The emergence of blockchain technology has opened up new trends in the fields of finance and banking, logistics, electronics and telecommunications, accounting and auditing, etc. So what is blockchain and what can it do?
1. What is blockchain? (concept, classification, latest version)
concept
Blockchain is a blockchain technology that allows data to be transmitted securely based on an extremely complex encryption system, similar to a company's accounting ledger where funds are closely monitored and all transactions on a peer-to-peer network are recorded.
Each block contains information about when it was created and links to the previous block, as well as a time code and transaction data. Once data is accepted by the network, it cannot be changed. Blockchain is designed to resist fraud and data tampering.
Blockchain technology - a combination of three technologies:
- Cryptography: To ensure transparency, integrity and privacy, blockchain technology uses public keys and hash functions.
- Peer-to-peer network: Each node in the network is considered a client and also a server storing a copy of the application.
- Game theory: All nodes participating in the system must abide by the rules of the consensus game (PoW, PoS, ...) and are incentivized by economic incentives.
Blockchain systems fall into three broad categories:
- Public: Anyone has the right to read and write data on the blockchain. The process of verifying transactions on this blockchain requires many participating nodes. Therefore, it is really not feasible to attack this blockchain system at a huge cost. For example: Bitcoin, Ethereum...
- Private: Users can only read data, not write it, because it belongs to an absolutely trusted third party. Since this is a private blockchain, transaction confirmation time is very fast because only a small number of devices are required to participate in transaction verification. For example, Ripple is a form of private blockchain, and this system allows 20% of the nodes to cheat, and only requires the remaining 80% to work stably.
- Permissioned (also called consortium): A form of Private, but with some additional features added, this is a combination of Public and Private. For example, a bank or joint venture financial institution will use its own blockchain.
Versions of blockchain technology
- Blockchain Technology 1.0 - Currency and Payments: The main application of this version is cryptocurrency: including currency conversion, remittances and the creation of digital payment systems. This is also the area we are most familiar with, and sometimes many people mistakenly believe that Bitcoin and blockchain are the same.
- Blockchain Technology 2.0 – Finance and Markets: Banking and Financial Processing Applications: Expanding blockchain to introduce financial and market applications. Assets include stocks, checks, debts, ownership, and anything related to an agreement or contract.
- Blockchain Technology 3.0 – Design and Operational Monitoring: Bringing blockchain beyond the boundaries of finance into areas such as education, government, health, and the arts.
2. Prominent features of blockchain
Blockchain has the following notable features:
- Blockchain cannot be forged or destroyed: In theory, only quantum computers can decode blockchain, and when there is no Internet in the world, blockchain technology will disappear.
- Immutable: Data in the blockchain cannot be changed (can be edited but will leave a trace) and is stored permanently.
- Security: Information and data in the blockchain are distributed and absolutely safe.
- Transparency: Anyone can follow the blockchain data from one address to another and can track the entire history of that address.
Smart contracts: are digital contracts embedded in if-this-then-that (IFTTT) code, allowing them to execute themselves without the need for a third party.
3. How does blockchain work?
The most famous and discussed application of blockchain technology is cryptocurrency. Bitcoin is a digital currency unit, codenamed BTC, which, like the dollar itself, has no value. It has value only because a community agrees to use it as a unit for trading goods and services.
In order to keep track of how many bitcoins each person has in certain accounts and to track the resulting transactions, we need a ledger, in this case the blockchain, which is essentially a digital file that keeps track of all bitcoin transactions.
This ledger file is not stored in a central server, such as a bank or data center, but is distributed around the world through a peer-to-peer computer network for data storage and computation execution. Each of these computers represents a "node" of the blockchain network, and each node has a copy of the ledger file.
Coding principles
In fact, the ledger is always maintained by interconnected computers in a peer-to-peer network. So it will have some differences:
- In the banking system, we only know our own transactions and account balances, but on the Bitcoin blockchain you can see everyone's transactions.
- The Bitcoin network is a distributed network that does not require a third party to act as an intermediary to process transactions.
-The blockchain system is designed to be trustless and is guaranteed to be reliable through special mathematical cryptographic functions. .
To be able to perform transactions on the blockchain, you need a software that allows you to store and exchange Bitcoins, called a crypto wallet. This cryptocurrency wallet will be protected by a special encryption method that uses a unique pair of security keys: a private key and a public key.
