What is a blockchain?
The terms and definitions concerning the blockchain world are often confused, exchanged or misrepresented. This is what happens when a new technology begins to spread, faces the market and influences the daily lives of a large number of people.
One of the most common mistakes of recent years is to think that the blockchain is a simple virtual wallet for exchanging money. Not so, thinking it is a mistake. As we will see later, this type of confusion obviously derives from the fact that the blockchain technology has had a great diffusion thanks to Bitcoin, a cryptocurrency born in 2009, which has experienced a great diffusion at the end of 2014 and which has acted as a “forerunner” for this new world that many call New Internet.
But the blockchain so what is it?
We could start by saying that blockchain is a technology that works as an extremely secure transactional register, a register shared by all the parts that compose it and that operate within a network through the consensus mechanism.
The blockchain system eliminates the need for a control by a third-party entity: each part of the blockchain (“node”) records and stores all the information passages that occur within the network.
The verification of information takes place within every single block generated, hence, precisely, block-chain.
Immutability, traceability and security through a cryptographic procedure are the main features of the blockchain technology.
More generally, a blockchain can be described by these five factors:
Some see this new technology as a political tool. Indeed, based on the characteristics listed above, there is a tendency to see in the blockchain technology a “new era of democracy”.
The lack, or rather the non-necessity of a central control body means that every node becomes the controller and the “verifier of truth”, without ever assuming a hierarchical superior role to the others. Unable to corrupt, modify or force the system. Any error or attempted tampering is signaled by the constant cross-check between the various nodes. This methodology has made us think of an “absolute value of democracy”.
One of the most important concepts to know and understand before proceeding is the relationship between blockchain and distributed archives. Distributed Ledger Technology or ledger is a system that refers to a distributed register, which is created, managed, organized and controlled by the nodes of the network that compose it.
Physically the database is not located inside a computer alone, but is synchronized simultaneously on multiple computers.
A blockchain can be considered as belonging to the category of Distributed Ledger Technology or DLT. Each phase of creation, management and control is performed in the DLT through cryptographic algorithms that allow the user to access the system and move within it.
Whenever a transaction is made (a transaction is defined as a simple “passing of data”), this is encrypted by an asymmetric double-key signature mechanism, one public and one private. Here is explained the definition of distributed register:
- Register because it keeps every data exchange in memory
- Distributed because it overcomes the need for a central control and makes the management and guarantee mechanism between the various nodes.
The correct functioning of the database is based on two very important software processes:
- Database replication: a continuous and constant analysis of the database is carried out on each node. Every time a change is detected, it is brought into every database distributed on each node to always have an equal DLT over the entire network.
- Duplication: process that ensures that all registers have the same data, also ensuring that there are no incorrect overwrites in the local data.
Now, the validation of each transaction within a DLT is based on the concept of Consensus, a mechanism that manages the participation of nodes and “creates trust” within the blockchain.
The DLTs are characterized by the types of consensus management and the logics of register setup. Blockchain can be defined as a Distributed Ledger Technology characterized by a register that manages transactions within a Chain of Blocks.
Each new block is added to the existing network thanks to a consensus process distributed on all the nodes of the network itself. All nodes are required to validate and record each transaction of each block.
It therefore becomes clear that being able to define the blockchain directly and synthetically is difficult and not entirely correct; will always be an incomplete definition.
Blockchain is a model that is declined from time to time depending on which interpretation is given to the basic concepts of decentralization and participation. The uses of the blockchain can be varied, not only in the economic field.
Since every transaction is nothing more than a passage of information, we could say, using a seafaring metaphor, that the blockchain is a “register of communication”, a sort of “logbook” simultaneously distributed to all the sailors of the boat who in the pocket you always find the most updated, verified and approved version of all the controls. The peculiarity is that this boat has no commander. Hierarchically speaking, there is no higher or privileged role than others. All sailors can give and receive orders, through the unanimous consensus of the rest of the crew.
Returning outside the metaphor, within each node the communications of the node itself and of the rest of the entire network are recorded. To validate each step, an immutable Timestamp, an unchangeable Time Marker, is used.
Within the block’s operation, the concept of hash is very important (non-invertible algorithmic computer function that maps a string of arbitrary length into a string of predefined length) that uniquely identifies the block and allows connection with the block previous by identifying the previous block.
The fundamental parts
A blockchain is therefore composed of:
- node: whoever joins the blockchain represents a node. Technically and physically we talk about a computer connected and hooked to the network.
