Blockchain Technology Explained | Blockchain Technology Tutorial | Blockchain Tutorial |
hello and welcome to this session of blockchain myself Sor and I’m part of the simply l so let’s get started to understand what is blockchain what’s in it for you today let’s discuss what are the issues with today’s current banking system how Bitcoin has solved these issues and how Bitcoin is evolving what is blockchain technology and what are its features like public distributed Ledger how encryption Works proof of work algorithm and Mining and we will also discuss certain use cases of blockchain mining now what are the current set of issues in today’s banking system in order to do any transaction on a banking Channel today it costs a very high transaction fees so suppose you want to do a transfer of money from your account to someone’s else account through a banking channel the bank might charge a fee for $200 transaction up to $5 and the receiver will end up receiving $195 which in uh percentage terms is a very high percentage of transaction fee also as of today there’s lot of scenarios people end up doing double spending for example over here the user has $800 in her account but she ends up sending $1,000 $500 each to two users double spending is a unique problem where digital money is spent twice so what does it tend to do is the user is able to make two purchases with the amount Which is less than the purchase value so in the scenario the lady was able to buy a commodity worth more than $800 though she only had $800 in her account also the banking systems are prone to hacking hackers attack financial institutions and gain unauthorized access to data they can do transactions on your behalf which you are not aware of or they can do the transfer of money to some illegitimate accounts in 2017 the number of frauds in India through ATM cards and net banking total to 1,785 each amounting to more than 1 lakh rupee so if you see the current banking system is prone to so many hacks that it can amount to huge cost of money now how Bitcoin can solve these problems now Bitcoin is a decentralized system so which allows you to do a value transfer transaction at a lower transaction fee as low as $1 as compared to the $5 which the bank was charging and at the end the receiver receives the true value of the the amount which was sent by the sender Bitcoin follows a decentralized system where no third party like governments Banks or any other Financial intermediary is involved during the transaction between the sender and receiver thereby reducing the cost of transaction drastically and that is the primary objective of cryptocurrencies or Technologies like blockchain which Advocates the removal of intermediaries now Bitcoin is a cryptocurrency that runs on blockchain now how Bitcoin solved the problem of double spending double spending is avoided through the basic structure of blockchain which involves verification of transactions so in the previous example as we saw when the user transferred $500 to the first person then she will not be able to transfer the another $500 based on the basic validation of the blockchain and we will see how so suppose you’re trying to spend the same Bitcoin in a second transaction after the first transaction has been confirmed the set in transaction will not get verified and thus become invalid and this will happen because after the first transaction has been confirmed your balance will be verified in the second transaction your address identity will be validated and if suppose you’re trying to spend more than what the balance you have the minors the validators of the blockchain network would discard that particular transaction and will not add added to the main blockchain Network thereby double spending becomes as good as impossible in a blockchain each block is linked to its previous block the transactions become invalid for a specific Bitcoin which has already been spent so you can’t spend the Bitcoin which you have already spent public Ledger a public Ledger records all Bitcoin transactions where it is accessible to everyone who is associated with the system it is a 100% transparent system system any transaction happening is visible on the public Ledger once a user joins the blockchain network he gets a copy of all the blockchain transaction since its initiation or Inception and the first block in a blockchain is called the Genesis block though the public Ledger is accessible to everyone only the users address and the transaction details are visible to the users on the Bitcoin Network by looking at the address you can’t figure out to whom this address belong belongs the identity is secure of the address owner this keeps blockchain safe from data tempering each block on the blockchain is aware of who is its previous block and this way the entire blockchain is created even if a hacker tries to hack one block it would have to change the entire subsequent chain ahead of this block which will require huge amount of computation power for the hacker in order to make the changes across all the blocks which is next to Impossible now what is blockchain Imagine two friends living far away and would like to transfer money using blockchain technology blockchain is a decentralized system of secure and trusted distributed databases it’s a distributed Ledger which records and shares the transaction details across many notes which are part of the network so that the data is not modified so each and every transaction which happens on a blockchain network it distributed across all the nodes on the blockchain each and every participant has the same copy of The Ledger and it’s an immutable Ledger once a record or a transaction is registered it cannot be modified blockchain was originally introduced to timestamp digital documents and prevent tampering of Records in simple terms a chain of blocks that contain information it is called blockchain now when a transaction occurs its related information is recorded into a block so as you see a transaction initiated in one corner of the globe can get registered on the Block and then that block is being verified validated by the miners of the