Satoshi Nakomoto has proposed a system that will use blockchain technology to validate transactions and function as an intermediary. The second challenge he or they faced was determining how the blockchain system will function.
The requirements proposed by Satoshi Nakamoto to make blockchain technology viable are:
- Enough people must agree that they want to use the blockchain technology
- The majority of these users must be honest. It is called the 51% attack; it proposes that as long as the majority of these users are honest, then the system will never be compromised because the majority will always override the actions of the minority.
Satoshi also proposed and implemented a number of the early blockchain system’s characteristics. Among these characteristics are:
- The blockchain system is programmable.
- All records on blockchain technology are secured and encrypted individually.
- All users’ identities are hidden.
- All validated records on the blockchain system are immutable.
- All users must agree to the validity of any record on the blockchain system.
- Every transaction on the blockchain system is time-stamped. These transactions are then recorded on a block (a block contain multiple transactions).
- Every user on the blockchain network has a copy of every transaction to make transactions transparent.
Satoshi Nakamoto invented an alternative to the existing monetary system.
A standard illustration of how blockchain technology operates will be provided momentarily. Remember that one of the prerequisites is that a sufficient number of individuals must elect to use blockchain technology.
If individuals decide to use blockchain technology, all network transactions will occur within this group. Nothing external can affect the transactions.
The following procedure is used to conduct transactions on the blockchain network:
Satoshi implemented the first blockchain network as a fully decentralised, centralized-free system. Additionally, it takes delight in operating an anonymous system.
For a blockchain network transaction to occur, the user must be identified and authenticated. This is accomplished with cryptographic passwords.
Cryptographic keys function similarly to passwords, using a combination of integers and strings to grant account access.
Every user has two keys: private keys (visible only to the user) and public keys (visible to everyone). These two sets of keys are used to authenticate users and execute blockchain network transactions.
Everyone on the blockchain network has account information, but they do not know one another’s identities; thus, the anonymity of blockchain technology.
In the first example, in order for Mr. A to send $3000 to Mr. B, the bank accessed Mr. A’s pocketbook or folder. Mr’s account will be debited and his net balance will be reflected on the bank’s balance sheet through these two steps.
A blockchain network has a mode of operation for recording debit, credit, and validating transactions. The blockchain network conducts transactions in this manner:
As stated previously, a blockchain network is a unique type of database. It stores its records using a distributed ledger system.
The implication is that each user on the blockchain network maintains a record of every transaction conducted by all users on the blockchain network.
Suppose there are 20 participants in the blockchain network. If User 1 wishes to send $4 to User 7, he will notify the network that he wishes to conduct a transaction.
As soon as this announcement is made, everyone updates their ledgers to reflect that User 1 now owes $4 and User 7 should receive $4.
If User 1 wishes to conduct another transaction in the future, the same procedure is repeated to ensure that User 1 has a sufficient balance on file. The process is extremely intricate, but this is merely an overview.
Remember that everyone on the blockchain network updates their respective ledgers as transactions occur, so if every user consents to a transaction, the transaction will be authorised.
Adding each transaction to a block, or in layman’s terms, sealing the page, is the next step.
If each user on the blockchain network records every transaction on their respective ledgers, one page will be filled, and a new page will need to be turned and new entries made.
To prevent dishonest users from returning and altering previous records or pages, they must be protected, encrypted, and sealed.
Only when a computer solves intricate mathematical problems and returns an answer (strings of data) can this singular action be performed. The blockchain network will use the supplied response to seal the pages and turn the distributed ledger to a new page.
Bitcoin mining is the process of adding blocks to the network or securing record pages. Miners use supercomputers to tackle the blockchain network’s mathematical problems.
When the majority of network nodes (computers) approve, the system will add a new block to the chain.
This measure is intended to check the actions of the miners; it prevents dishonest miners or hackers from returning to the network chain to unseal a record or access a block.
As long as the majority remains trustworthy, it will be unfeasible to hack the network chain.
Only through mining do new bitcoins enter circulation. It is a form of incentive and compensation for those who invest their resources validating blocks on the blockchain network. This incentive is known as Proof of labour.
The mathematical problem can be solved by anyone, and the user who solves it will notify the other users. Once the majority of users agree that the solution is correct, pages will be sealed and a new block will be added to the chain.
3. Proof of work
Proof of work is a procedure that necessitates blockchain network users (bitcoin) with supercomputers to add a block by solving complex mathematical problems.
Mining is the procedure of solving these mathematical problems. In this blockchain network, miners are compensated in bitcoin or any other cryptocurrency operating on the network.
The probability of solving a mathematical problem on the blockchain network is 1 in 5.9 quadrillion. Mining is not an easy undertaking.
It is solved by trial and error and requires a great deal of computational power and electricity. Therefore, the benefit must outweigh the cost.
The blockchain system is a highly sophisticated technology that can now be implemented in the food, financial, and voting sectors.