Blockchain 101

Blockchain is a technology that might have some concepts that are difficult to grasp as well as some misconceptions that may turn people away from it. Let’s get our feet wet as we venture through this way of organizing our trading capabilities.

In simple terms, blockchain is what its name suggests, a sequence or chain as you will, of blocks coded with information. Each block has its own coding (the information regarding the transactions) and unique identification to that block, which is called a hash. The users of the network are all linked by code consensus and those are the nodes.

Ok, now that we have clarified the concepts, we can move forward!

Blockchain is a distributed database that everyone involved gets a copy of. Everyone with a copy can add new records to that database, but they cannot change any records previously added. With this system in place, all blocks of information are chained among all users, making all information visible to all, in a transparent and traceable way. It’s an immutable ledger that allows tracking of almost anything, tangible or intangible goods. Amazing, isn’t it?

But what kind of information is stored in each block of the blockchain?

In a basic analogy, let’s say you want to lend money to a friend, 10 dollars. Not only you say so, but you do it in front of other people and so they all take note of it. With that, everyone in the group knows about the transaction and this information can be verified from anyone in the group, in anyone’s notes.

Everyone essentially endorses the transaction once they verify the correct amount going through and make the exact same record of it.

Imagine that a week later, another friend from your group lends another person 15 dollars. Everyone in that group now makes a new note that says that the 15 dollars transaction is done in addition to the previous 10 dollars transaction, and they keep adding information about who gave who what and when they did so, tracing every single transaction that took place in that group in the notes of everyone in the group.

Why would you want everyone taking notes of all that?

Blockchain is distributed in a way that all nodes in that blockchain network have a record of every transaction that has ever taken place. It is a way to ensure the data is immutable and so safer against false information.
Every block is coded with 3 things in them:

1. The transaction that occurred when that block was created;

2. A hash, which is the digital fingerprint unique to that block and that transaction, making it so that if something were to change the transaction it would also change the hash;

3. The hash of the previous block in the chain, securing its place within the chain.

With that ruleset, tempering with any information inside a particular block would change the hash and by that making the marking on the next block incorrect. For someone to forcibly temper with one block they would have to temper with every block after also, and that would immediately become apparent.

And how those involved take the notes?

Wow! Now that we have a basic understanding of how a blockchain works, let’s talk about the differences between a permissioned and a permissionless blockchain. The difference between these types of blockchain helps us understand how to best utilize the technology in our favor, with specific goals in mind.

When talking about blockchain, most people initially think about cryptocurrencies, which are public and permissionless, which means all transactions are public and anyone can become themselves a node in the network, essentially having a copy of the blockchain and participate in the “note-taking”. Such action occurs every time a new update happens and a new block is created.

The permissionless blockchain is of easier access, but it presents quite a challenge to reach a consensus on every new transaction due to the number of transactions and nodes in play.

It is mostly done through a consensus algorithm, where one transaction is submitted to a list of transactions, and through the processing of every node working together, they try and solve a very complex cryptographic hash puzzle that will determine which transactions go through in the next block and that is the block transmitted next in the chain, that is called a proof of work algorithm.

Although this is great for public use, where anyone can submit their resources to evolve the chain, it’s too consuming to apply to businesses.

On the other hand, in a permissioned blockchain, you have pluggable consensus algorithms. Since it’s a closed group, where all nodes are known, they are also trusted as players in this network, representing not only users but mostly, whole entities or organizations.

However, corporate transactions rely on certain rules of discretion and negotiation that make it unwanted for all nodes to know every value of every block.

To better understand, let’s give an example: imagine you are a manufacturer and you need to know about the buy order of the product placed by a certain retailer, as well as the shipment order they placed. But for varying reasons, such as competing prices, you, as a manufacturer, wouldn’t want differing retailers knowing about each other's prices. In these cases, it’s created a consensus that only the retailers involved in the transactions can see the particular information on that block, making privacy an important part of permissioned blockchain. Even though more nodes are involved in the full life cycle of a certain asset, not all nodes should know every detail about the transactions.

Another thing that is vastly applied in permissioned blockchain is what we call a “smart contract”, essentially a code that is running within a blockchain and whenever certain conditions are met, they are automatically executed. So instead of having the process of verifying every single step of the transaction manually, the smart contract dictates that the transaction will only go through if all players involved can deliver on their end of the deal. If any of the conditions are not met during the process, it could generate an automatic refund and easily identify where the problem was. This greatly speeds up the process for everyone involved, making it a more efficient solution.

For today, that’s all folks!

Before our brains melt, no more blockchain concepts for today! Even if we are only scratching the surface on possible applications for blockchain technology, and all the concepts are still being processed, it’s understandable why this technology might be a new way to organize our trading market and why it’s interesting for its transparency and traceability.

The technology comes as a disruptor to the traditionally centralized way of creating a database or record of identification, transactions, inventory. Establishing a system that validates all of that through consensus with a collective effort, is a forward step in our constant fight for democracy.

Please, feel free to contact us for further questions or comments at https://blockforce.in/en!