What is Blockchain?
Summary
TLDRThis video script delves into the fundamentals of blockchain technology, emphasizing its role in addressing trust issues on the internet by moving from centralized systems to decentralized ones. It explains how blockchain facilitates secure transactions without intermediaries, using a peer-to-peer network where every participant maintains a copy of the ledger. The script also touches on the concept of miners in the Bitcoin network, who validate transactions and add them to the blockchain, earning rewards for their efforts. The immutable nature of blockchain ensures that once data is recorded, it cannot be altered, thus maintaining trust and transparency in digital transactions.
Takeaways
- 😀 Blockchain technology is crucial for solving trust issues on the internet, where centralized systems like banks and social media platforms control user data.
- 🏦 Centralization means a single entity controls all aspects, such as accounts and transactions, which can lead to trust issues due to the potential for manipulation.
- 🔄 Decentralization aims to move away from centralized systems by distributing control and data maintenance among multiple entities, enhancing trust and security.
- 💸 The first implementation of blockchain technology was Bitcoin, which allows for peer-to-peer transactions without the need for a central authority.
- 💼 In a decentralized system, transactions like sending money are recorded by multiple participants (nodes) in the network, ensuring transparency and preventing data tampering.
- 📈 Blockchain uses a ledger to store all transactions, similar to a shared spreadsheet, but without a central authority controlling the data.
- 🔒 The immutability of blockchain ensures that once data is stored, it cannot be changed, providing a secure and reliable record of transactions.
- ⏱️ Transactions are grouped into blocks, and these blocks are added to the blockchain at regular intervals (e.g., every 10 minutes in Bitcoin), creating a chain of blocks.
- 🔑 Cryptography, specifically hashing, is used to secure the blockchain. Each block contains a hash of the previous block, linking them in a secure chain.
- 💰 Miners, in the case of Bitcoin, are rewarded for adding blocks to the blockchain, providing an incentive for participants to contribute to the network's security and maintenance.
- 🔎 Any attempt to alter a transaction in the blockchain would change the hash of the affected block, which would then affect all subsequent blocks, alerting the network to the tampering.
Q & A
What is the primary issue that blockchain technology aims to solve?
-Blockchain technology primarily aims to solve the trust issue on the internet by providing a decentralized system where transactions are secure and transparent.
What is the difference between a centralized and decentralized system?
-A centralized system is controlled by a single entity, such as a company or a person, which manages all accounts and data. In contrast, a decentralized system distributes control across multiple participants, eliminating the need for a central authority.
Why is decentralization important in the context of blockchain?
-Decentralization is important because it removes the single point of failure and control, making the system more secure against tampering and fraud, and it enhances transparency and trust among participants.
What is the role of a blockchain in facilitating a transaction between two parties without a central authority?
-In a blockchain, transactions between two parties are recorded on a public ledger that is maintained by multiple nodes in the network. This ensures that the transaction is verifiable and immutable, without the need for a central authority.
How does the concept of a ledger work in blockchain?
-A ledger in blockchain is a digital record that contains all transactions made within the network. It is distributed across all nodes, ensuring that every participant has an up-to-date and consistent view of all transactions.
What is the significance of immutability in blockchain?
-Immutability means that once data is recorded in the blockchain, it cannot be altered or deleted. This ensures the integrity and reliability of the data, preventing fraud and ensuring trust in the system.
How does the blockchain system prevent a single entity from manipulating transaction data?
-Since every transaction is recorded across multiple nodes and each block contains a unique hash that is linked to the previous block's hash, any attempt to alter data would change the hash and invalidate subsequent blocks, making the change detectable and unacceptable by the network.
What is a block in the context of blockchain?
-A block in blockchain is a collection of transactions that are grouped together. Once a block is full, it is closed and a new block is started. Each block is linked to the previous one through cryptographic hashes, forming a chain.
What is the role of miners in the blockchain network?
