What is Blockchain?

Summary

This 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

00:00

🔒 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.

05:00

🛠 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.

Keywords

💡Blockchain

Blockchain is a decentralized, distributed ledger technology that records transactions across multiple computers so that the record cannot be altered retroactively without the alteration of all subsequent blocks. It is central to the video's theme as it provides a trustless system for recording transactions without the need for a central authority. The script discusses blockchain's role in solving trust issues on the internet and its application in various scenarios, including Bitcoin transfers.

💡Trust

Trust, in the context of the video, refers to the reliability and security of transactions conducted over the internet. The script highlights the lack of trust in centralized systems and how blockchain technology addresses this by creating a transparent and immutable record of transactions, ensuring that all parties can verify the authenticity of the data.

💡Centralized System

A centralized system is one where control is concentrated in a single entity or authority, such as banks or social media platforms that manage user accounts and data. The video script contrasts centralized systems with decentralized ones, emphasizing the desire to move away from the former due to issues of trust and control, towards the latter which blockchain technology exemplifies.

💡Decentralization

Decentralization is the process of distributing or dispersing functions, powers, people, or things away from a central location or authority. The script explains that blockchain promotes decentralization by allowing multiple entities to maintain a shared record of transactions, thus eliminating the need for a central point of control and enhancing trust among participants.

💡Ledger

A ledger is a book or digital record that tracks financial transactions. In the video, the ledger is the format in which blockchain stores data, including all transactions made within a certain time frame. It is an essential concept as it illustrates how blockchain maintains a comprehensive and verifiable history of all transactions.

💡Immutable

Immutable refers to something that cannot be changed after it has been created. The script explains that the beauty of blockchain lies in its immutability, meaning once data is recorded in a block, it cannot be altered. This ensures the integrity and reliability of the information stored within the blockchain.

💡Hash

A hash, in the context of blockchain, is a digital fingerprint of a block of data. The script mentions that each block in a blockchain contains a unique hash that links it to the previous block, creating a chain. This cryptographic concept ensures the security and integrity of the blockchain by making any alteration of the data easily detectable.

💡Cryptography

Cryptography is the practice of secure communication techniques that allow only the intended receiver to understand the contents of a message. The script briefly touches on cryptography as it is used in blockchain to secure the data within blocks through the use of hashes, ensuring that the data remains confidential and tamper-proof.

💡Miners

Miners, in the context of blockchain, particularly Bitcoin, are individuals or entities that perform the computational work to validate transactions and add them to the blockchain. The script explains that miners are rewarded for their efforts, which serves as an incentive to maintain the integrity of the blockchain and contribute to its security.

💡Nodes

Nodes are the individual computers or devices that make up the network in a blockchain system. The script mentions that all participants in the blockchain network are nodes, and they each maintain a copy of the ledger, ensuring the distributed nature of the system and its resistance to tampering.

💡Proof of Work

Proof of Work is a consensus algorithm used in blockchain networks, such as Bitcoin, where miners must perform a certain amount of computational work to validate transactions and create new blocks. The script introduces this concept as a method to ensure that only legitimate transactions are added to the blockchain, deterring malicious activity.

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