
  • The Data and
  • Hash of the previous block

Types of blockchain
As we look, the hash is nothing but a fingerprint of a block.

Types of blockchain

If we analyse from the above diagram, the next block consists the hash of the previous block, so that it can transfer the data from one block to another and so on. Since, each block consists hash of the previous block, if any changes are made in a previous block, it would lead to a change in hash of the consecutive blocks, thereby making hash of all the following blocks invalid. Hash does play a crucial role but in today’s technologically driven world, creating a hash is not a big deal and hence just having a Hash cannot stop a miscreant to tamper with the data so that is why we have got another crucial concept in Blockchain called as Proof of work.

Proof of work makes blockchain data almost impossible to alter.

This is nothing but the first consensus algorithm.

Proof of work increases the time required to create a new hash thereby making the technology a secured one. So, before anyone can change the Hash of the entire network, nodes are notified of the tampering attempt and hence tampering becomes a tough task to perform, almost impossible. This question might be popping up in your mind like who owns this ledger? Who will add blocks to this blockchain? Is there any chance we can trust this person? Proof of work is like solving a huge puzzle which requires a lot of computational power.

People in Bitcoin network called as Miners basically do this, they will do the verification of the transactions and will be solving a very complex mathematical puzzle in the block which is being created. Every block will have the combination of the hash value of the previous block’s final hash and the hash value of its transaction data.

Now that we understood the concept behind blockchain, let’s take a sneak peek over its application in creating Bitcoin Cryptocurrency.

So, what is Cryptocurrency?

Cryptocurrencymeans a digital cash, or we can say (digital currency) which runs on the blockchain method. The term Blockchain is derived since the blocks are been connected (as we discussed earlier) one by one like a chain. The Cryptocurrency uses cryptography to secure and verify transactions.

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Following are the major types of Digital Currencies:

  • Bitcoin
  • Ether
  • Ripple
  • Litecoin
  • IOTA

Let’s understand them one by one.

Bitcoin:

Bitcoin is one of the most famous applications of Blockchain. Being the world’s first cryptocurrency, Bitcoin dates back to when Blockchain was first conceptualized by Satoshi Nakamoto who published the white paper “Bitcoin: A peer to peer Electronic Cash system“. The very first bitcoins were mined in 2009 and that was the birth of Blockchain.

Bitcoin is the first decentralized digital currency and doesn’t need any central bank or single administrator for transaction in Blockchain.

Ether:

Ether is the crypto currency of a generic open platform of Blockchain, called Ethereum. The underlying idea was the development of a Turing-Complete language, unlike bitcoin.

Ripple:

Ripple is currency exchange and remittance network and was developed by a US based technology company named Ripple Labs Inc.

Litecoin:

Litecoin is a peer to peer crypto currency that enables instant payments to anyone in the block.

IOTA:

IOTA is an open source Distribution Ledger Technology that is developed by IOTA foundation. It powers the Internet of Things

How to Mine Bitcoins?

The addition of transaction records to Bitcoin’s public ledger of past transactions is called Bitcoin Mining. The ledger of past transactions can be considered as a chain of blocks hence called block chains. Blockchain confirms the transactions that have taken place to the rest of the network.

Mining process is categorised in the following two types:

  • Solo mining: In this type of mining, the miners attempt to produce new blocks all alone. The returns from the rewards as well as the transaction expenses all belong to that single miner who performed mining alone. The top benefit of solo mining is the higher pay-outs to single miner.
  • Pooled mining: unlike solo mining, miners don’t mine alone in pool mining. They pool their assets with other miners and discover blocks more regularly. The returns are shared among the pool miners who contributed according to the measure of hashing power that each of them contributed. In pool mining, the miners get paid constantly.

The creation of new Bitcoins is accomplished using Bitcoin Consensus Algorithms that enables the creation of Bitcoins by the process of mining. It mainly involves following four steps.

  • Autonomous check of every transaction: Deciding whether to commit the transaction to a database or not.
  • Proof of work Algorithm: Ensures security in a trust less network by computing the effort of mining within a block.
  • Confirmation: Confirmation of new blocks by each new node.
  • Independent aggregation: Selection by every node in the chain on the basis of most cumulative computation demonstrated via proof of work

Ethereum

Ethereum is an open Blockchain network which was conceptualised by VitalikButerin in November 2013. The key idea behind it is the development of a Turing complete language that allows the development of smart contracts for Blockchain.

Following are the four areas where Ethereum enables innovation:

  • Currency Issuance
  • Smart Contracts
  • Decentralized autonomous organizations (DAO)
  • Smart Property

Smart Contracts:

Smart contracts are the basic building blocks of the programs written in Ethereum platform. It’s basically a computerized transaction protocol which is automatically executed when specific conditions are met while running on the Blockchain.

Following is an example of a simple contract where the contract creates, sets a value and returns a variable with name “storage”.

pragma solidity ^0.4.0;contract SampleC {

uint storage;

function set(uint a) {

storage = a;

}

function get() constant returns (uint) {

return storage;

}

}

MultiChain –

The MultiChain is faster, developer friendly, customizable and provide flexible security that helps for building and establishing financial activities for organizations in form of Blockchain applications. It is an Open platform for building Blockchains.

Applications of Blockchain

Correspondent banking : The important application of Blockchain is that it disrupts the native cross payments between traditional banking system.  It acts as a one single ledger between the transactions happening in the system.

Supply chain sensors :  Blockchain can be used in supply chain of manufacturing companies like in the stages of manufacturing, supplying, retailing where each party validates the transaction and cannot be altered. So as a customer we tend to know that there is foolproof authenticity on the products.

Securities market : Blockchains are ideal for securities market because of their increased efficiency in share settlement. Few public Blockchain companies like BTL Group, BTCS,  HIVE Blockchain, Riot Blockchain are trading on securities market.

Voting : Blockchain is high-level secured and transparent system, in voting it can easy for setting up and makes the voting process decentralized. It can remain anonymous and not changeable.

Identity management : Blockchain can create an unique digital ID for all the users of the block or network enabling them to secure personal information and prevail their authenticity across the global platform.

Blockchain IOT : Blockchain is used to track the data sensors of IOT devices and also used to prevent replication with any harmful data. Blockchain enables smart contract, identity of devices, integrity of data and supports communication within the block by removing any kind of technical difficulties.

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