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A blog about Blockchain technology

Blockchain, a Distributed Digital Ledger

Let’s start straight away by answering an immediate question: What is Blockchain?

Blockchain is a:

  • Data Structure

Which is used to create a:

  • Cryptographically Secure
  • Distributed (Shared)
  • Decentralized
  • Transactional
  • Digital Ledger

Got it? :-)

Ok, let’s examine each point more in detail. But before we do so, a bit more context to the challenge that Blockchain can address…

 

Yap Island

Blockchain was invented… 2500 years ago in the island of Yap. The inhabitants of this remote island in the Pacific Ocean, the Yapese, were using a form of barter for exchange of goods and services. They had a problem, though: They didn’t have anything valuable on the island that could represent the equivalent of what we now consider a coin: no precious metals, no shining stones, apparently not even nice seashells that they could trade. But they had big rocks. Large rocks. Very heavy boulders! The rocks were impossible to move around. So they came up with the concept of ownership of a rock, called a Rai stone [1]: Each Yapese knew which rock belonged to whom. It was global knowledge, each and every single individual in the village had this information. When a trade for goods would occur, the buyer Yapese would transfer ownership of their rock to the seller as a form of compensation for the acquisition of their products or services. And this was a public act: Everybody in the village knew that a specific rock would transfer owner. They did have neither a chief of village, nor a sorcerer to own this information of what rock belongs to whom Yapese. Who would inherit such a valuable knowledge in case of loss of memory or sudden death of the knowledge master? What if the shaman would spell some witchcraft, or ask for a portion of ownership of the rock, to allow a transaction to happen? Or be corrupted and accumulate rocks as their possession, even? A single Yapese owning this critical information would be what we now would call a “single point of failure”.

 

This story, and a longer and better explanation of Blockchain, is beautifully illustrated in the animation “Blockchain Explanation” by Westpac Group [2]. I highly recommend you watch this video before keeping on reading this article.

 

Data Structure

Let’s fast forward to our current time now, and put this story in technology terms. Recording transactions, seller, buyer and amount of value exchanged, requires a list, better a table, with columns for each of these pieces of information, and as many records as transactions. A spreadsheet would fit, wouldn’t it? A database table probably even better. In general, we need a persistent and immutable form of data structure to record transactions and parties involved.

Ok, so Blockchain is a database. Mmmh… what else?

 

Cryptographically Secure

Well, the analogy with Yap Island now takes a different turn. Whereas in the small Pacific island everybody would know about transactions and rock ownership, in a modern digital world this is not possible. We have to protect our privacy, our belongings, and prevent theft of our identity or wealth.

At the core of Blockchain is the concept of cryptographic security: Not just generic security, that is protected information that can be accessed with a username and password. But rather hash-encrypted data that is not possible to tamper with.

Alright, so Blockchain is an encrypted database… still no news to me. What’s next?

 

Distributed and Decentralized

On Yap island, there was no chief of village owning a book of transactions. In a Blockchain world, there is no single entity owning the database with all the transactions. Multiple entities have a copy of the entire data structure. This guarantees that there is no central ownership of critical information that can be restricted from, or charged for, access. There is no single point of failure.

Blockchain is a data structure owned by no-one and (a copy of) possessed by everybody involved. That starts making sense now…

 

Transactional

This is self-explanatory, I hope. The allocated data structure should be able to store transactional information. Transactions are ACID: Atomic, Consistent, Isolated, Durable [3]. And I’d add, Immutable: no changes are allowed to a “block” in the chain of transactions. Each block is signed with a key for preventing changes by unauthorized parties. Only the recipient of the transaction can read (but not alter) information stored in a block. The entity initiating a transaction will use the recipient’s public key to encrypt data, and the recipient only can access this information by decrypting it with their private key. This process implements the Asymmetrical Cryptography pattern [4].

 

Digital Ledger

Before addressing the point about the digital ledger, let me contextualize again why we need a ledger at all.

 

Physical Transactions

In a transaction based on exchange of physical currency (banknotes, coins), money physically transfers from my wallet, the buyer, to the seller. This process goes under the name of iPay. Alright, just kidding… :-)

When physical currency changes owner, I won’t own it any longer, so I won’t be able to use that very same money again to buy another product or service. Elementary, Watson…

 

Digital Transactions

Now, in the digital world, there is no such a thing as physical money. Data is represented as bytes, and bytes can, yes, be transferred from a party to another one, but also copied. And a copy can be used over and over again. We need, then, an independent entity über alles, which ensures that a digital currency is not used more than once, or in other terms, that whoever is initiating a transaction has enough money to buy goods from the seller.

 

Ledgers

This third-party “agent” is an entity/system that keeps track of all transactions in a proper data structure, with inputs and outputs: a digital ledger. This entity, also, must be utterly trustworthy, incorruptible, and integer (as in human behaviour, not the number).

 

But what happens if it’s not? We’re back to the problem of the village wizard… no sorcery here though. We simply want to prevent chances for data corruption, transaction fees and, in general, single responsibility.

 

Decentralized Ledgers

And here we are at the end of our description of Blockchain: our digital ledger has to be decentralized. This is a key attribute of Blockchain technology. Only by distributing a copy of the ledger and removing its central ownership, Blockchain is able to provide that level of independence and incorruptibility that differentiates this technology from a “normal” transactional and secure database.

 

The Internet is full of good articles about Blockchain. I have particularly enjoyed reading [5]. This article gives a good overview of Blockchain technology and its quality attributes. A good reading before getting serious with Blockchain!

 

References

[1] “Rai stones”, Wikipedia

https://en.wikipedia.org/wiki/Rai_stones

 

[2] “Blockchain Explanation”, YouTube

https://www.youtube.com/watch?v=J-ab9was1p0

 

[3] “ACID Transactions”, Wikipedia

https://en.wikipedia.org/wiki/ACID

 

[4] “Public-key cryptography”, Wikipedia

https://en.wikipedia.org/wiki/Public-key_cryptography

 

[5] “What is Blockchain Technology”, CB Insights

https://www.cbinsights.com/research/what-is-blockchain-technology

 

 

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Thanks for sharing the descriptive information on Blockchain tutorial. It’s really helpful to me since I'm taking Blockchain. Keep doing the good work and if you are interested to know more on Blockchain, do check this Blockchain tutorial.:- https://www.youtube.com/watch?v=lf5d-R8-N20

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