- transaction: every action that takes place between two or more nodes and defines a data passage. Each transaction is such from the moment in which each node organizes, approves, validates and archives the entire data exchange. Each transaction must contain various information: the sending person, the recipient’s public address and the Cryptographic Key. The exchange is always encrypted.
- block: is a group of transactions that is stored on the Distributed Ledger by blockchain members. The block to be connected to the previous block and, therefore, to the rest of the blockchain must receive the approval and verification of all the members of the chain. It is immutable and characterized by a hash which also contains information relating to the previous block.
- ledger: is the “Master Book” consisting of the set of blocks joined together by cryptography and hash and in which all exchanges are recorded. Each recording is immutable, transparent, orderly and sequential.
- hash: non-erasable operation that allows you to map a text or numeric string of variable length into a unique and unique string of given length
The hash identifies each block, it is a kind stamp on the “block passport”.
Before the advent of DLT, the ledger of a company, a group or a bank was one. All those who referred to the central database had a relationship of trust towards the manager.
The manager was the guarantor of any transaction or “data movement”, also deciding who could access it and operate within the system.
As we have already seen, the great change in the blockchain derives from the fact that there no longer exists a central guarantor that holds the only database, but the register is shared among all the nodes of the network that verify, control and manage each transaction and subsequently authorize each new block.
The ledger becomes multiple and accessible to everyone, always.
Each member of the network is therefore able to carry out a transaction and modify the existing ones, obviously with the consensus given the rest of the network.
But how is it possible that each node is able to control all transactions and, therefore, to legitimize them?
The blockchain mechanism allows each member, verified and regularly admitted to the block network, to analyze each transaction completely automatically.
The automation of the blockchain system is what allows the technology to progress regularly and avoid possible delays, malfunctions or errors in managing the consensus.
The ledger thus becomes precisely distributed, quickly shared, secure and resistant to corruption.
It is a very important and fundamental role for the blockchain to evolve, increase and remain constantly protected.
As we have said, a block is the set of multiple transactions that are merged, controlled and encrypted. In order for a block to be created and added to the rest of the chain, it is necessary to solve a complex and articulated mathematical calculation that requires great processing capacity and computational power. This absolutely basic operation is called Mining. The one who does it is called Miner.
The creation and management over time of any type of blockchain would be impossible without constant mining operations. But just as importantly, in a “public blockchain” anyone can become a Miner and try to validate and encrypt the next blockchain block.
The blockchain miners are therefore in competition: the race is in being able to undermine a new block through the computing power of their computer. It’s a sort of challenge to solving a cryptographic puzzle. Those who succeed in arriving at the solution of the “puzzle” before the others will have the right to guarantee the block with the Proof of Work.
This also serves as a building of trust within the network: a concept to be clarified is that the nodes are not known to each other. Each node that constitutes the blockchain is “non-public”, ie it is not possible to know its identity. Therefore, to create trust, collaboration and “help” between the various nodes, the Proof of Work guarantees and validates transactions and blocks.
What is the advantage of winning this race to “undermine a block”?
Explain this better. Every time a miner first manages to undermine a new block, and add it to the pre-existing chain, it is rewarded.
The miner receives in exchange a cryptocurrency, a virtual currency, which depends on the type of blockchain and which is calculated based on the transactions contained in the block and on the “effort” made to undermine the block itself. The sum received as a reward can therefore reach a considerable value and the activity of the miner can sometimes be very profitable. Once the validity of all transactions is verified, the block is created and added to the chain thanks to the control carried out by all the nodes. If at this stage “something wrong” is detected, an error, the block is not validated, is rejected and is not added to the rest of the chain and all the nodes have the possibility to see this “refusal”.
On the contrary, if everything is correct, the block is validated and becomes immutable.
To modify the data of an “old” Centralized Ledger system it is sufficient to corrupt and act on the central guarantor. This does not mean that it is an easy operation, but only that in order to delete or change the recorded transactions it is enough to act on only one element of the network. In the blockchain it is totally different.
To modify a block or a transaction or, more generally, a data recorded in the ledger, one should simultaneously violate all the books distributed and contained in the single nodes of the network.
A virtually impossible operation. Any anomaly or disparity between the various registers distributed would be detected and rejected by the system which would therefore be in protection. For the same reason there is no possibility to create a false ledger. In the blockchain everything happens in a transparent and controllable way by everyone at all times.
The structure requires that one or more nodes of the network be “special” and can give or deny authorization to another node to participate in the life and creation of the blockchain.
It is a type of structure that is often used by banks, public administrations or large companies to manage the relationship with their customers or users.
There is no special participant or “more important” node than others within the chain structure. Authorizations are given or denied simultaneously by the whole blockchain system.
