Why do we need a Blockchain?
In our present world, the centralized systems are dominating the world. The aim of blockchain technology is to get rid of these centralized systems and replace them with decentralized systems.
Let’s take an example. Say I want to buy a house in London. I searched in web for a while and found my dream house. I called the owner and asked him for more information of house. Then both of us agreed in terms of price of house but the problem is we cannot give the owner money directly and tell him we owned the house and finish our settlement.
This is because we don’t trust the owner of house, do we? After few weeks, he may come and tell us that we did not bought the house and everything we did was a dream and not a reality. He may threaten us if we don’t leave the house, we will call the police. Now we are in big problem. Our money is gone and we don’t have a proof that we own the house. Which means we don’t own the house.
The whole point here is that one party does not trust another party. That’s why we developed a centralized system in the past where we have a central authority which controls all the transactions and performs settlement between parties. The most common type of central authority is government. For example if we want to buy the car, both seller and buyer has to notify the central authority aka. government and tell them we bought the car in what price, which model and so on. It will take around 1 week to get a new identification card and so on. So in future if there is dispute between seller and buyer, government can settle the problem.
Now where blockchain sines is when we need to get rid of the central authority and still solve the problem of trust between parties. Blockchain is also known as “trustless system”. This does not mean it minimize or eliminate trust. It means it minimizes the amount of trust required from any one actor in the system. This is done by distributing trust between different actors in the system.
But what are the factors in blockchain that guarantees
- Authenticity (Actual sender is sending over the money) and
- No double spending (No fake money)
“Public key cryptography” and “consensus mechanism” are the methodologies that helps to build the trust in blockchain network. Public key cryptography is used to solve the problem of authenticity. This mechanism contains two cryptographic keys called private key and public key. Private key is private to owner only and public key is public to all users in the network. Using private key we can authenticate the real user is involved in transaction.
The consensus mechanism ensures no double spending in the network. This is done by building a ledger that gives absolute truth of the state of system. It uses mathematics, economics, computer science algorithms to incentivize all the parties in the system reach to common “consensus” or state of the ledger of blockchain. The consensus algorithm bitcoin uses is “Proof of Work” agorithm.
Blockchain is a must known technology for everyone in this digital revolution.
I will write tutorials on how to build a blockchain soon. If you want to learn more about blockchain and building one from scratch. Don’t forget to follow me in medium, twitter.
