Bite-Sized Blockchain Guides Part 1: What is a Blockchain?

TL;DR: In this series, we will talk about everything from blockchain basics to building a complex DAPP.

What is FIAT? 💰

• The standard currency is called FIAT.
• FIAT requires a middle man authority (a bank or a government as examples).
• A cryptocurrency in some technology (like blockchain) relies on automatic rules to comply with the exchange rules.
• The most widely used digital currencies are cryptocurrencies.
• We call them crypto because it relies on mathematical cryptographic properties similar to password encryption.
• We cannot trust other people around without a middle man.
• We use cryptography to exchange value in the same way we use https to send sensitive data over the internet.

Hashes ➗

• We have been using math hashes for a long time in computer science.
• Hash functions take an input and produce a deterministic output.
• We use hashes on databases, algorithms, and data structures.
• A good hash function is easy to calculate on the input, but very hard (in computer time) to reverse from the output.
• Multiplying two integers is a very fast operation.
• Factoring an integer into its prime factors is a very expensive operation (provided factors are large enough).
• We can transform any data on blockchain into numbers and encrypt them very fast.
• If we chain a block content, its hash changes unless they have the same hash.
• We called this a hash collision and can keep its probability near zero using math.

The Blockchain ⛓️

What is a blockchain? 🔗

• Blockchain is about decentralized trust.
• You exchange value without an intermediate.
• Trust issues are not solved by a middle man like a market, broker, credit card, or bank.
• You don't trust or rely on reputation or a certified third party.
• Standard middlemen are expensive, slow, and human errors prone.
• Blockchain was first designed to exchange currency.
• Nowadays it has many other uses such as managing loans, supporting all kinds of contracts, NFTs, Tokens, etc.

Which was the first blockchain? 🥇

• Satoshi Nakamoto (a collective or fake alias) released the First Blockchain proposition.
• Bitcoin was the first blockchain implementation.
• Blockchain technology was first designed for digital currency exchange.
• Blockchain secures transactions in a not-trusted medium (the internet).

Blockchain Properties 🌟

• Transparency.
• Decentralize trust and carry on distributed transactions and electronic commerce.
• Remove man in the middle, merchant accounts, banks, clearing services.
• Reduce charges and improve efficiency by removing the middle man.
• Full auditability and transactions history.
• No single point of failure.
• We replicate the database in many places.
• Most blockchains are public, tough transactions might be encrypted.

Blockchain Implementation 🔧

How does it work? 🎰

• All new data is added, never removed, or replaced.
• Blockchains are immutable databases on transactions.
• Most traditional databases (relational, files, hierarchical, spreadsheet) can be overwritten.
• Blockchain only allows CREATE and READ, No UPDATE or DELETE.
• It is not a traditional CRUD.

How do we store data? 💾

• To update a change, we need to add a new transaction at the end.
• This is analogous to account ledgers.
• Every Block has a group of transactions with (possible) different partners.
• Blocks are chained like a linked list.
• Since blockchain is immutable; stored data is available forever.
• Blocks are replicated in nodes.
• Nodes are replicated all over the net.
• If we want to add new data, we need to reach a consensus.
• All nodes have the same authority and a single vote.
• We reach a Consensus once one of them gets (50% + 1) votes.
• A Transaction can be anything as long as we can store it with bytes.
• To transfer cryptocurrency we will add to the ledger a Transaction for an amount with source a destination addresses.

The chain 🔐

• Genesis Block is block 0
• Next block stores the previous block's hash as a linked list.
• The hash guarantees chain is neither broken nor faked

The Nonce 🔑

• To make hash computation hard we need to introduce some random data with the transaction.
• We force the hash value of the transactions + the fake data to have an arbitrary form.
• We ask the computed hash function to have some leading zeroes.
• At Bitcoin, there are currently 19 zeroes.
• The random data is called a Nonce.
• We need a nonce such as, together with the valid transactions, it yields a hash with some leading zeroes.
• It is very costly to search for this nonce.
• Bitcoin uses leading zeroes. Other blockchain implementations use similar mechanisms.

Mining 🏭

What is mining? 👨‍🏭

• Mining is the artificial process to find the proper Nonce to add to a group of transactions to achieve a hash with a fixed number of leading zeroes.
• Mining takes a lot of computational time and energy.
• Miners use specialized hardware where energy is cheap all over the world.
• Nowadays, Mining is a threat to the environment.
• Nodes compete for the price provided it is valuable.
• The first one who solves the math puzzle gets the reward.
• After global validation, new Bitcoins (or equivalent) are rewarded to the one who solves the puzzle.
• Global validation is easy since hash encoding is cheap as opposed to hash decoding (mining).
• The reward motivates miners to legitimize and monitor Blockchain transactions, ensuring their validity.

Integrity and Trust 💱

• Blocks are added after consensus.
• If 50% +1 agree to fake a chain, they can do it. This is known as the 51 % Attack
• Proof of work is the most used mechanism and it consists of global hash validation.
• Proof of Stake requires less computer power than Proof of work. it uses bet voting to select a winner.
• Currently, there are no efficient ways to carry on Proof of Stake in a decentralized way.
• There are several other alternatives.

Voilá. This is basic Blockchain. Subscribe to learn advanced topics on these series.