Both in a Permissioned and Permissionless Blockchains, the possibility of having a distributed Ledger contained in every single node is possible thanks to:
- Creation and use of complex data control and verification algorithms
These tools make the blocks created indelible and non-modifiable and at the same time allow each node to process its operations independently, but always under the simultaneous validation of the other nodes.
DLTs are technologies that take up the concept of register and re-create it; it is no longer a simple transcription of data, but a real new way of understanding the relationship between people and information.
Consensus becomes the approval and guarantee for any transaction or block and requires a peer-to-peer network for managing exchanges and approval algorithms.
In order for a new system such as DLT to hold and not to collapse in the first attempts at corruption or fraudulent modifications, the concept of security is at the center of any operation and is never underestimated.
The important relationship that is created between the various users of the blockchain and between users and the entirety of the network is a relationship of trust.
The trust given and received increases if accompanied by a very high security value.
The more confident I feel, the more I work and implement transactions, the more I create new blocks, the more confidence I have, the more the trust increases as the credibility of the blockchain grows.
A blockchain uses time stamps to define and reinforce the concept of security.
Timestamp (or Time Mark)
The timestamp prevents an exchange that has just occurred from being canceled or altered by electronically affixing a date and an hour to the exchanged resource. Technically it is a sequence of numbers or characters that certifies the actual occurrence of a transaction.
The sequentiality and the concept of “previous” and “subsequent” within a blockchain are fundamental.
The immutability of operations is also and above all guaranteed by the concept of time.
Contrary to what one might think, Double Spending is an issue that did not appear with the arrival of cryptocurrencies and with the advent of blockchains. It appeared much earlier, with the arrival of the first computers and the digital age.
If you have just written and saved a Word document, in the memory of your PC there is a file that contains what you have just typed, a binary code file.
Let us assume that a friend of yours asks you for this document. You take it, attach it to an email and send it. Your friend downloads the attachment and saves it on his PC.
There are now two copies of that initial document, one on your PC and one on your friend’s. The copy could go on endlessly on more computers than several friends, but also on the same PC. Nothing serious. It is only a Word document of little or no importance.
But what if you replace that Word file with a virtual currency? How could the problem of a “copy-paste” of a coin be overcome? How could a cryptocurrency used to pay for a good or in a transaction to receive a service be prevented from being subsequently reused (by the same node) to make another payment, as if it had never left the virtual wallet? How could this Double Spending problem be avoided?
Another aspect that should not be underestimated is that Double Spending is also an ethical problem. The era of Napster and eMule, of past, exchanged, and duplicated music via a peer-to-peer network exposed the issue. There were numerous debates and discussions to clarify the theme. In that case, there were numerous changes that were made by the recording industry to take shelter from a wave of “crisis” that, despite the controversy, ran undisturbed and that has reached the present day (Spotify, Apple Music and services similar are the consequences of that wave).
Today (really, for many years already) the topic has re-emerged at the level of virtual currencies, internet banking and fintech. Trade relations, ever more fluid and intangible, would collapse in front of a problem of double spending within the communication network. There would be no credibility in the relationship between paying and paying and there would be no guarantee whatsoever in any passage.
One of the possible solutions to the problem of Double Spending at the blockchain level came from the first crypto-coin that appeared to the general public, namely the Bitcoin Blockchain.
In this technology a cancellation of the problem has been implemented through the generation of a real identity card of cryptocurrency. It is specific, unique and it is as if it contained a name and a surname proper to the currency. But above all the identity of the coin is constantly updated with “the history of the journey of the coin itself”, a sort of tracking that keeps track of the “cyber-hands” that touched the coin and used it.
The guarantee that this information is not altered is always given by the blockchain control mechanism. Not only those interested directly from the exchange, but each node of the network keeps track of the passage of a coin from one wallet to another. Moreover, the currency itself will write inside its ID, as if it were a sort of resume, when and for what and by whom it was used.
Precisely this phase of the Bitcoin Blockchain was the subject of great criticism and controversy initially. Once the problems have been solved and the initial doubts have been clarified, today it can be said that Bitcoin and other cryptocurrencies are safe and transparent.
If a participant in a blockchain wanted to try to create a “copy of the coin” as soon as it was spent in order to reuse it again for another payment, the system would immediately recognize the attempted fraud and block the attempt at Double Spending. This type of practice by a single node is very difficult. So difficult, that could be called practically impossible.
Bitcoin was among the first tokens.
A token is a digital asset (set of digital information) that can be exchanged via protocol within the blockchain chain without the need for an intermediary.
