| Blockchain is based on distributed Ledger technology, which helps transactions have public witness, thereby minimizing cybercrime and fraud. It is an open distributed ledger that records transactions between two parties in a verifiable and durable manner. |
Blockchain is so hot in the market that its applications have been widely used in various industries such as retail, healthcare, IoT, and finance/banking. Blockchain is often associated with the technology behind Bitcoin, but it is not just a way of recording cryptocurrency, it can also accommodate any form of digital asset and data that may arise.
Processes that involve manual operations where a trusted third party facilitates transactions can be automated using blockchain and two parties can transact without a middleman, enabling organizations to perform complex processes more cheaply and easily.
What is blockchain?
The blockchain is a distributed database that maintains a growing list of records (the list of records here can be understood as LinkedList). Each block has two parts (just like a node in a LinkedList has two parts - data and the address of the next node); a timestamp with transaction data, and a link (hash pointer) to the previous block .
Blockchain is not meant to modify and delete data. Therefore, once recorded, the data in any given block cannot be modified/erased without modifying all subsequent blocks and colluding with the network. This means that they can be updated sequentially when modifications are required.
Blockchain is based on distributed Ledger technology, which helps transactions have public witness, thereby minimizing cybercrime and fraud. It is an open distributed ledger that records transactions between two parties in a verifiable and durable manner.
Blockchains are connected through a P2P network (node/computer network, where each node is an administrator) that enables protocols for validating new blocks and relaying transactions. New nodes get a copy of the blockchain when they join the network. Distributed ledgers are programmable so transactions can be triggered automatically.
Let's look at an example where two parties are involved in a currency exchange transaction.
Suppose Party A wants to send money to Party B; thus transactions will be represented online as "blocks". Now the block will be broadcast to every party in the network. If the transaction is valid, all parties in the network will approve the transaction (a block is only valid if it obeys all protocol rules). If invalid, it will not be forwarded. Blocks can then be added to the chain, providing a durable and transparent record of transactions. Now the money goes to Party B.
There are three aspects to any technology: technical, commercial and legal.
The same applies to blockchain. As a technologist, you can think of a blockchain as a backend database with a distributed ledger. As a business professional, you can think of it as a network of exchanges, transferring data between peers. As legal and compliance experts, this can be thought of as a way to verify transactions.
Let's take a look at the structure of a "block".
Each block is linked to other blocks like a linked list. Here each block is using the hash of the previous block to form a chain. As shown in the figure below, transactions are recorded in blocks.
Most financial institutions and banks are exploring and evaluating blockchain technology in several ways. Possible applications in the POC (Proof of Concept) stage or already implemented include P2P remittances, cross-border payments, digital currency exchanges, trade finance, smart contracts and risk management.
The main challenge is the regulatory compliance, policy and legal frameworks that support technological adaptation.
What is Ethereum?
Ethereum is an open source blockchain platform. It can build and run decentralized applications. Ethereum is a "singleton" planetary computer, which you can understand as a single computer that everyone can use. This is the first near-zero infrastructure platform.
Anyone who joins the Ethereum network can upload programs to Ethereum and can request to execute the uploaded program.
Ethereum Virtual Machine (EVM)
EVM is the core of Ethereum. This is a programmable blockchain. You can use it to create any complex operation of your own. EVM is focused on providing security, so it can prevent a very common type of cyber attack known as Denial of Service (DoS). It can be used not only for cryptocurrency use cases; for example, in land registry, banking transactions, etc. It supports peer-to-peer networking, so it can ensure that communication is established without any interference.
How does Ethereum work?
Everything in Ethereum is account based. Ethereum state has two types of accounts, and both have an ether balance.
Every action in Ethereum happens through an EOA-triggered transaction. An EOA can trigger a transaction with another EOA or contract. The contract code is executed by the EVM of each node participating in the Ethereum network. A contract can perform transactions/calls to other contracts.
Account interaction can be understood as:
Ethereum key pair
Private Key: This is a 64-character string. Any 64-character string except '0' 64 times is a valid key.
Public key or wallet address: Hash the last 40 characters of the private key. A '0x' in front of it means it's in hex format.
Let's take a look at the key conversion (private to public) in the image below:
