Blockchain-the decentralized way

What is Blockchain

A blockchain is a distributed database that is shared among the nodes of a computer network. As a database, a blockchain stores information electronically in digital format. Blockchains are best known for their crucial role in maintaining a secure and decentralized record of transactions. To oversimplify this we can say that it is a chain of blocks in which every block contains some details or records of a transaction, which is immutable and can never be deleted.

What’s Different?

To understand this we need to look over the general client-server architecture and the drawbacks/limitations of the architecture, and how blockchain solves the issues.

So let’s first understand the client-server model- it describes how a server provides resources and services to one or more clients. Or in simple words, two clients(devices) can only communicate, share or transfer data via a central server. Examples of servers include web servers, mail servers, and file servers. Each of these servers provides resources to client devices, such as desktop computers, laptops, tablets, and smartphones.

For example: If person A wants to send some funds to person B then the fund transfer will be via the central authority for example the bank server.

so there are a few issues with this architecture like

1. 3rd party dependence: both person A and person B are dependent on the other 3rd party for their transaction to be completed. If there are any issues with the bank, both will have to face trouble and the process of the fund transfer can be delayed.
2. Centralization: There is a central authority that is transferring the funds from one person to another, moreover both will be so dependent on the central authority that they have to anyhow trust the process and proceed. The process of transfer is also defined by the bank and cannot be modified according to the needs of persons- but is that required? can’t we directly transfer funds from A to B?
3. Security concern: when person A has to transfer funds to person B then, A has to send his/her details to the central authority and also B will have to give his/her details to the central authority. These details might include the things which you may not want to share but have to share to proceed, also some of your details will be then sent to advertisement companies and will be used by them for marketing purposes (without your concern). So this is a big security breach.
4. Costs: While A will be transferring the funds to B, there will a cost of transfer attached to the transfer. If the transfer is international then the cost will be enormous, and sometimes non-affordable. There are some other costs also related to this system like GST, maintenance charges etc which are sometimes hard to bear.
5. Trust: While transferring the funds- we need to understand that only the funds have been transferred from the acc. of A to acc. of B but the fund is actually with the central authority only. So if in any case or the worst case, the central authority goes bankrupt- both A and B have to bear its consequences.
6. Mutability: While transferring funds from A to B, the central authority creates a record of the transaction in a database or on a mutable object, this is a reason to worry because the record can be tamper or be modified for some reason or by mistake. Isn’t there a way in which we can make the record mutable?

Here is when blockchain comes to the rescue.

There’s a new term introduced here- SMART CONTRACT!
A smart contract is a piece of code deployed on a blockchain that contains details about the transaction and what needs to be done post-transaction. It simply removes the use of central authority and makes the blockchain decentralized. smart contracts are immutable and can not be deleted, modified by anyone in the world once it has been registered on the blockchain.
Think of a smart contract as a piece of government bond which is between two parties but digital and immutable at all costs.
Note: unlike bonds, no one owns smart contracts but the blockchain stores them and they can never be deleted or modified. So if any transaction happens it is always noted there on the blockchain.

Now let’s understand how blockchain helps achieve decentralization and resolves all the major 6 issues:
3rd party dependence: both person A and person B are dependent on the other 3rd party for their transaction to be completed. If there are any issues with the bank, both will have to face trouble and the process of the fund transfer can be delayed.

1. 3rd party dependence: now both person A and person B are independent on the other 3rd party for their transaction to be completed. We can see how smart contracts have resolved the issue.
2. Centralization: As we can see the transfer from A to B just requires a piece of code(smart contract) and no one owns that, so we have achieved de-centralization. We are not dependent on any 3rd party application or central authority for the transaction to complete.
3. Security concern: Blockchain is a secured way of computing, everything works on a hashing and can not be decrypted. When A sends funds to B it does not directly use his key to sign the smart contract, but it makes a hash from his key, amount to be transferred, nonce, contract-id and sends it to B so that only the smart contract can decrypt the hash and ensures security. If it seems a bit tricky or overwhelming at first- then You are on the right way.
4. Costs: As there is no 3rd party involved in the process, A and B only need to pay the fees to deploy the smart contract on the blockchain which is very less if we compare to the central authority fees in a central system. Also, the international transfer does not carry any additional charges here as everything is digital.
5. Trust: There is no mediator between A and B from which the funds will flow so trust is not an issue here. Also, there are validators on each blockchain to verify and validate the transaction. If the transfer is incomplete due to some error or flaw in the system, the contract is reversed and the funds are safe with both A ad B.
6. Mutability: As we know smart contracts at any cost, can not be changed, modified or deleted so they are immutable. Once a block(transaction) has entered in the blockchain, it can not be removed hence achieving 100 per cent immutability.

This is how blockchain helps to make the system more secured, cost-efficient and decentralized at the same time.
This is the reason why there is a need to shift to a new environment of development- that is The Blockchain Way.

DISCLAIMER: This article is intended for educational purposes, author of this writer is not responsible for any illegal action imparted by the readers.

Thank you! for more such content let’s connect on LinkedIn.

Sahil Hemnani — Software Engineer Intern — BMC Software | LinkedIn

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