-Miners are special nodes in the network that are responsible for validating transactions and adding new blocks to the blockchain. They solve complex computational puzzles to earn the right to add a block and are rewarded for their efforts, which helps secure the network.
What is the proof of work algorithm, and how does it relate to mining in blockchain?
-Proof of work is a consensus algorithm used in blockchain networks like Bitcoin, where miners must perform complex calculations to solve a puzzle and prove their work. The first miner to solve the puzzle gets to add the next block to the blockchain and receives a reward, which incentivizes miners to contribute to the network's security and transaction validation.
How does the blockchain technology ensure that only valid transactions are recorded?
-Blockchain technology ensures the validity of transactions through a consensus mechanism where multiple nodes in the network verify each transaction. Only transactions that are confirmed by the majority of nodes are added to the blockchain, preventing invalid or fraudulent transactions from being recorded.
Outlines
🔒 Decentralization and Trust in Blockchain
The first paragraph introduces the concept of blockchain as a solution to the trust issue on the internet. It explains the centralized system prevalent in various sectors like banking and social media, where a central authority controls the data. The speaker advocates for decentralization, where data is maintained by multiple entities in a peer-to-peer network, eliminating the need for a central authority. The paragraph discusses the problem of maintaining transaction records without a central system and introduces the idea of a distributed ledger that is immutable and accessible to all participants in the network. It also touches upon the concept of a block in the blockchain, which contains multiple transactions recorded over a specific time frame, and the use of cryptography to secure these blocks.
🛠 The Role of Miners in Blockchain Verification
The second paragraph delves into the mechanics of blockchain transaction verification and the role of miners. It describes how transactions must be validated to ensure their authenticity before being added to the blockchain. The miners, who are rewarded for their efforts, are responsible for adding new blocks to the chain. The paragraph explains the incentive system for miners, using Bitcoin as an example, where they receive substantial rewards for their work. It also introduces the concept of computational challenges or puzzles that miners must solve to prove their legitimacy and earn the right to add a block to the blockchain. The summary highlights the importance of miners in maintaining the integrity and security of the blockchain network and the process of how changes in the blockchain can be detected and addressed to ensure data consistency across the network.
Mindmap
Keywords
💡Blockchain
💡Trust
💡Centralized System
💡Decentralization
💡Ledger
💡Immutable
💡Hash
💡Cryptography
💡Miners
💡Nodes
💡Proof of Work
Highlights
Blockchain is essential for solving the trust issue on the internet.
Centralization means a single entity controls all aspects of a system.
Decentralization aims to move away from centralized systems to a more distributed model.
Blockchain can be used for various transactions beyond just Bitcoin.
The problem of maintaining transaction data without a central authority.
The concept of peer-to-peer architecture in blockchain to avoid trust issues.
Every participant in a blockchain network maintains a copy of the ledger.
Ledgers in blockchain record all transactions, not just the final balances.
Blockchain data is immutable, ensuring the integrity of transactions.
Transactions are grouped into blocks and chained together using cryptography.
The role of miners in validating transactions and adding blocks to the chain.
Miners are rewarded for their work in adding blocks to the blockchain.
Different blockchain implementations have various time limits for block creation.
The use of cryptographic hashes to secure the integrity of the blockchain.
The challenge of proof of work to prevent malicious actors from tampering with the blockchain.
Nodes in the network maintain the blockchain, while miners add new blocks.
The immutability of blockchain ensures that once data is recorded, it cannot be altered.
The detection of changes in the blockchain through the impact on cryptographic hashes.
The importance of blockchain in maintaining a transparent and unchangeable record of transactions.
