In order to understand, first we shall dig in to the centralized system.
A centralized system consists of a server and all the computers or nodes
are attached to this server in order to perform day to day transactions as
well as they are dependent on the server for the resources.
These servers are very expensive and their computational power is so high that they can handle thousands of nodes at a particular period of time.So, Is Centralization is far more better approach?
The answer is NO for the long run. These servers are maintained by a few
number of officials of an organization. If server collapse, then the nodes connected to the server will not be able to communicate with each other and it will lead to hindrance in an entire network.
As we are moving on in this era of technology, data keeps on increasing day by day which leads to increase in servers, deliberately increase in high maintenance cost on an organization end.
WHAT WE DO? OR WHAT’S THE SOLUTION OF THE ABOVE PROBLEM?
The answer is simple that is BLOCKCHAIN. Here Blockchain comes in to existence which marks a new era of internet that is WEB 3.0 in which one can read, write and own its own data without an involvement of a third party or government.
Blockchain is a public database for storing data of real world entities. It comprises of two words One is Block and Another is Chain.
Block is a real world entity or a node storing the real world data where as Chain is defined as a cryptographic link between one node with the previous one.
Blockchain means collection of blocks chained together using cryptographic link.(Cryptographic link is established using cryptography).
How BlockChain Works?
For Example Let’s say BOB has sent 0.5 ETH to PARRY. This will recorded as a single transaction on a specific block with an hash id associated with that block.
If PARRY wants to modify the commited transactions, then the hash id of that block changes as well.
Block stores limited number of transactions. There can be a n number of blocks.
For example Let’s assume there are three blocks. Hash id of first block (Genesis Block) is stored in the second block and hash id of third block is stored in a second block and so on.So this is how these blocks are interconnected to each other by forming a chain called BlockChain.
IS BLOCK CHAIN IS SECURE?
Yes, it is secure as it uses cryptography and consensus as its core levels.
If any node tries to change the data with in a specific block then this change should be validated by other nodes as well, If they will find this change is reliable, then it will be accepted otherwise it will be rejected.
IS BLOCK CHAIN WORKS IN LAYERS?
Yes, It works in three layers.
Layer 0:- A blockchain network’s Layer 0 is made up of hardware, connectivity, and internet-related elements that enable Layer 1 to operate without interruption.
Layer 1:- The fundamental design of a blockchain network is referred to as a layer one protocol, often referred to as a “implementation layer.” It serves as the building block of every blockchain network. A layer one protocol establishes a set of guidelines for network-wide functions including transaction throughput, block time, consensus algorithm, etc. For instance, before switching to a proof-of-stake (PoS) network, Ethereum is currently employing a proof-of-work (PoW) consensus mechanism.
Layer 2:- Layer 2 is a framework that offers Layer 1 a complete answer to enhance its overall performance.
Why is Layer 2 necessary?
Due to the growing user base, Layer 1 is currently experiencing performance issues and low transaction throughput (i.e., the number of transactions per second). Layer 1 employs the proof-of-work (PoW) consensus technique, which calls for a lot of processing power. Although the performance is affected, this approach is more secure.
Layer 2 functions as a third-party integration that collaborates with Layer 1 to address this issue. As a result, Layer 2 will complete some of the job that Layer 1 must complete. While working, Layer 2 will continue to adhere to Layer 1’s protocols. Polygon Matic for Ethereum and Bitcoin Lightning Network are two instances of Layer 2 solutions.
Exploring Layer 3
Layer 3 sits on top of Layers 1 and 2 and allows for the creation of applications, commonly referred to as decentralised applications (Dapps). These applications are hosted by this layer, which also specifies their protocol requirements. This layer, to put it simply, enables user interaction with a blockchain. Bitcoin does not support decentralised apps since its blockchain cannot be programmed. However, blockchains like Solana and Ethereum have emerged as the top platforms for creating decentralised apps.
Frequently Used Blockchain Networks
a) Bitcoin:- Blockchain technology is used by Bitcoin, a digital currency, to keep track of all of its transactions. It was developed in January 2009 by Satoshi Nakamoto, an enigmatic figure.
b) Ethereum:- The Ethereum blockchain technology underpins the decentralised applications and its money, called ethers. It is a programmable blockchain that supports numerous applications across various industries, as was previously discussed. Vitalik Buterin invented it in July 2015.
c) Binance:- Binance began as a platform for trading digital currency. It backs its cryptocurrencies (i.e. BNB). Before having its own blockchain called Binance Chain, BNB was reliant on the Ethereum blockchain.
Changpeng Zhao launched Binance in 2017.
