A Step by Step Guide to Blockchain
With everything becoming digitized day by day, it was only a matter of time as to when money would also become virtualized. With the invention of Bitcoin and its underlying mechanism “blockchain”, our conventional money dealings have become a matter of clicking on a few tabs on our mobile screens, thrusting us into a new era of financial technologies.
The BlockChain Decoded
As the blockchain is a rather fresh concept, contrary to the traditional financial practices it can be a little too much to take in at once. Therefore, to get a better grasp on the process, we break it down right to its very first and simplest steps, and then proceed towards the more complicated levels of transactions.
1. Initiating a Transaction
For every business exchange to commence, it is necessary for there to be a transaction. A transaction is literally only an exchange of assets. For example A wants to buy sheep. B has sheep and needs money, so A and B would enter into a business transaction to fulfill their requirements, where A would pay B cash to buy sheep thereby exchanging the ownership of both the cash and the sheep. However, this example shows a simple transaction where both the parties have physical interaction. Now assume that both A and B are bitcoin users. And A wants to send money to B in exchange of the sheep he bought. This step is the first in the series.
2. Encrypting Identities
In the blockchain domain, both A and B are in form of cryptographic keys holding their unique public and private keys. The purpose of private key is to ensure that only the user who possess it can access and edit any specific part of the blockchain exclusively and not any other entity. Also since each key modifies within its own domain, it helps to keep the whole chain coordinated.
3. Creating Blocks
As person A starts and locks in a transaction, a block is created which basically contains an encrypted description of the person’s intention to transfer an amount to B. It’s formed by combing a timestamp, all important information and a digital signature ensuring that A is attaching its private key to B’s public key in an attempt to transfer an amount, which here is in the form of cryptocurrency.
After an encrypted and secured block is created, it’s broadcasted as a message across the blockchain through to all other nodes in the network. Nodes are basically several computers connected to a single network. Once a block is communicated into the system, the nodes then are responsible to confirm each entry by solving an intricate arithmetical problem connected with it to verify and validate the block and also receive some bitcoins in return.
5. Post Verification
Once the transaction is confirmed, the blocks are date stamped and coupled together with previously verified bocks already present in the blockchain itself. Once the process is completed, B has received the amount from A.