Transcripts
foreign
now in the previous video we know that
blockchain is important and it solves
one important thing which is the trust
issue of course right on the internet we
don't trust anything and that's why we
need this centralized system if we talk
about banking social media everything is
centralized now what exactly centralized
means Android simply means that someone
is in control it can be a person it can
be an entity it can be a company think
about banking the banking system is in
control of all the accounts all the
users and all the money think about
social media they control your accounts
what we want to go for is moving away
from centralized system to
decentralization but the question is who
will maintain the data so let's say a
want to send ten dollars to B of course
blockchain can be implemented for
multiple scenarios one of the first
implementation of blockchain is Bitcoin
so we can transfer Bitcoins as well and
we also have some other implementations
because we are going to talk about
Bitcoin later so at this point let's say
if a want to send ten dollars to B and
as a loan basically well B will return
the money with interest let's say 11 so
in this case that one dollar is an
interest there right now in this case
let's say if a sends that money who is
managing it of course till this point we
have a centralized banking system who
will maintain the record now we know
that in the banking serve or the
requirements maintain that a has sent
ten dollars to B
but what if we don't have a bank in
between who will maintain this data now
if you say a will maintain data we can't
do that right see the thing is if a
maintains the data a can change it of
course I'd a can say I have sent you
twenty dollars now in this case the
problem is you can change the data and
again the issue of trust arises so what
we can do is one of the solutions we can
Implement here is what if both maintains
the record now the thing is since we
can't trust A and B even B can change it
to five a can change into 20 and we have
an issue there so how do we solve this
problem
so basically what you're trying to do is
moving away from the clients of
architecture to peer-to-peer
architecture where we have two entities
here one of the way to solve this
problem is to have multiple people in
the network not just a and b maybe we
can have C D E F and we have multiple
entities now what happens is every time
a does the transaction
this transaction will be recorded not
just with A and B but with everyone c d
e f the thing is in future if a says
hate was 20 now everyone knows in the
network that hey it was not 20 it was 10
and now we know the malicious person
here which is a even B can't change it
because everyone knows the data if we
can't say hey I have received only five
dollars because everyone knows that B
has received ten dollars so we can have
multiple people in the network now the
advantages of course everyone will have
a data and this is peer-to-peer Network
there's no Central system here
everything is peer-to-peer everyone will
have their own data now this data is
stored in a format of a ledger it's not
just a final value it will have all the
transactions let's say a has sent money
to b b has send money to C maybe D has
sent money to F all this data will be
stored in a ledger so imagine you can
have Excel file where you have all this
data or maybe you have used Google sheet
where everyone is sharing the same data
the only thing is when you talk about
Google sheet it will be made by someone
they will be having a control I just it
is a central system what we can have is
we can have something similar to Google
sheet where everyone have the access but
also they will have their own copy so
even if you change in one place everyone
else will have the real data and the
beauty about blockchain is it is
immutable which means once you store
data you cannot change it okay so
basically we know that there's a ledger
everyone will maintain it right now the
question is
how you are going to store this data so
let's say for this particular 10 minutes
okay so on average let's go for 10
minutes of course different blockchain
implementation have different time
limits I'm talking about the first
implementation of blockchain which is
Bitcoin uh so in Bitcoin what you do is
you basically have a window of 10
minutes on average it's not fixed and
match we can have seven minutes eight
minutes 12 minutes 15 minutes but on
average we make it 10 minutes in every
10 minutes what you do is whatever
transaction happened in this 10 minutes
will go into a block so that ledger will
go into a block in one block you'll be
having multiple transaction right and
then after 10 minutes you will create a
new block after 10 minutes you will get
a new block and then that's how you get
multiple blocks and all these blocks are
chained how so basically that's why we
have to use a concept of cryptography of
course we'll talk about cryptography in
detail later but at this point imagine
there's a concept of hash now what is
Hash is imagine a fingerprint of a
person let's it's Unique right so every
time you save data in a block we have to
find a hash of it so there's a certain
algorithms for it we have sha3 which is
very famous let's say we are using sha
here to find the hash of this block now
how do you find the hash it's very
simple take all the transaction find the
hash of course there's a different
algorithm for this we're going to talk
about Mercury later but at this point