A token may contain additional information within it that is governed by smart-contracts.
Types of Tokens
Token class 1
it is a real currency, it can be transferred via blockchain, it is a guarantee of the transaction and it does not confer any further rights other than the ownership of the token itself. Bitcoin is the classic example of a class 1 token, but over time, on the wave of Bitcoin success, many coins have been created that can be classified as class 1 (Litecoin, Bitcoin Cash, ZCash, etc)
Token class 2
is a token that gives the recipient a right to a counterpart.
- for future payments: the token automatically manages and guarantees that a future payment will be made based on specific previous agreements (smart contract)
- as an asset: the token constitutes a property right to a particular tangible or intangible asset
- standardized payments: a member acquires the right to receive a payment for a specific and well-defined amount
- service management: a member acquires the right to receive a service or service provided by the person who issued the token or a third party who has signed a commercial agreement.
Token class 3
is a mixed token, confers rights and represents a property. Usually with this type of token, the recipient does not have a right that can be exercised directly with the issuer.
Forks are used to improve the performance and performance of the blockchain and to better manage the protocols that support it and govern it.
An update of the blockchain protocol compatible with the previous versions is created. The change made is reversible and allows participation in the blockchain also to all those members who for various reasons do not accept updating their node.
Irreversible. It is a change that cannot be canceled. Every node and every member of the chain is obliged to recognize the change and must, without the possibility of replication or procrastination, accept the update.
Needless to turn around, if today the term and the blockchain argument has come to be almost mainstream it is due to the Bitcoin cryptocurrency. The extraordinary success that this system has achieved has allowed, for better or for worse the successive criticisms, also to face new issues and technologies still unknown to most.
To use and manage Bitcoins it is sufficient and necessary to have a Bitcoin wallet application that generates a “Bitcoin address” that can be shared with anyone.
The entire Bitcoin system is based on blockchain technology.
Each transaction is protected by a private key, a sort of signature that effectively guarantees that the exchange took place. The transaction is then merged with other transactions. Validated and accepted by the whole network, the transactions become a block. The block is encrypted and becomes immutable and immune to cyber attacks, therefore secure.
The wallet serves the user simply to understand its own Bitcoin availability. A Bitcoin, in simple words, is a file. A wallet can obviously contain more Bitcoins.
Using Blockchain as a structure for the circulation of virtual money is only one of the possible applications of this new technology. The most important thing is to understand that blockchain allows you to exchange any data quickly and easily. But more importantly, it is totally safe and does not require intermediaries or guarantors.
Blockchain and IoT
With IoT, Internet of Things, we mean all real objects that, thanks to the fact that they can connect to the Internet, are enriched with new possibilities.
Perhaps it is clearer with an example: a thermostat allows you to raise or lower the temperature of the heating of a house. A thermostat connected to the network, therefore belonging to the IoT world, allows it to be controlled remotely, the remote heating can be switched on or off and, providing data on the geolocation of our person, the thermostat will be able to autonomously understand when to switch on and when, on the other hand, you turn off to save on your bill.
IoT has now invaded any object in our lives, creating an ever closer bond between real life and virtual life. Refrigerators that do the shopping independently, vacuum cleaners that clean when we are away from home to avoid disturbing, security cameras that warn us of any move in our house are just a few examples of the Internet of Things.
How does the blockchain bind with all these objects connected to the network? It is easy to see that, while on the one hand these things simplify and help our everyday life, on the other they open up new questions relating to security and privacy.
The blockchain technology is the best reference structure for the operation of all these intelligent objects. The guarantee given by the protocols, the generation of trust and the respect for privacy that underpin the blockchain system are and will be increasingly exploited in IoT environments. By 2020 it has been estimated that there will be more than 50 billion online, connected, smart devices. How do we plan to manage and monitor them? The blockchain represents the most valid answer to these questions and with great probability will become (where it is not already) a key application for the whole IoT industry, making decentralization the best weapon to eliminate the failure points of traditional control networks .
What is mining?
As in the era of the gold rush, mining takes up the idea that anyone who wants to can profit by undermining a new blockchain block.
Anyone can be a miner, you too!
Mining means solving complex and articulated mathematical puzzles that require large computational powers. The resolution of these calculations creates and packages a new block, which will be added to the rest of the blockchain through the approval of all members.
You will not find any advantage to try your hand in the world of crypto-mining with inadequate equipment or poor organization.
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Each ASIC is custom built on a single hash algorithm and then dedicated to the currency you want to undermine; doing so the mining activity is highly profitable and not a waste of time and money.
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