What is BlockChain
To understand Blockchain lets take an example, in our day to day value transfer we need a third party which takes care of Centralizing all the transactions for e.g banks for money, notary for land transfer etc maintaining a ledger.
This Centralization concentrates power in hands of few individuals. What if we return power back to people by Decentralizing it?
In November 2008, Satoshi Nakamoto published a Whitepaper for a new monetary system which,
- Creates and stores value in digital form
- Is decentralized (unlike tradition banking which is centralized)
This monetary system maintained a Digital Ledger on peer to peer network of nodes (individual computers) having following characteristics:
- Each node stores all the data and has power to decide which modifications in data are legitimate
- Consistency in individual copies of data is maintained by using Consensus Algorithm
- Consensus Algorithm
- It states that a central point is elected and is responsible to modify the data and other nodes consider it as one source of truth
- In decentralized system, this responsibility is changed on regular and random basis
- Immutability implies we can’t change history i.e. we can always track all the modifications from origin
- Trustless environment implies nodes can join the network at any point in time, download data and start requesting changes without needing to trust them
What is a Digital Ledger
A Ledger can be understood as an ordered list of transactions meant for book keeping. When we maintain that bookkeeping online it is termed as Digital Ledger. A simple ledger is shown below maintaining records of all the value transfers between multiple parties,
Blockchain can be understood as a code that runs on the computers of all the participants in the trustless network.