public Ledger and then added to the main blockchain a block contains aggregated transactions in a single block which a minor has to validate and in lie of that the minor gets rewarded now let’s take a closer look at what all are the components of a block so whenever we talk about the blockchain what is actually a block and what it consists of now there are four major components each block contains a previous hash data data is nothing but the aggregation of the transactions which are aggregated in the block a Nuance value and the hash of the block itself now what is previous hash previous hash is the attribute which is connecting a block to its previous block so the previous hash attribute consists of the hash value of its previous block data it consists the details of the sender’s address the receiver’s address and the transaction amount so basically there could be multiple transactions amongst multiple senders and receivers so each block will consist n number of transactions and each transaction will have a senders address a receiver address and a transaction amount nons so basically the Bitcoin uses a proof of work algorithm and in order to execute the algorithm nons is a random value used to vary the output of the hash value so proof of work is the process of transaction verification done in blockchain Hash Hash is like a digital fingerprint it is the fingerprint of the current block now when it takes an input value of the previous hash the data and the nons and produces an output value of fixed length so Bitcoin Network uses sha 256 hashing algorithm to generate a 256bit length hash and this is the output it looks something like a hexad decimal value now what are the features of blockchain a blockchain is a decentralized public distributed Ledger that is used to record transaction across many computers so this is a sample transaction which you’re seeing there’s a set of three transactions a transfering money to B B to C and C to b a distributed Ledger is a database that is shared among all the users who are part of the blockchain network the transactions are accessed and verified by users Associated to the bit bit coin Network thereby making it less prone to Cyber attack it is actually enclosed within all the participants who are part of the network now let’s take an example where these Bitcoin users are transferring money so here we have example like Bella is trying to transfer money to John John is trying to transfer money to Elsa and Elsa is trying to transfer money to Jack so these are the three transactions which are to be initiated now suppose these transactions were being happening on a central Ledger and it gets corrupted so there is a chance of the data getting tampered to solve this problem a public distributed Ledger plays a vital role now it ensures that users part of this cycle have a copy of the transaction details each user will have a copy of each transaction Bella John Elsa Jack they all have the same Ledger and this is what is called as distributed Ledger everyone is having the same copy now in case one of the users like Elsa misplaces her transaction details she can easily be corrected by the other participants because they have the golden copy the correct copy or if either of them attempts to alter the record the alternate transaction copies with the other users will negate the alteration because they will see that amongst all the participants only one participant is having a different copy they will negate the copy of the user and they will Rectify it encryption blockchain eliminates unauthorized access by using cryptographic algorithm sha 256 to ensure that the blocks are kept secure so sha256 is the cryptographic algorithm which is used each user in the blockchain has their own keys so any user which on boards a typical blockchain network is always provided with two set of keys one is private one is public private key is known only to the sender also it is used to confirm if the origin of the transaction is legitimate public key it is also used to uniquely identify the user but it is shared by the sender with every transaction it floats on the blockchain network and we will see how now let’s take a look at a typical transaction verification process suppose a sender wants to send a message he will pass the message through the hash function and generate a hash value of the message now after the hash value is being created it is passed through a signature algorithm and with the private key a digitally signed document is created now the transaction message original message the digitally signed document and the public key are transmitted to the receiver now at the receiver end the transaction message is passed through a hash function to get a hash value and that hash value is compared with the hash value obtained by passing the digital signature and public key through a verification function and then both the values are compared now let’s see how the hash function works the hash function creates a unique digital fingerprint of data you pass the message through the hashing function and it generates a hash value this hash value is called a digital print it has a very unique property any hashing function is a one-way function it cannot be reversed you cannot decode the original value from the hashed value it is a one-way encryption so here are some examples whatever be the size of the input data the hash value is always of 256bit length and we will take a look at the demo at the end of this session where I’ll show you how to generate a hash value using sha256 now let’s consider an example of Gmail using hashing algorithm whenever you are entering the username and password that password is never directly persisted in any of the Gmail’s database it is persisted using hashing function so once you have created your password and again once you login your password is again passed to the hashing function and compared with the hash value persisted in the database and once both these hash value matches then only you are allowed to login so every time you log to Gmail your password is hashed into a value and compared against the one stored in the database the