You may go through this recording of Blockchain Tutorial where our
Blockchain Training expert has explained the topics in a detailed
manner with examples that will help you to understand this concept
Blockchain Tutorial | Blockchain Technology | aws-senior.com
Blockchain technology and the crypto-currencies have today become a
parallel platform where people have started performing their standard
transactions. Now, if a new system is slowly replacing an existing
system then there must be some issues with the current system. We will
begin this Blockchain tutorial blog by understanding the problems of
the current banking system.
Issues with Current Banking System:
Any existing system will have some issues. Let us look at some of the
most commonly faced issues with the Banking system:
* High Transaction Fees
Let’s look at an example to understand this issue better:
The issue of Transaction Fees – Blockchain Tutorial – aws-senior.com Here,
Chandler is sending $100 to Joe but it must pass through a trusted
third party like a Bank or Financial service company before Joe can
receive it. A transaction fees of 2% is deducted from this amount and
Joe only receives $98 at the end of the transaction. Now this may not
seem a big amount but imagine if you were sending $100,000 instead of
$100, then the transaction fees also increases to $2,000 which is a big
amount. As per a report from SNL Financial and CNNMoney, JPMorgan
Chase, Bank of America and Wells Fargo earned more than $6 billion
from ATM and overdraft fees in 2015.
* Double Spending
Double-spending is an error in digital cash scheme in which the same
single digital token is spent twice or more. To help you understand
this problem better, let me give you an example:
Example of Double Spending – Blockhain Tutorial – aws-senior.com Here Peter
has only $500 in his account. He initiates 2 transactions
simultaneously to Adam for $400 and Mary for $500. Normally this
transaction would not go through as he doesn’t have sufficient balance
of $900 in his account. However, by duplicating or falsifying the
digital token associated with every digital transaction, he can
complete these transactions without the needed balance. This operation
is known as Double Spending.
* Net Frauds and Account Hacking
Net Frauds – blockchain Tutorial – aws-senior.com
In India, the number of fraud cases related to credit/debit cards and
Internet banking was 14,824 for the year 2016. The net amount involved
in these frauds was Rs 77.79 crore, of which Rs 21 crore was from
internet frauds and Rs 41.64 crore was from ATM/debit card-related
* Financial Crisis and Crashes
Financial crisis – Blockchain Tutorial – aws-senior.com
Imagine giving all your saving to someone you trust only to know that
they have gone and lost it somewhere else. That’s what happened in the
2007-08 when Banks and Investment Organisations had borrowed heavily
and lent it as subprime mortgages to people who could not even pay back
these loans. This in turn lead to one of the greatest financial crisis
ever seen and was estimated to have caused losses close to $11 Trillion
($11,000,000,000,000) worldwide. This was just one of the most popular
examples, how often have we heard of Banks and Financial service
companies crash due to internal frauds? The whole third-party system is
something that is built on blind trust on the middle man.
We have seen some of the most common problems faced by everyone.
Wouldn’t it be great to have a system that overcame these problems and
provided us with a That’s exactly what Blockchain Technology does.
Let us now try to understand how Blockchain and Bitcoins solve these
issues as the next part of this Blockchain tutorial blog.
How does Blockchain solve these issues?
Below are some of the ways through which the Blockchain technology
tackles the above mentioned issues:
* Decentralized System
The Blockchain system follows a decentralized approach when compared to
banks and financial organisations which are controlled and governed by
Central or Federal Authorities. Here, everyone who is part of the
system becomes equally responsible for the growth and downfall of the
system. Rather than one single entity holding the power, everyone who
is involved with the system holds some power.
* Public Ledgers
The ledger which holds the details of all transactions which happen on
the Blockchain, is open and completely accessible to everyone who is
associated with the system. Once you join the Blockchain network, then
you can download the complete list of transaction since its initiation.
Even though the complete ledger is publicly accessible, the details of
the people involved in the transactions remains completely anonymous.
* Verification of Every Individual Transaction
Every single transaction is verified by cross-checking the ledger and
the validation signal of the transaction is sent after a few
minutes. Through the usage of several complex encryption and hashing
algorithm, the issue of double spending is eliminated.
