Blockchain is a shared, distributed ledger for recording transactions and tracking assets in a business network.
Assets can be tangible (house, car, cash, land) or intangible (intellectual property).
Traditional record keeping involves participants keeping their own ledgers, leading to inefficiencies and vulnerabilities.
Blockchain architecture allows participants to share a ledger that is updated through peer-to-peer replication.
Each participant (node) has a copy of the blockchain, enabling them to publish and receive transactions.
Consensus rules process transactions and synchronize data across the network.
Benefits of Blockchain
Time savings: Faster transaction settlement by removing central authority verification.
Cost savings:
Less oversight due to self-policing by network participants.
Reduced intermediaries, enabling direct exchange of value.
Elimination of effort duplication with a shared ledger.
Tighter security: Immutable transactions protect against tampering, fraud, and cybercrime.
Blockchain Characteristics
Distributed and sustainable: Shared ledger updated with every transaction in real time.
Secure, private, and indelible: Permissions and cryptography prevent unauthorized access; privacy maintained through cryptographic techniques and data partitioning.
Transparent and auditable: Participants can validate transactions without intermediaries.
Consensus-based and transactional: Network participants must agree that a transaction is valid using consensus algorithms.
Cryptography in Blockchain
Cryptography is used for encrypting and decrypting data, ensuring privacy during transmission and storage.
Blockchain uses public and private keys to identify transaction participants.
Example: Mary pays Susan in Bitcoin using her private key to initiate the transaction to Susan's public key.
Miners aggregate transactions into blocks and perform Proof-of-Work consensus algorithm.
Mining
Miners validate transactions and mine new blocks.
They earn fees for validating transactions and block rewards for mining new blocks (e.g., 6.25 bitcoins per block).
Cryptographic Keys
Public key: acts like your name.
Private key: identifies the rest of the traditional information and this is hidden.
Benefit: enables users to transact private data without third-party involvement.