Blockchain technologies are possibly going to become the fundamental building blocks for next-generation applications. The Blockchain is primarily a chain of data blocks with each block containing a transaction. Each transaction block has in it a header with information on the previous block, anyone who has all the blocks can arrange it and reconstruct the entire Blockchain.
Blockchain technologies are possibly going to become the fundamental building blocks for next-generation applications.
The Blockchain is primarily a chain of data blocks with each block containing a transaction. Each transaction block has in it a header with information on the previous block, anyone who has all the blocks can arrange it and reconstruct the entire Blockchain. The complete Blockchain is available only when all the participants are on the network. These participants should have a unique identity (Private Key) and can participate in any Blockchain network (there are no authorities or regulators to give a single identity). All participants run software that implements the Blockchain protocol.
Blockchain as a technology operates on two fundamental concepts, i.e., Distributed Ledger and Smart Contracts. Distributed Ledgers are used to store data while Smart Contracts are the governance mechanism for the Blockchain Network. Bitcoins are generated when processing power is consumed to verify and update a transaction onto the Blockchain database.
Distributed Ledger: – The ledger where all records are maintained, in a Blockchain network, the records are duplicated amongst all participants and hence the name distributed ledger. There is no central location where records are stored as all nodes have a copy. There are no central authorities, or regulatory that regulates who can be part of the network or who can update the Blockchain. The ledger is maintained by all participating nodes using a consensus principle.
Smart Contracts: – The blocks in a Blockchain are written only on consensus, and one way of achieving the agreement is through smart contract. A Smart contract is a set of computer instruction (code) that all the participants must agree. Whenever a block is written into the Blockchain, the code validates the data against the agreement, and on successful validation of data it is converted into a block and written into the Blockchain. All the participants in the network then update their Blockchain. The code follows a very simple rule ‘if this then does that.’ Smart contracts are pre-written computer code, they are stored and replicated across all the participants in the Blockchain network, and they are executed on all the nodes when a block must be written into the data. The result of executing the smart contract is usually writing of the block into the Blockchain. When a block is written into the ledger, the participant that helped with validating the block and writing the block into the ledger is rewarded with a Bitcoin.
What are smart contracts?
Smart contracts are lines of code that are stored on a blockchain and automatically execute when predetermined terms and conditions are met. At the most basic level, they are programs that run as they’ve been set up to run by the people who developed them. The benefits of smart contracts are most apparent in business collaborations, in which they are typically used to enforce some type of agreement so that all participants can be certain of the outcome without an intermediary’s involvement.
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What is blockchain?
Blockchain is a shared, distributed ledger on which transactions are digitally recorded and linked together so that they provide the entire history or provenance of an asset. A transaction is added to the blockchain only after it has been validated using a consensus protocol, which ensures it is the only version of the truth. Each record is also encrypted to provide an extra layer of security. Blockchain is said to be “immutable” because the records cannot be changed and transparent because all participants to a trade have access to the same version of the truth.
What do smart contracts do?
The easiest way to explain what a smart contract does is through an example. If you’ve ever bought a car at a dealership, you know there are several steps and it can be a frustrating process. If can’t pay for the car outright, you’ll have to obtain financing. This will require a credit check and you’ll have to fill out several forms with your personal information to verify your identity. Along the way, you’ll have to interact with several different people, including the salesperson, finance broker and lender. To compensate their work, various commissions and fees are added to the base price of the car.
What smart contracts on blockchain can do is streamline this complex process that involves several intermediaries because of a lack of trust among participants in the transaction. With your identity stored on a blockchain, lenders can quickly make a decision about credit. Then, a smart contract would be created between your bank, the dealer and the lender so that once the funds have been released to the dealer, the lender will hold the car’s title and repayment will be initiated based on the agreed terms. The transfer of ownership would be automatic as the transaction gets recorded to a blockchain, is shared among the participants and can be checked at any time.
How do smart contracts work?
Smart contracts work by following simple “if/when…then…” statements that are written into code on a blockchain. A network of computers executes the actions (releasing funds to the appropriate parties; registering a vehicle; sending notifications; issuing a ticket) when predetermined conditions have been met and verified. The blockchain is then updated when the transaction is completed.
Let’s see how this plays out in a suppluy chain example. Buyer B wants to buy something from Seller A, so she puts money in an escrow account. Seller A will use Shipper C to deliver the product to Buyer B. When Buyer B receives the item, the money in escrow will be released to Seller A and Shipper C. If Buyer B doesn’t receive the shipment by Date Z, the money in escrow will be returned. When this transaction is executed, Manufacturer G is notified to create another of the items that was sold to increase supply. All this is done automatically.
Within a smart contract, there can be as many stipulations as needed to satisfy the participants that the task will be completed satisfactorily. To establish the terms, participants to a blockchain platform must determine how transactions and their data are represented, agree on the rules that govern those transactions, explore all possible exceptions, and define a framework for resolving disputes. It’s usually an iterative process that involves both developers and business stakeholders.
A distributed ledger (also called a shared ledger or distributed ledger technology or DLT) is a consensus of replicated, shared, and synchronized digital data geographically spread across multiple sites, countries, or institutions.
Sajith S. KumarVice President-Digital Business ServicesHappiest Minds PVT LTD