Understanding the Basics of Blockchain

Whenever I bring up blockchains, most people dismiss it as just a buzzword tied to cryptocurrencies and NFTs. They often see it as a passing trend, something not worth their time or attention. I have to admit, I used to think the same—until I took a closer look. In this article, I’m here to share what I’ve learned, to give you a clearer picture of what blockchain technology really is and how it has the potential to revolutionize the way we do things.

What is a Blockchain?

A blockchain is a distributed database or ledger shared among a computer network's nodes. It is like a digital notebook that everyone can see, but no one can change. It keeps a permanent record of transactions or information, where each page (or block) is linked to the previous one, forming a chain. Because it's shared across many computers, it's very secure and transparent, making it useful for things like digital money, contracts, and other trustworthy record.

Bitcoin was one of the first such protocols. Created by Satoshi Nakamoto. It was powered by Cryptography and de centrality. It enabled peer to peer transactions in a de centralized environment. It allowed censorship resistant finance. It is also referred to as digital gold.

Why the need of Blockchain technology?

By using blockchain technology to create smart contracts, decentralized oracle network, we can create an ecosystem with trust minimized agreements. By leveraging the blockchain ecosystem, we have a way to create secure, transparent, and tamper-proof systems without relying on a central authority. Here are the key reasons:

1. Security: Blockchain's structure makes it very difficult for anyone to alter or hack the information stored in it.

2. Transparency: All participants can see the transactions, making it easy to verify and trust the data.

3. Decentralization: It removes the need for a middleman (like a bank or a company) by allowing peer-to-peer transactions directly between users.

4. Efficiency: By automating processes and reducing the need for intermediaries, blockchain can streamline transactions and reduce costs.

5. Immutability: Once data is recorded on the blockchain, it cannot be changed, ensuring a permanent and trustworthy record.

These features make blockchain useful for a wide range of applications, from financial services to supply chains, and more.

What is Ethereum?

Just like Bitcoin, Ethereum is also a blockchain. It was founded by Vitalik Buterin on July 30 2015. It has an additional feature as compared to bitcoin, which is the ability to have decentralized agreements. Although, Bitcoin can also have the same functionality, their primary focus has always been to use bitcoins as a blockchain to store value/currency. This is the reason it is also known as digital gold.

With the ability of having decentralized agreements on the ethereum blockchain, Smart and Hybrid Contracts were introduced. Lets talk about them now.

Smart Contracts:

Smart contracts are a set of instructions executed in decentralized way without the need for a centralized or third party intermediary. They are like traditional contracts. They are like normal contracts which are written down in the form of code and are deployed in blockchains which removes the dependency of a third party in a centralized environment and enables decentralized agreements. Bitcoins are not used for this purpose. Instead their main objective is to store the value.

Hybrid Smart Contracts:

Now, If we want these smart contracts to replace the traditional ones, we will need data related to these contracts. Now, the blockchains don’t have the ability to communicate or fetch data, so we need a way to feed them all of the data. Blockchains are deterministic systems. But, if we take all of this data from a centralized data store or oracle network, it would defeat the purpose of blockchains being decentralized. Therefore, Our off chain data is also required to be decentralized. The combination of on chain and off chain decentralized agreements is known as hybrid smart contracts.

Chainlink is the primary company which currently provides the service of providing this external data and the computation power required by these smart contracts and work in a decentralized environment.

What have Smart Contracts done so far?

Below are some of the major advancements which has been achieved with the help of smart contracts:

• DeFi (Decentralized Finance)

• DAOs (Decentralized Autonomous Organizations)

• NFTs (Non Fungible Tokens)

I hope this article gave you a basic idea of the blockchain technology. Follow my blogs as I start my journey on the blockchain world.

Cheers.