- Anisha Mohanty
Blockchain and Crypto Economics Basics to Bots - Part 1 Blockchain Launchpad for a connected future…
History of Blockchain
Information sharing in digital world :
First, we started using Microsoft Docs for document editing, but in this case if another user from a different geographical region wants to edit an information, then he has to first ask the 1st user to stop and close the file. Then we started using a tool called Google Docs which is a collaborative tool in which two or more people can edit the same document simultaneously and the consistency of merging these edits together is taken care of by a company/entity called Google. But the problem here is that Google is the proprietor and it is holding us as an authority as they have entire control over our documents as to what we are seeing and working on. So, this document of mine, I want it to be completely secure, that is we should have our own copy edited and the internet should take care of it. This can be achieved by Blockchain.
Types of Networks :
Centralized : If you will take any application in the world that you are using today, it is a centralized network. For example Facebook, Amazon, any other banks, etc. For example let us consider one of the outer nodes to be a person, who wants to send a thousand rupees to another person from the same network, then the request is first sent to the central authority, it will verify whether the person has enough balance, and even whether its a political transaction or is he a terrorist or smuggler or any other types of checks.
But two problems reside in these networks, first being the single point of failure (for a hacker, he doesn’t need to go to each and every node to hack all the alternatives, the central node is a beautiful package which contains all the data) and second being the single point of authority (the centralized network have a complete authority of the decisions that they make. Many banks promise good returns and interest, and suddenly one day they decide to run away with the money and they do it because it is a central authority
and they understand everything).
Decentralized : In this, multiple nodes are connected to each other, solving the problem of single point of failure. We can have multiple copies of the same data across all different geographical locations, due to which we can replace the data which is hacked, by a copy. A good example of distributed network would be something called as content delivery networks that are in multiple parts of the world, so that if you are a person accessing Facebook from India, you'll be fed the data from a server in Mumbai, not something from US, because it takes time for data to be sent from US to India. But the problem of a single point of authority still exists.
Distributed : The problem of single authority is solved here, in this, multiple nodes are connected to each other just like a decentralized network, but the ownership is not with a single person or single entity. The best example can be downloading resources from torrents, there is no company called torrents which serves all these for us, this can be me, you, another person. If I have a movie file with me, you can download it directly from my system through the internet, the request doesn’t go to a central authority like Amazon Prime or Netflix. Hence we are the owners of torrents and the government may try hard to stop this from happening, but they cannot, because there is no single authority.
It is a decentralized network and information sharing platform, that enables multiple authority domains, who do not trust each other, to cooperate, collaborate and coordinate a rational decision making process. Decentralized here means, each of the nodes has a blockchain within it, that is the same copy of data is replicated multiple times and all of these systems work together in keeping the system online/alive. Everyone that uses this system is an owner, connected through the internet.
Blockchain architecture is similar to accounting ledgers (pages of transactions connected to each other) in the physical world. Blocks are data structures which contain transactions. Just like ledgers are connected by page numbers, we have hashes (cryptography) in blockchain that connect successive blocks of transactions.
Features of Blockchain :
Immutable (once written, cannot be changed, we can only create and read the information)
Global (no geographic boundaries)
Privacy and Transparency (pseudo anonymous)
Consensus Based (everyone in the network agrees)
Crypto Economics :
Blockchain is a beautiful package of cryptography (to connect the blocks together), distributed systems, finance (deals with transactions), economics, network security and game theory, all these standalone systems are made to work together, known as crypto economics, of which blockchain is a by product.
It is a way of secure communication. It is of 3 types -
Symmetric Key - same key used for both encryption and decryption.
Asymmetric Key - different keys used for encryption and decryption.
One way Hash (keyless) - digital fingerprint
Symmetric Key Cryptography
Authentication is the main issue in this, there is no way we can ensure that the cipher text is from the intender sender, one can easily hack and change the message.
Asymmetric Key Cryptography
Secure communication is done by using the receiver's public key(encryption) and receiver’s private key (decryption). Authentication can be done by using the sender’s private key (encryption) and sender’s public key (decryption), used in digital signatures.
Digital Signatures : Used for authentication. It uses the sender's private key because it’s known to the sender only, and the receiver can validate using the sender’s public key, as it's known to all. The example of bank signature validation can be used as a valid example here.
One way Hashing
It can be considered as fingerprints (unique identifier) for digital data.
What we learnt…
This section focused on the basic architecture of Blockchain, from where it has evolved and how it can be used in various sectors and we discussed some points that supported the fact that we can rely on this beautiful package.
The subsequent parts will include topics like Bitcoin Architecture, Bitcoin monetary policy, consensus algorithm, tokenization and types of Blockchains.
Anders Demo of Hash
Shows that there is no possibility of reverse engineering to find the data from the output hash, even if you know the algorithm (one way hash).
The hash remains of fixed length (same for a blank data and same for a 4GB movie file) (256 bits or 64 characters).
Uniqueness (B and b has different hash output) (two different input cannot have same hash)
Avalanche effect (small change in input has a small change in output)
This hashing can be explained as an example of copyright, if A is a person who has written a story and stored the data using blockchain with the date of 10th May, then another person cant claim that he has written the story 1st, because if a single digit input is changed, then the entire hash will change. Hence the integrity of the data can be checked using hash due to avalanche effect.
https://andersbrownworth.com/blockchain/hash (Try all the above mentioned properties of hash… )