Fundamentals of Blockchain

On Saturday, Blockchain India organized a webinar (web seminar) with Kapil Thakur who is a senior consultant at the ASG Group. The webinar was on Fundamentals of Blockchain.

Mr. Thakur talked on the basics of blockchain. The blockchain technology is a digital ledger that keeps records of all transactions that takes place on peer to peer network. He added that all information transferred by blockchain is encrypted and every occurrence recorded.

After a brief introduction, Mr. Thakur started talking about history and origin of digital money. He said that blockchain and bitcoin are inseparable since “blockchain was given to us through bitcoin”. The topics covered over the course of webinar included: Bitcoin and blockchain revelations, distributed ledger & P2P transactions, blockchain technology- transactions, nodes, blocks, nonce, and blockchain terminology- smart contracts, decentralization, mining, Proof of Work (PoW),  Proof of Stake (PoS), ICOs etc.

Before commencing, he laid down a few rules among which he stated that he would not be answering questions on cryptocurrencies and regulation scene in India as it was a very controversial matter.

In current usage, money or fiat currency is used as a medium of exchange, unit of account and store of value. However, in olden days, money in Latin, meant “let it be done.” He further explained that “money is whatever is generally accepted in exchange for goods and services-accepted not as an object to be consumed but as an object that represents a temporary abode of purchasing power to be used for buying still other goods and services.”- Milton Friedman (A Noble laureate)

Need for Digital Money:

Mr. Thakur explained that “In our digital age, economic transactions regularly take place electronically without the burden to exchange physically. Digital cash in the form of bits and bytes will most likely continue to be the currency of the future. It is easier than carrying a bag full of money.”

Although electronic money transferring system like PayPal was introduced in 1998, barely a decade later, it was swept away by the bitcoin revolution. Interestingly, the advent of blockchain came to the fore nearly three years after bitcoin. Earlier bitcoin was used only by military people. However, it gained prominence once it was released for public use.

Mr. Thakur noted that even though cash was electronically passed around, it still needed a central regulating body. He added that he did not believe that anonymity was a solution as that could lead to many problems.

One thing that must be noted here that bitcoin is not a cryptocurrency or a company. It was only a white paper and contained protocol on how digital currency should be handled. The rules also ensured that people could only read and follow them but not change them. In the event, there was no third party and therefore no single point of failure. Within a short period of time (a week) bitcoin was registered as a domain name; before the government could get its hands on it!

Important note: Bitcoin.org is run by a community and is entirely community-based. There is no central authority in bitcoin.

Moving on from bitcoin, the next topic to be talked about, was blockchain. Mr. Thakur informed the audience that blockchain is a public ledger that will record and verify peer to peer transactions. However, he reminded them that any participating computer has a recorded document of the digital transfer that took place and these computers are called nodes.

The best part about blockchain is that no information is ever lost on the network. If one node stops working or goes offline, it can easily retrieve a copy of the information from another node. There are different advantages of using the blockchain such as 1) It is transparent 2) It is secure 3) It is immutable. Interestingly Mr. Thakur said, that the reason why it is immutable is because it is extremely hard to achieve 51% of the stake power. Readers might remember that recently Bitcoin Gold’s network was hacked because one of the miners had 51% of the mining stake which was how the hack was carried out.

He explained some well-known terms such as hash rate (which is the speed at which transactions are hashed  by the mining machine); Nonce (which is a number or address used once and never used again to segregate duplicate records); DApps (Decentralized Applications that are created on the blockchain) and TPS (Speed of blockchain ecosystem in transaction per second). Apart from that he also explained the difference between Proof of Work and proof of Stake.

Listing down the various and advantages, Mr. Thakur said that blockchain is hack-proof. He said that exchanges are run on simple applications; which is why they get hacked. He added that they are not run on the blockchain. He added that the transactions are super fast but there are external factors that depend on computer speed, among others. The disadvantages include that since the technology is in nascent stage, there are various issues that need to be ironed out such as transaction speed, verification process, and data limits. There are security concerns and regulatory concerns that have not yet been resolved in the technology.

Concluding the webinar Mr. Thakur explained some of the use cases of blockchain such as:

  • Healthcare
  • Banking and Finance
  • Proof of stake Decentralized App (Self-amending blockchain governance)
  • Power generation
  • Education
  • Angel Investing
  • Voting
  • Smart cities

Article Credits : Aheli Raychaudhuri

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