let's find the hash of this block and
then save this hash in the next block
now in the next block we have multiple
transactions right again find the
highest but not just with the
transaction with the hash as well of the
previous block now you will get a new
hash now save this hash in the next
block with all the transaction you will
have a hash of the previous block find
the hash of the new block and that's how
you do it so what you're doing is you
are creating a chain here which looks
much similar to linked list right
because you store the address of the
other node in the same way here we are
storing the hash of the previous node so
that's how you make a chain here okay
now the question is who is responsible
to check the transaction of course the
transaction has to be valid right what
if I have sent 10 and then no one knows
that I've sent 10 10 and then still I'm
entering that in the block that's my
issues right because I have not even
sent it so we have to verify the
transaction if it has really happened
between a and b and someone will add
this block into the chain and this
person who is adding the Block in a
chain will get some rewards if you talk
about let's say a Bitcoin Network so
let's say this person gets let's say ten
dollars for every block they add and in
one block you will be having multiple
transactions
now in real Bitcoin they get a huge
amount so let's say they get around 6.25
Bitcoins now the price of Bitcoin one
Bitcoin is high right you can check it
on Google when you're watching this
video at this point it's very high I
guess it's around 20 lakhs imagine 20
lakh rupees into 6.25 that's the amount
you get for adding a block in a
blockchain and that too you are doing it
every in every 10 minutes right now
these people here we call them as miners
okay so in this network all the other
person are nodes and then the special
people here who's adding the Block in a
blockchain is called Miner of course
you'll be having multiple minus right if
you're getting a reward for adding a
Blog which is a very simple task
everyone want to do that right everyone
want to be a miner here so what we do is
we give them a challenge whoever solves
a puzzle it can be any puzzle maybe you
can say hey what is two plus two whoever
gives the first answer they will get a
chance to add this block in a blockchain
so we have different algorithms for this
we have proof of work proof of stake and
many more but then imagine they are
doing some computational work to prove
that they are the real people you know
why they have to prove that it's because
they are adding a block in a blockchain
even they can be malicious
so if they are doing this computation
and they are giving the efforts of
putting this block in a blockchain
of course they are sticking some amount
right in terms of Hardware in terms of
money because to solve the puzzle you
need a good computing power of course
when once we start with Bitcoin you will
get this idea how much computing power
is needed when we move towards ethereum
you will understand how proof of stake
works but at this point remember they
will do some work so in the Bitcoin
World they are called as miners
now basically their display their job is
to add the Block in the blockchain and
all the other people here they are
called nodes the thing is once you add
your data in the blockchain any
transaction it can be money transfer it
can be house transfer it can be uh
Gadget transfer let's say I want to sell
this gadget to someone else so the owner
of this gadget will be moved from Naveen
to let's say hush in this case that's
one transaction right so what you do is
everything is maintained in the
blockchain and no one can say Hey you
have not done that because the data is
there now when you have a data you can
be sure that something has happened the
data is there in the blockchain and no
one can change it it's not like no one
can judge it's not like uh it's a
read-only Memory you can actually change
data what if someone some malicious
person goes to the blockchain by saying
you know this block particular Block in
this block you are changing the amount
from let's say 10 or 20 dollars there's
a change right now what happens is since
everyone here will be having their own
blockchain the moment someone changes it
that block got changed right
one transition got changed it will
affect the hash the moment you change
one transaction it will affect the hash
this hash will affect the next block
this hash will affect the next block and
that's how you know that something has
been changed and now we know who has
done that let's kick that person out of
the network
so that's how basically you build this
chain now what we have done is we have
just discussed the basics of blockchain
how exactly this miners work how do you
maintain the records how do you know who
has sent it how do you know how much
money someone has that will be
discussing in the upcoming videos but
just to give an idea what is blockchain
it is the chain of blocks and each block
will have multiple transactions and who
is responsible to add this block in a
blockchain is the minus in case of
Bitcoin but the name will change in the
upcoming blockchains once we start with
ethereum the name will change and so on
for the other blockchains and all the
people in the network are called nodes
now the question is how you can be a
node how you can be a miner that we'll
discuss in the upcoming videos
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