Block chain and its basic terminology include mining
- 1. Block Chain
- 2. Introduction • Blockchain was introduced in 2008 by Satoshi Nakamoto or a group of people with alias who developed bitcoin. Illustration of a Blockchain • Blockchain technology decentralizes the entire network. • Data cannot be tampered with in blockchain technology as it is cryptographically secured.
- 3. Introduction • Blockchain is a distributed digital ledger of immutable records. • Blockchain is composed of cryptographically linked blocks like a linked list of a data structure and hash as a pointer. • Chain of blocks in blockchain in chronological order. • Hash represents each block uniquely.
- 4. Introduction The properties of hash function are as follows: • It is a one-way function, that is, given the input, the hash value can be computed easily. However, given the hash value, it is very difficult to produce the input back. This is like a trapdoor function in ECC. • It is deterministic, that is, for the same input, the output is also the same. • A small change in the input, there would be a big change in the output.
- 5. Blockchain and Its Versions • The blockchain is shared among all the users of the networks. • Each user has the same copy of it and can see the history of transactions. The details are since the first block was added to the blockchain network. • The first block is also called genesis block. • There are three versions of Blockchain. 1. Blockchain 1.0 is used in digital currency like bitcoin or other cryptocurrencies in a decentralized system. 2. Blockchain 2.0 is used in smart contracts and the transfer of stock and bonds 3. Blockchain 3.0 is used in government organizations, hospitals, and many more.
- 6. Blocks in Blockchain • Version number: Sequence number of the block. • Previous hash: Hash of the previous block to which the current block is linked. • Merkle root hash: Hashes of all transactions are structured in binary Merkle tree. The root of the tree is called Merkle root hash. • Timestamp: When the block is verified and mined. • Nonce: A random number used to create the hash. • Target: The generated hash should be less than the target set by the network.
- 7. Miner • The miner varies the nonce, while the previous hash and Merkle root remain the same, to generate a hash value lower than the target. • If the hash value meets the target set by the networks, then process stop. Otherwise, the process is repeated and this is called proof of work consensus algorithm. • All the nodes of the network agrees on the same version of the fact in the consensus algorithm.
- 8. Miner • The miner verifies and validates the transactions and adds the block. • The first miner who gets the hash that meets the target is rewarded. • Since the miner invests resources and computing power, he or she is rewarded for the same in terms of bitcoin or other forms of remuneration. • The miner also verifies if the sender has a sufficient amount to be transferred. • The target hash is decided months in advance for every block. • It is difficult to generate a nonce that satisfies the target but it is easy to verify by other miners.
- 9. Role of Digital Signature in Blockchain • Confidentiality is defined as the state of keeping secret or private. This is carried out using public key for encryption and private keys for decryption. • Authentication is defined as the process of showing something legitimate. This is achieved using digital signature.
- 11. Transaction Pool and Candidate Block • Transaction pool stores all the unverified transactions before getting included in a new block. • Candidate block is a temporary current block that does not have valid proof of work. Tie in Generating Hashes or Adding Blocks by Miners:
- 12. Fork • The blockchain diverges into a different chain with different rules or protocols. The users of networks are not in agreement. • There are two types of forks: 1. Soft fork: The new version works well with the old version, that is, there is backward compatibility. Hence, there is flexibility. 2. Hard fork: This is rigid as there are different rules for different chains and the users have to choose one.