Introduction to Blockchain Technology: Part 1
By: Petros Leandros
Tags: Blockchain, Ethereum, Technology, Bitcoin, Cryptocurrency

Following my prior article on industries that will be revolutionized through Blockchain technology applications, some good friends of mine explained that they were not aware of what exactly Blockchain technology is; They were aware of all the hype, and anticipated that in the future its applications would have a significant impact in our everyday lifestyle, however, they could not fundamentally understand what this technology offers, and how it differs to established, existing technologies. I am sure that the individuals I spoke with, are not the only ones that are confused and perplexed from all the talk about Blockchain, however, they cannot understand what a Blockchain is in simple, everyday language. I have decided to write a series of articles where I will be covering the Blockchain technology definition, pros and cons to established technological offerings, as well as, a series of already-existing applications and Blockchain use-cases, hopefully helping some people understand more on this subject.

Let’s start with the basics. What exactly is Blockchain technology?

Blockchain Technology 101

A Blockchain, is a network of computers where data is stored and shared equally among all of them. It is a distributed database, where data is publicly available and easily tracked, however, its nature ensures user anonymity and data access can only be obtained by users which have the “Private key” (i.e. password) to access the nodes (i.e. parts of the network) that they have mined (please read below for more details on the process of mining blocks of the chain). Let’s use an example to illustrate the above:

Imagine that a competition (i.e. Blockchain network) is occuring in London. A total of 100 people (i.e. members of the network) arrive to take part in the competition. The individuals create a user account, sign-up with their Name and choose a Username and a unique password (i.e. “Private Key”) to be represented in the competition. After users are registered, the Usernames of the 100 individuals that take part in the competition are shown in the competition board to all the members that take part in the competition, (i.e. data is publicly available and is shared across all the members of the network), however, the First and Last name of the individual are not shown (i.e. user anonymity). Individual users are able to log into their accounts with the unique password that is only known to them, and change their usernames, which will be instantly reflected in the board. We will build further into this example, as more concepts of Blockchain technology are explained.

Cryptocurrency Mining

In order to mine cryptocurrencies, an individual computer first has to join a specific Blockchain (for example, the Bitcoin Blockchain, the Ethereum Blockchain etc.). After joining the network, the individual computer will perform computations in order to solve a problem. As soon as this is solved, the next block in the chain is unlocked and the node (i.e. computer) that solved the problem, will be awarded with Cryptocurrencies. The above process, is called Cryptocurrency mining. As soon as a block is mined, this is “sealed” forever, and a copy of the address (i.e. node) that has mined the block is shared with the whole network.

To use the prior example of the competition, imagine that a knowledge test is given among the 100 participants. The test, has a large list of questions and the first individual that manages to answer all questions correctly will be awarded with $1000 (this is to show, that in the Bitcoin Blockchain for example, a large number of miners compete to mine each of the blocks. The miner that manages to solve the problem in the block at hand will be awarded with 12.5 Bitcoins, for the case of the Bitcoin blockchain). Each of them tries to solve it and give the right answers. As soon as 1 of the 100 individuals finds all the correct answers to the knowledge test he is awarded with the $1000 and this is reflected in the leaderboard along with his username, being public for all participants to see (i.e. when a block is mined, the wallet address of the individual who succesfully mined the block and received the reward, becomes publicly available in the Blockchain).

Blockchain Transactions

In order to showcase how transactions are performed in a Blockchain network, we will use the diagram below, courtesy of Blockgeeks:

As shown in the diagram above, the process for performing transactions (i.e. send/receive data) in the Blockchain, is the following:

Someone requests a transaction, for example, transfer cryptocurrency to another account, activate a smart contract, send data records etc. The transaction is sent to the Blockchain network in order to be validated. The validation process, is performed by running algorithms in order to verify the transaction and add a copy of it to each of the existing members of the network. Once the transaction is performed and verified, it is added to a block of data in the existing blockchain along with other transactions. As soon as the last available block of data has no more capacity, it is added in the Blockchain and the next available block will become available for data inputting. For example, the Bitcoin Blockchain has a capacity of 2 MB (MegaBytes) of data per Block. Blocks that are added in the Blockchain are permanent and cannot be altered. As discussed before, their contents (i.e. transaction information) is available to all the members of the network.

Blockchain Technology Characteristics

After covering the definition of Blockchain technology, the process of cryptocurrency mining and the process of performing transactions on the Blockchain, it would be valuable if we also cover a few more specific characteristics of Blockchain Technology:

Whenever a transaction is performed in a Blockchain network, this is updated in the whole of the network at the same time. The Blockchain network, automatically reconciles data across all the members of its network every 10 minutes. One of the key characteristics of Blockchain technology, and one of the main benefits it offers, is that transaction data is shared across the whole network and is not stored in a single location. As such, in order for hackers to damage or corrupt transaction data, there is no point in attacking a single computer (i.e. node in the network), but they must attack all the members of the Blockchain network. As Blockchain networks usually involve thousands of computers and super-computers across the globe, the amount of processing power that is required to hack a Blockchain network is immense, and thus, Blockchain networks are much more secure than traditional technology architectures. A Blockchain network is not controlled by any of the members of the network, and data is equally shared among all of its members. As such, the network is decentralized and transactions are not controlled by any party. Decentralization is one of the other main reasons of the revolutionary usage of the Blockchain, as it enables payments without the involvement of banks, currency creation (i.e. mining) without government intervention etc.

In a future part of this article series, we will cover more specific use cases where the Blockchain can be utilised to improve existing processes and create new products and services with impact in our everyday lives.

It is necessary that everybody has at least a basic understanding of Blockchain Technology. Quoting Marc Andreesen (Billionaire Angel Investor, Venture Capitalist and Inventor of the first Internet Browser) “Bitcoin gives us, for the first time, a way for one Internet user to transfer a unique piece of digital property to another Internet user, such that the transfer is guaranteed to be safe and secure, everyone knows that the transfer has taken place, and nobody can challenge the legitimacy of the transfer. The consequences of this breakthrough are hard to overstate.” Even though the specific quote relates to Bitcoin (which I am planning to cover in a separate article), it is true for all Blockchain technology applications. As time lapses, more and more Blockchain applications will be created and we are not far from the time where the majority of technological applications which we use in our everyday life, will be built on the Blockchain.

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