A Brief Overview of Blockchain Technology
Blockchain Technology is a decentralized digital ledger whose sole purpose is to maintain the growing set of data sequentially in a defined order known as “blocks”. Each Block is linked using cryptographic methods such that each block consists of a cryptographic hash of the previous block along with timestamps and transaction records. This works throughout the decentralized network to securely store the transaction records. This distributed and public ledger ensures that no retrospective alterations can be made without modifying all subsequent blocks, a process that necessitates consensus within the network. Within its digital realm, it safeguards an exhaustive ledger of every transaction that has ever occurred. Bitcoin stands tall as the foremost emblem of the blockchain phenomenon. The origin of blockchain technology began when an anonymous figure or group named 'Satoshi Nakamoto' released a groundbreaking white paper titled “Bitcoin: A peer-to-peer electronic cash system” in 2008.
Since blocks cannot be altered once they are created, the primary requirement for trust lies in the moment when a user inputs data. This characteristic significantly diminishes the reliance on trusted third parties, usually involving human intermediaries who not only incur additional costs but are also susceptible to errors. The adoption of blockchain technology has witnessed a remarkable surge, driven by the emergence of numerous cryptocurrencies, the rapid growth of decentralized finance (DeFi) platforms, the popularity of non-fungible tokens (NFTs), & the widespread utilization of smart contracts (Aggarwal et al., 2021).
Traditional database systems present numerous challenges when it comes to the recording of financial transactions. i.e. a property sale. Once funds are exchanged, the property's ownership transitions to the buyer (Yaga et al., 2018). In this context, the buyer & seller can individually record the financial aspects of the transaction, but their records lack trustworthiness. The seller might assert that they haven't received payment when they actually have, & conversely, the buyer may claim they've made the payment even if they haven't.
To circumvent probable legal disputes, the involvement of a trusted third party becomes necessary to oversee and authenticate transactions. Nonetheless, this centralized power not only adds complexity to the transaction procedure but also exposes a singular weak point. In the regrettable scenario of a security breach within the central database, both parties could face substantial repercussions (Wang et al., 2018).
Transaction workflow in Blockchain
The transaction goes through a unique process whose particulars are dependent on blockchain. In the case of Ethereum's blockchain, when a transaction is initiated using the cryptocurrency wallet it results in invoking a series of steps.
Once the transaction is initiated it is sent to the transaction pool and the transaction is required to be included by miner to validate. The transaction is linked to a block once validated by the miner and this block can include a certain number of transactions that are secured using encryption algorithms (Aniello et al., 2017).
Figure 1.
Transaction in blockchain
The entire network functions concurrently, attempting to decipher the cryptographic hash puzzle. Each participant generates a unique hash value, except for the “nonce,” an abbreviation for “number used once.”
Every miner begins with a nonce value of zero, which is affixed to their generated hash. If the resulting hash is not less than or equal to the target hash, the nonce is incremented by one, and a new block hash is generated. This iterative operation persists unless a miner successfully computes a well founded hash, thereby winning the competition and earning the associated reward (Aniello et al., 2017)..
After a block is sealed, a transaction is marked as final. Nevertheless, full confirmation of the block's validity requires the endorsement of five subsequent blocks. The confirmation process typically spans around an hour due to the network's mean time to create a block is just under 10 minutes. (The first block contains the corresponding transaction and the following five blocks, each taking around 10 minutes, sum up to approximately 60 minutes) (Qin et al., 2020).