* Low or No Transaction Fees
The transaction fees are usually not applicable but certain variants of
Blockchain do implement certain minimal transactions fees. These
transaction fees are however relatively quite less when compared to the
fees implied by banks and other financial organisations. If a
transaction needs to be completed on priority then an additional
transaction fees can be added by the user so as to have the transaction
verified on priority.
Now that we have spoken about the issues with the current existing
system and understood how the Blockchain technology overcomes these
challenges, I am quite sure you must have got some understanding of
the Blockchain System.
At this point you might still be wondering as to what exactly is the
Blockchain and Bitcoin. So let’s try to understand these important
concepts in the next part of this Blockchain tutorial.
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What is Blockchain and Bitcoin?
Before we go on to understand what is Blockchain, it important that you
understand what is Bitcoin:
Bitcoin – Blockchain Tutorial – aws-senior.com
Bitcoins are a crypto-currency and digital payment system invented by
an unknown programmer, or a group of programmers, under the name
Satoshi Nakamoto. That means they can be used like a usual currency,
but don’t physically exist like dollar bills. They are an online
currency which can be used to buy things. These are similar to
“digital cash” that exist as bits on people’s computers. Bitcoins exist
only in the cloud, like Paypal, Citrus or Paytm. Even though they are
virtual, rather than physical, they are used like cash when transferred
between people through the web.
The Bitcoin system is peer-to-peer network based and transactions take
place between users directly, without an intermediary. These
transactions are verified by network nodes and recorded in a public
distributed ledger called a Blockchain. Since the system works without
a central repository or single administrator, Bitcoin is called the
first decentralized digital currency.
Bitcoin production makes them a unique currency. Unlike normal
currencies, Bitcoins cannot be created as needed. Only 21 Million
Bitcoins can be created, of with 17 million have already been created.
Bitcoin get created whenever a block containing valid transactions is
added to the Blockchain. This is the only means for creating Bitcoins
and through various mathematical and encryption algorithms we ensure no
fake Bitcoins are created or circulated. Let us now understand more
What is Blockchain?
Blockchain – Blockchain Tutorial – aws-senior.com Blockchain can be called the
spine of the entire crypto-currency system. Blockchain technology not
only helps with the users perform transactions using crypto-currencies
but also ensures the security and anonymity of the users involved.
It is a continuously growing list of records called blocks, which are
linked and secured using cryptographic techniques. A Blockchain can
serve as “an open and distributed ledger, that can record transactions
between two parties in a verifiable and permanent way.” This ledger
that is shared among everyone in the network is public for all to
view.This brings in transparency and trust into the system.
A block is the ‘current’ part of a Blockchain which records some or all
of the recent transactions, and once completed goes into the Blockchain
as permanent database. Each time a block gets completed, a new block is
The Blockchain is typically managed by a peer-to-peer network,
collectively adhering to a protocol for validating new blocks. Once
recorded, the data in any given block cannot be altered retroactively
without the alteration of all subsequent blocks and a collusion of the
network majority. Transactions once stored in the Blockchain are
permanent. They cannot be hacked or manipulated. We will learn more
about this once we get into the concepts of Blockchain.
You may go through this short animated video of What is Blockchain to
understand the topics with examples that will help you to understand
this concept better.
What Is Blockchain | What Is Bitcoin | Blockchain Tutorial | aws-senior.com
Now I hope you have a better understanding of both Bitcoin and
Blockchain. Moving ahead in our Blockchain tutorial blog, let us look
at the features of Blockchain technology to help us understand why it
has become so popular.
Features of Blockchain
Below are the most important features of Blockchain technology that has
made it a revolutionary technology:
* SHA256 Hash Function
* Public Key Cryptography
* Distributed Ledger & Peer to Peer Network
* Proof of Work
* Incentives for Validation
Lets try to understand each one of them one by one.
SHA256 Hash Function
The core hash alogorithm used in blockchain technology is the SHA256.
The purpose of using a hash is because the output is not ‘encryption’
i.e it cannot be decrypted back to the original text. It is a ‘one-way’
cryptographic function, and is a fixed size for any size of source
text. To get a better understanding, let us look at an example below:
Hash algorithm – Blockchain Tutorial – aws-senior.com
If you look at the first example, we are feeding the input as “Hello
World” and getting an output as
However, by just adding an “!” at the end, the output completely
we change “H” to “h” and “W” to “w”, then the output value changes to
I hope with this example you have understood how complex the algorithm
is as even the slightest change in the input can cause a massive change
in the output.
