The Blockchain Revolution: Why Blockchains Will Change the World? What It Is? and Why It Matters?

The Blockchain Revolution: Why Blockchains Will Change the World? What It Is? and Why It Matters?

Author Name: Rajiv Kumar Email: rajiv.kr.147@gmail.com Date: 28th August 2016

The Blockchain Revolution: Why Blockchains Will Change the World? What It Is? and Why It Matters?

Abstract

Virtually every payment you make – whether with a credit or debit card, by check, or via online transfer – relies on proprietary infrastructure controlled by large financial institutions (such as banks) and payment processors (such as Western Union or Visa).

Blockchain technology (people also say “internet of value”) offers the intriguing possibility of eliminating this “middle man”. It does this by filling three important roles – recording transactions, establishing identity and establishing contracts – traditionally carried out by the financial services sector.

Blockchain technology can be a confusing concept to understand. Luckily, we are here to simplify things. Blockchain technology is a relatively new concept and rapidly growing industry.

Image Source: psfk

Introduction

A blockchain is a public ledger of all Bitcoin transactions that have ever been executed. We can also say, A blockchain is a type of distributed ledger, comprised of unchangable, digitally recorded data in packages called blocks. Each block in the chain contains data (e.g. bitcoin transaction), is cryptographically hashed. The blocks of hashed data draw upon the previous-block (which came before it) in the chain, ensuring all data in the overall "blockchain" has not been tampered with and remains unchanged.

Image Source: Dupress

Based on the Bitcoin protocol, each node (computer connected to the Bitcoin network using a client that performs the task of validating and relaying transactions) gets a copy of the blockchain, which gets downloaded automatically upon joining the Bitcoin network. The blockchain has complete information about the addresses and their balances right from the genesis block to the most recently completed block.

What are Bitcoins (BTC)?

Bitcoin is a form of digital currency without notes and coins, created and held electronically. No one controls it. Bitcoins aren’t printed, like dollars or euros – they’re produced by people, and increasingly businesses, running computers all around the world, using software that solves mathematical problems.

Bitcoin is an open payment protocol anyone can use to transfer value (money being one) across border, securely and at almost no-cost, just by having an internet connection.

The Bitcoin is a system which allows you to do anonymous currency transactions and no one will come to know about the payment or about all other info related to the payment, including who sent it, who received it, etc.

It’s the first example of a growing category of money known as crypto-currency.

At this very moment, 10.71 million Bitcoins are in existence, which is like 207.929 million USD worth! In fact, the Canadian government is working on their own cryptocurrency, named MintChip (www.mintchipchallenge.com). In one day, more than 45,000 transactions of a total of BTC 2.5 million (worth of USD48.5 million) is handled by the bitcoin network.

Who Developed the Idea of Bitcoins?

A software developer called Satoshi Nakamoto proposed bitcoin, which was an electronic payment system based on mathematical proof. The idea was to produce a currency independent of any central authority, transferable electronically, more or less instantly, with very low transaction fees.

What is Double Spending?

We can make many copies of digital data, e.g. people copy software and sell it as counterfeit or pirated copies. We may face the same problem with digital currency – one can copy the digital currency (let’s suppose USD10) and use it as many time as he/she like (as many notes of USD10). Satoshi solved this problem by showing all transactions in a public list. Whenever a new transaction is made, its validity is checked by confirming from the list that the digital currency was not used before.

This way, no one can copy the currency and use it for more than one time. It’s a simple but effective idea to stop double spending of the same bitcoin.

What is bitcoin based on?

Bitcoins are kept in a digital wallet which you can keep in your computer, or on a website online, which will manage and secure your wallet for you. You can have as many wallets and bitcoin addresses (where you receive money from others) as you like.

Conventional currency has been based on gold or silver. Theoretically, you knew that if you handed over a dollar at the bank, you could get some gold back (although this didn’t actually work in practice). But bitcoin isn’t based on gold; it’s based on mathematics.

Around the world, people are using software programs that follow a mathematical formula to produce bitcoins. The mathematical formula is freely available, so that anyone can check it.

The software is also open source, meaning that anyone can look at it to make sure that it does what it is supposed to.

What is transaction?

A transaction is a transfer of Bitcoin value that is broadcast to the network and collected into blocks. A transaction typically references previous transaction outputs as new transaction inputs and dedicates all input Bitcoin values to new outputs.

Transactions are not encrypted, so it is possible to browse and view every transaction ever collected into a block.

What does a transaction look like?

If Aimee sends some bitcoins to Bob, that transaction will have three pieces of information: •

• •

An input. This is a record of which bitcoin address was used to send the bitcoins to Aimee in the first place (she received them from her friend, Cary).

An amount. This is the amount of bitcoins that Aimee is sending to Bob. An output. This is Bob's bitcoin address.

How Bitcoin sent?

