What is a Blockchain ?
Blockchain as the name suggests is an immutable chain of data blocks which is controlled and updated by its users.
It is basically a decentralized digital ledger of transactions. Which is duplicated and shared among all of its users.
Any change to a blockchain needs approval from more than half of its users. Here users means computers running the nodes of the blockchain.
In Blockchain technology blocks once created become part of the network forever and are immutable. For every new transaction new blocks are created and added to the existing blockchain.
New blocks are added to the end of the existing chain via specific cryptographic signature.
Every node on the network has a complete copy of the chain.
Type of Blockchain technology
- Public: The blockchain which is open to everyone is called public blockchain. Bitcoin and Etherium are perfect examples.
- Private: Private blockchains are limited to the users of a particular organization or group. “Ripple and Hyperledger” are examples of private blockchain.
- Consortium (Hybrid): Consortium Blockchains are hybrid means the combination of public and private blockchains.
Features of Blockchain
- Decentralized: Unlike any other databases, blockchain is decentralized and is not controlled by a single entity. The whole blockchain is copied and distributed to each computer on the network.
- Immutable: Blockchain is immutable means any block of information in the chain cannot be changed. For any new transaction new blocks are created and already created blocks cannot be altered.
- Transparent: Everyone on the blockchain network has complete access to the whole chain. Any one with access to the internet can see the transactions of a public blockchain.
- Secure: Spam in blockchain network is practically impossible specially in the bigger ones like bitcoin, etherium etc. For any transaction to occur on a blockchain it needs the approval from more than 50% of its users so if someone alters his copy of blockchain it will not match with the majority and the false transactions will be discarded.
- Autonomous: Public Blockchains are self controlled and managed. No country, bank or government controls it. Any decision about the blockchain is taken by conducting a consensus among its users.
Uses of Blockchain technology
Blockchain was first used in 2008 by an anonymous group or person named “Satoshi Nakamoto” as Bitcoin Blockchain, a decade has passed since then but this technology is still in the evolving phase.
At present Blockchain uses can be seen in the field of :-
- Cryptocurrencies
- NFT
- Real Estate on Metaverse
- In Healthcare sector
Difference between blockchain and cryptocurrency
Blockchain is the main technology of decentralised databases whereas cryptocurrency is one of many possible ways of application of this technology.
Blockchain Mining
Mining is the process of validating and securing new transactions on a blockchain network. Whenever a new transaction occurs on the blockchain, all miners are given a complex cryptographic puzzle to solve.
All miners on the network compete with one another to reach the solution, once the puzzle is solved the newly initiated transaction is confirmed and get recorded on the network. Winners are rewarded with blockchain native currencies like ’Bitcoin’ for bitcoin blockchain and ‘eth’ for etherium blockchain.
Types Of Mining
Mining is a complex computational process and difficult to process by human intelligence, mining is performed using powerful computers.
Types of mining depending on Hardware.
GPU based mining
GPU based mining or Video card mining is performed by powerful GPUs. Two main manufacturers of mining GPUs are NVIDIA and AMD.
This type of mining is considered more profitable than CPU Mining.
CPU based mining
CPU based mining is less profitable than its alternatives.
However some of the top mining CPUs are:
- AMD Ryzen Threadripper 3970X
- AMD Ryzen ( 3950 X
- Intel Pentium Gold G-6400
ASIC based mining
ASIC stands for Application-specific integrated circuit. It is a Dedicated machine used specifically for the purpose of mining. This type of hardware is mainly used for mining Bitcoin.
As other two options namely CPU and GPU are not profitable in case of Bitcoin mining.
Top Five ASIC Miners are:
- WhatsMIner M30S++
- AVALONminer 1246
- Antiminer s19 Pro
- DragonMint T1
Mining difficulty level increases as the blockchain popularity increases and more miners participate for solving the complex cryptographic puzzle.
Types of mining depending on Methods.
Individual Mining
Mining performed by a single nod on the network is termed as individual mining. In individual mining an individual node running on a powerful computer is required.
Once a transaction occurs on the blockchain every connected node performs the process of mining and in this way authenticates and records the transaction to the existing blockchain.
Pool Mining
In this type of mining many individual miners perform the mining by sharing their combined hash power. All the miners are connected centrally to a common mining pool.
Pool mining is done using application or web interfaces, where individual miners can monitor their hash rate and can control power and temperature settings.
On Successful completion of a transaction reward is distributed equally among all the participants.
There are numerous mining pools, both free and premium.
Some of the examples of mining pools are:
- Ethermine.
- Nicehash Miner.
- F2Pool.
- Huobipool
Cloud Mining
Like cloud computing services where users can buy and use computing powers using different platforms. In this type of mining you are not required to buy or manage any computer hardwares.
Only you have to register with a cloud mining platform, where you will buy Hash Power from multiple miners worldwide.
Cloud Mining platforms offer computing hashpower, AI assisted mining algorithm selector.
In cloud mining user buy the hash rate from the online market and utilizes it for mining as per his choice.
Examples of cloud mining are:
- Shamining
- ChickenFast
- BeMine
- Gminer
- Awesomeminer.
Smart Contract
Smart Contract is a program deployed on a blockchain network that executes automatically, when specific conditions are met.
It replaces the human mediator and authoritarian between two parties while performing transactions.
These contracts make immutable records on the blockchain network.
Think of an ATM (Automated Teller Machine), the oldest example of a smart contract in physical form.
An ATM is pre-programmed to dispense cash automatically, when the user enters the correct card and PIN combination. Transaction gets recorded on the bank’s Database. Here the ATM replaces the human factor (cashier) in the transaction process.
Contract vs smart contract
Simply a Contract is a legal written agreement made between two or more parties in presence of a central agency, which authenticates and records the transactions on a centralised database.
For example real estate sale agreement, Here an written agreement is made between seller and buyer which is then authenticated by a central agency and recorded on a database.
Wheras a smart contract does not require a third party to validate its transaction.
Here transactions are automatically validated using coded protocol (programs) and get recorded on a blockchain.
For example If someone buys land in decentraland (ethereum based VR platform). A smart contract is executed and record the transaction on etherium blockchain
Blockchain Consensus
Consensus on the blockchain is an algorithm by which all the operating nodes come to an agreement about the present state of the blockchain. It makes the blockchain secure against cyber attacks, like double spending and false transactions.
To make any changes at least 51% consensus is mandatory.
Types of consensus mechanisms
Proof-of-work (POW)
This kind of consensus mechanism uses a competitive approach to achieve consensus. Here miners compete with one another to solve a cryptographic puzzle to add a new transaction block to the blockchain network. This process of solving cryptographic puzzles is called mining and the miner who successfully solves the cryptographic puzzle is rewarded with native crypto coin for his work.
Main disadvantage of this type of consensus mechanism is the immense amount of energy required for adding a new block to the blockchain. As the blockchain network grows its difficulty level also increases which in turn increases the amount of electricity to solve the cryptographic puzzle.
Extensive energy consumption of Proof of Work consensus mechanism lead to a new proof of Stack consensus mechanism which is more eco friendly.
Proof-of-stake (POS)
In this type of consensus mechanism miners are randomly selected based on the stacked cryptocurrency by the network inbuilt protocol. These selected miners are called validators and they mine the transaction block to the blockchain network. The more the stacked cryptocurrency the more is the chance to get selected.
After the mining of the block at least 2/3rd of the validators should verify that the transaction is correct, and then the block is added to the main network.
If the validation is failed all the stacked cryptocurrency of the validator is lost and the transaction block is not created.
Since a small group of miners (validators) are involve in the process of mining, energy consumption is considerably low as compared to PoW consensus mechanism.