Public Key Cryptography
This cryptographic technique helps the user by creating a set of keys
referred as Public key and Private key. Here the Public key is shared
with others whereas the Private key is kept as a secret by the user. To
understand the roles of these keys, Let us look at the example below to
get a better understanding:
Digital Signature – Blockchain Tutorial – aws-senior.com
If Chandler sends some bitcoins to Joey, that transaction will have
three pieces of information:
* Joey’s bitcoin address.(Joey’s Public key)
* The amount of bitcoins that Chandler is sending to Joey.
* Chandler’s bitcoin address.(Chandler’s Public key)
Now all this data along with an encrypted digital signature is sent
through the network for verification. The Digital signature is again a
hash value achieved by the combination of the Chandler’s bitcoin
address and the amount he is sending to joey. This digital signature is
encrypted by the private key. Once this data is received by a miner who
has to verify this transaction, there are 2 process he does
1. He takes all the un-encrypted data like transaction amount and
public keys of both Joey and Chandler, and feeds it to a hash
algorithm to get a hash value which we shall call Hash1
2. He takes the digital signature and decrypts it using chandler’s
public key to get a hash value which we will call as Hash2
If both Hash1 and Hash2 are the same then it means that this a valid
Distributed Ledger and P2P Network
Distributed Ledger – Blockchain Tutorial – aws-senior.com
Every single person on the network has a copy of the ledger. There is
no single centralized copy. Let me help in you understanding what a
ledger is with the following example: Suppose you need to send 10
Bitcoins to your friend John where your Bitcoin balance is 974.65 and
John here with a balance of 37. Your balance will be deducted by 10 BTC
and credited into John’s account.
Blockchain has a unique way to implement this. There are no accounts
and balances in the Bitcoin Blockchain ledger. Every transaction from
the first one is stored on a continuous growing database called
Blockchain. There are blocks averaging around 2050 transactions and as
of today, there are 484,000 blocks in the Blockchain with around 250
This ledger is distributed across all users of Bitcoin Blockchain,
i.e., the ledger has no central location where it is stored. Everyone
on the network owns a copy of the ledger and the true copy is the
collection of all the distributed ledgers.
Proof Of Work
Proof of work – Blockchain Tutorial – aws-senior.com You might be wondering if
everyone equally owns the ledger, who adds blocks to the Blockchain?
How can people trust this person?
For this, we have the concept of proof of work. It is basically like
solving a very big puzzle. It requires lots of computational effort.
This work is done by people in the Bitcoin network we call miners. The
work of these miners is to verify the transactions and solve a complex
mathematical puzzle associated with the block being created. The
difficulty of the problem is adjusted so that on average a block is
solved in 10 minutes. Miners search for a specific nonce(mathematical
value) which gives the desired hash which is predetermined. The current
difficulty level is such that you need to try about 20.6 quadrillion
nonce to get the correct hash.
Each block has a hash value which is the combination of the previous
block’s final hash, transaction data’s hash value and the nonce. The
final resulting hash for the block must start with a specified number
of trailing zeroes. It is this computation to find the nonce which
satisfies the condition that makes mining so computationally expensive.
So the person who finds this nonce is the successful miner and he/she
can add their block to the blockchain. Through our P2P distributed
network, he/she broadcasts their block and everyone verifies if hashes
match, updates their blockchain and moves on to solving the next block
Incentives for Validation
The last step of a Bitcoin transaction is to giving a reward to the
miner who has created the latest block. This rewards is provided by the
Blockchain system for validating the transactions and maintaining the
Blockchain. Currently the reward per block is 12.5 BTC (Rs 3,427,850/-
or $ 53,390). This is the most interesting part of Bitcoin Mining.
Bitcoin incentives is the only way to generate new currency into the
system and it is believed that by 2140, all 21 million bitcoins will be
With this, I hope you now have more understanding and appreciation
towards the Blockchain technology. Blockchain is much more than
Bitcoin. Finance is just one of the many industries Blockchain aims to
disrupt. Moving ahead with our Blockchain tutorial, let us now look at
one such example of IBM and Maersk, to understand how the Supply Chain
Industry is disrupted by blockchain.
Blockchain Tutorial: Use Case
Maersk is a Danish business conglomerate with activities in the
transport and logistics, and energy sectors.