To send bitcoins, you need two things: a bitcoin address and a private key. A bitcoin address is generated randomly, and is simply a sequence of letters and numbers. The private key is another sequence of letters and numbers, but unlike your bitcoin address, this is kept secret.

Think of your bitcoin address as a safe deposit box with a glass front. Everyone knows what is in it, but only the private key can unlock it to take things out or put things in.

When Aimee wants to send bitcoins to Bob, she uses her private key to sign a message with the input (the source transaction(s) of the coins), amount, and output (Bob’s address).

She then sends them from her bitcoin wallet out to the wider bitcoin network. From there, bitcoin miners verify the transaction, putting it into a transaction block and eventually solving it.

Image Source: businessinsider

Miners are the backbone of the Bitcoin network.

Without miners, the network would collapse and lose all value. The role of miners is to secure the network and to process every Bitcoin transaction.

Miners achieve this by solving a computational problem which allows them to chain together blocks of transactions (hence Bitcoin’s famous “blockchain”). For this service, miners are rewarded with newly-created Bitcoins and transaction fees.

Fig: The Mining Process

Why Use Bitcoin?

Peer to Peer

When you send bitcoins to someone else, there is no required involvement from a payment processor. This means the fee for each transaction is very small -- from zero to negligible. Being peer to peer also means that there's no central entity controlling the network. There's no need to trust or receive permission from any specific person or organization to participate in the Bitcoin network. For this reason, Bitcoin is global and resilient to problems that have plagued traditional currencies.

It's anonymous Well, kind of. Users can hold multiple bitcoin addresses, and they aren’t linked to names, addresses, or other personally identifying information.

It's completely transparent Sometimes, we don’t want people knowing what we have purchased. Bitcoin is a relatively private currency. On the one hand, it is transparent – thanks to the blockchain, everyone knows how much a particular bitcoin address holds in transactions. They know where those transactions came from, and where they’re sent. On the other hand, unlike conventional bank accounts, no one knows who holds a particular bitcoin address. It’s like having a clear plastic wallet with no visible owner. Everyone can look inside it, but no one knows whose it is. However, it’s worth pointing out that people who use bitcoin unwisely (such as always using the same bitcoin address, or combining coins from multiple addresses into a single address) risk making it easier to identify them online.

It’s cheap

Your bank may charge you a £10 fee for international transfers. Some merchants will charge a fee for debit card transactions too, as they have to pay a ‘swipe fee’ for fulfilling them. Bitcoin doesn’t.

It’s fast When you pay a cheque from another bank into your bank, the bank will often hold that money for several days, because it can’t trust that the funds are really available.

Similarly, international wire transfers can take a relatively long time. Bitcoin transactions, however, are generally far faster. You can send money anywhere and it will arrive minutes later, as soon as the bitcoin network processes the payment.

It’s non-repudiable/No Chargebacks Once bitcoins have been sent, they’re gone. When your bitcoins are sent, there’s no way getting them back, unless the recipient returns them to you. This makes it difficult to commit the kind of fraud that we often see with credit cards, in which people make a purchase and then contact the credit card company to make a chargeback, effectively reversing the transaction.

Reduced risk for merchants Accepting traditional credit card payments is not only expensive for merchants, it also leaves them open to fraudulent payment reversals and chargebacks. Since Bitcoin payments are not reversible, once a merchant has received payment, they can be sure that the payment will not be cancelled fraudulently. If a merchant doesn't have access to traditional credit card or payment networks, Bitcoin enables them access to the global economy instantly, and with negligible fees.

Complete control over your money In a conventional banking system, you have to trust people to handle your money properly along the way. You have to trust the bank, for example. You might have to trust a third-party payment processor. You’ll often have to trust the merchant too.

These organizations demand important, sensitive pieces of information from you.

Because bitcoin is entirely decentralized, you need trust no one when using it. When you send a transaction, it is digitally signed, and secure. An unknown miner will verify it, and then the transaction is completed. The merchant need not even know who you are, unless you’ve arranged to tell them.

Effortless online payments In many cases, using bitcoin is the easiest and quickest way to make a payment on the internet. When making a donation, or buying a digital item that doesn't require shipping, Bitcoin doesn't require any personal information. The merchant doesn't need any information, because they aren't charging you (like a credit card), rather you are sending them the payment (like cash).

Where to Buy and Sell Bitcoins?

Top stores which accept Bitcoins

References

http://www.coindesk.com/ https://bitcoin.org http://www.blockchaintechnologies.com http://static.businessinsider.com https://www.buybitcoinworldwide.com/kb/what-is-bitcoin-mining/ https://www.youtube.com/watch?list=PLZWrc_gWChqnaaeOQcxXG3qBFyfS1Ayv&v=Gc2en3nHxA4 http://www.the-blockchain.com/2016/07/19/mphasis-opens-centre-excellenceblockchain-technologies-india/