If a message is encrypted with a specific public key, only the owner of the private key paired with this public key can decrypt and read the message content.
When you encrypt a transaction request with your private key, you are creating a digital signature that computers in the blockchain network use to verify the sender and the authenticity of the transaction. This signature is a string of text that is a combination of the transaction request and your private key.
If a single character in this transaction request message changes, the digital signature will change accordingly. Therefore, it is difficult for hackers to change your transaction request or change the amount of Bitcoin you send.
To send Bitcoin (BTC), you need to prove that you own the private key to a specific wallet, as you will need it to encrypt the transaction request message. Once your message is sent and encrypted, you no longer need to reveal your private key.
Ledger Rules
Each node in the blockchain keeps a copy of the ledger. Therefore, each node knows what your account balance is. The blockchain system only records each requested transaction and does not track your account balance.
To know your Wallet balance, you need to verify and confirm all transactions related to your Wallet that occur on the network.
This "balance" verification is done through calculations based on links to previous transactions. Looking at the figure above, in order to send John 10 BTC, Mary needs to create a transaction request that contains a link to a previous transaction with a total balance equal to or greater than 10 BTC.
These links are treated as input values, and nodes in the network will verify that the total amount of these transactions is equal to or greater than 10 BTC. All of this is done automatically in Mary's wallet and checked by nodes on the Bitcoin network. Mary simply sent a transaction for 10 Bitcoins to John's wallet using John's public key.
In fact, the node will check all transactions related to the crypto wallet you previously used to send Bitcoin (BTC) by referring to the transaction history. The possession record will store unused BTC and be kept by the network node, thus simplifying and speeding up the verification process. Thus, the crypto wallet avoids double-spending transactions.
The source code on the Bitcoin network is open source, meaning that anyone with an internet-connected computer can join the network and conduct transactions.
However, if there is any error in the source code used to broadcast the transaction request message, the associated bitcoins will be lost forever.
Remember, there is no customer support or anyone who can help you recover lost transactions or forget your crypto wallet password as this is a distributed network. For this, you need to store your wallet password or private key very carefully and securely.
Block production principle
After transactions are published on the blockchain network, they are grouped into blocks, and transactions in the same block are considered to have occurred simultaneously. Transactions that have not yet been executed in a block are considered unconfirmed.
Each node can combine transactions into a block and send it to the network as a hint for subsequent blocks to be attached. Any node can generate a new block. So, the question is: which block will the system agree on? Which block will be the next block?
To be added to the blockchain, each block must contain a piece of code that is the solution to a complex mathematical problem generated by an irreversible hash function.
The only way to solve such a math problem is to guess a random number that, when combined with the previous block content, produces a system-defined result. For a typical computer with basic configuration, it can sometimes take about a year to correctly guess the number to answer this math problem.
The network stipulates that each block is generated every 10 minutes, because there are always a large number of computers in the network, all of which are focused on guessing this sequence of numbers. The node that solves such a mathematical problem has the right to install the next block on the chain and send it to the entire network.
So what happens if two nodes solve the same problem at the same time and transmit their resulting blocks to the network at the same time? In this case, both blocks are submitted to the network, and each node builds successive blocks on top of the block it received first.
However, the blockchain system always requires each node to build on the longest blockchain it has received. Therefore, if there is ambiguity about which block is the last block, then once the next block is solved, each node will apply for the longest chain.
Since the probability of concurrently building blocks is very low, it is almost impossible to solve multiple blocks at the same time and generate different chain blocks multiple times. Therefore, once each node reaches a consensus, the entire blockchain will quickly stabilize and merge.
4. Practical application of blockchain technology in life
Some of the industries that blockchain technology may impact include:
- Automotive
- Manufacturing
-Tech, media & Telecommunications
- Financial Services
- Art & Recreation
- medical insurance
- Insurance
- retail
- Public Sector
- real estate
- Agriculture
- mining industry
- Transport & Logistics
- Technical infrastructure engineering (utilities)
Currently, there are many large companies and corporations that are using blockchain technology to build their own networks. It is certain that blockchain will revolutionize the world in the coming years and play an increasingly important role in changing the IT world.