hash value is matched with the one in database and then the inbox is displayed on your screen now let’s take a look of what is the proof of work algorithm proof of work is a method to validate transactions in a blockchain network by solving a complex math mathematical puzzle and this whole process is called mining finding the nons value is the mathematical puzzle that users or miners need to solve in the Bitcoin Network so it takes huge amount of computational power and resources of the minor in order to find out that Nuance value users trying to solve the puzzle are called miners the puzzle is solved by determining a nons that generates a hash value and results an output lesser than a Target so in any proof of work algorithm there’s always a Target which is predefined for a block the minor has to use the nons in order to generate a hash which has to be less than the target miners verify transactions within a block and adds the block to the blockchain when they have confirmed and verified the transaction with proof of work miners compete against each other to solve the mathematical puzzle the first minor who solves the puzzle is rewarded and when a block is solved the transactions contained in a block are also considered valid and the Bitcoins associated with the transactions then get deducted from the originator or the sender and moves to the receiver now let’s see how proof of work works so let’s take a look at the Block and its components the previous block hash it stores the hash value of the previous block of the blockchain data it contains the list list of all the transactions which have been aggregated in the block nons is the random value which is used to generate a hash value less than the Target and hash is the digital signature of the block itself the hash is generated using a hashing function called sha 256 Now using the nons when the hash is generated if its output is less than the target then the puzzle is deemed to be solved the block is considered to be validated if not then the minor increments the nons by value one and then again rehashes generate a hash and goes through the cyclic process till the time it is not able to generate a hash less than the Target in blockchain the Target is adjusted every 20116 blocks which is approximately every 14 days the average time of block formation is 10 minutes and the difficulty Target of the puzzle increases or decreases depending on the time it takes to mine the blocks so it is the inbuilt network which is generating the target for the puzzle to get solved and it fluctuates the difficulty based on the time it takes to mine the block proof of work is hard to produce but very easy for miners to verify so point to be noted here is once the block is hashed the remaining miners are supposed to validate the work which one minor has done but they are not required to find the nons again so basically the the minor who is supposed to earn the Bitcoin has done the hard work but the others miners on the network just have to verify his validation in blockchain when miners use their resources time money electricity Etc to validate a new transaction and record them on the public Ledger they are given a reward now that reward is in Bitcoins itself which as of today stands at 12.5 Bitcoins and to add there is no other way that the Bitcoins can be generated in a Bitcoin Network it is only through mining now the Bitcoin Network internally halves the reward after every 21k blocks which is approximately every 4 years so now subsequently whenever the time period will end the mining reward will get reduced to 6.25 BTC now let’s take a look at a demo now as I said this is a demo to Showcase how to generate a sha 256 hash using a input value so whatever input I have the hash which is generated it is of 256 bytes even if I add a new value it will again only generate a 256 bit length hash now let’s take a look at a typical blockchain structure we have a block over here which has one transaction added to it now this is orange in color because it has not been mined and I can only add a subsequent block to it once it is M now as this is this is the first block in this particular blockchain the previous hash value of this block is all zeros and it is a called as a Genesis block now as I have mined this block the hash which is the digital signature of this block itself has been generated and I can now add a block primary thing which to be noted over here is that the previous hash value of this new block is the hash value of the previous block it has two transactions aggregated in it and I can again mine it and now the hash of this block has been generated so this highlights the typical data structure of a blockchain and how blocks are linking themselves to each other now let’s take a look of a typical transaction which happens over a blockchain now I want to send money from wallet one to wallet two and I want to send $1 there is a transaction fee of .1 associated with this transaction now as I have initiated that transaction wallet one has been deducted as $1.1 and it is a pending transaction this transaction is waiting to be mine so I can choose any of the miners to do this transaction the pending transaction is done and now block two if you see has been added the previous hash value of this block is 00 A9 is the hash value of block one another thing to be noted the value of the amount in wallet two has also got incremented by $1 again we can try another transaction transferring $1 again from wallet one to wallet three and let’s say from wallet two to wallet 3 I have done a transaction it is pending it can be mined and block three has got added now what are the key takeaways today we learned what are the current issues in the banking system and how Bitcoin solve them what is blockchain features of blockchain and a demo of the features which we have seen I hope you had a great learning session and I’ll meet you in the next session thank you hi there if you like this video subscribe to the simply learn YouTube channel and click here to watch similar videos to nerd up and get certified click here
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