Digital Currency - Understanding Blockchain Network and Mining Process

Good Day! Hope you had a good reading on my previous article about Basics of Digital Currency. Now I would like to try to demystify Blockchain Networking and Mining Process which is apparently mandatory for understanding Cryptocurrency from Engineering & System Architecture perspective. This article deals with Blockchain Definitions, Digital Ledger and Mining Process.

Blockchain - Definition of Definition

Definition of Blockchain says that it is a distributed database that maintains a continuously growing list of ordered records called Blocks. Blockchain is also referred as a digital ledger in which transactions are recorded chronologically and publicly.

In general, we can store any transactions in Distributed Database if it is really necessary. What is transaction and why it is needed? The following are some examples of transactions.

• Withdrawing money from ATM
• Swiping your credit card in KFC
• Purchasing medicines in Apollo Pharmacy
• Claiming insurance for repairing your car
• Buying 500 AAPL stocks in your account

Do you understand why these transactions are stored or needed? Yes, it is essentially required for verification, validation and reconciliation.

Now we can move into understanding “Digital Ledger” concept. Archetypal meaning of Ledger is “A Place to Keep Something”. And, definition of ledger is an account to record, categorize and sort transactions, for maintaining the balance such as Asset, Liabilities, Revenue and Expenses to prepare Balance Sheet and Income Sheet. Digital Ledger is a database or electronic storage area where all records or transactions are stored in chronological order.

For reiterating the definition of Blockchain, it is a Digital Ledger where all transactions are electronically stored in chronological order; distributed in different locations with same transaction details called Blocks; continuously adding new transactions and available to public for processing transactions.

I hope that you have more idea on how Blockchain is organized. No?? Not Yet?? It’s Okay. I have given some usecases of Blockchain for various industries and it will help you to think through it.

Area	Usecase
Banking	Managing transactions and avoid data tampering from third-party requires advanced Business and Process solutions which can be easily solved by implementing Blockchain Network.
Trading	Distributed Ledger provides Investment Management, Order Execution Management and Clearing & Settlement Platforms to perform their Affirmation and Confirmation activities by using decentralized database to settle transactions safer.
Healthcare	Securely storing Medical Details and maintaining single version of Patient & Insurance Modules to avoid information conflicts.
Insurance	Fully automated and decentralized platforms allowing to invest in insurance and claim profits from insurance premiums as well as get insured.
Social Media	Sharing or broadcasting News or Blog and Running Reward Programs will require a decentralized ledger to manage the operations and services.

Miners - Digital Currency Engine

Now we jump into next tricky concept called “Mining” and players who are participating in mining activity called “Miners”. All Cryptocurrency transactions are intimated to all Blockchain Hosts (Also known as Miners) to validate and add the particular transaction in Digital Public Ledger (Blockchain Database) as a New Block (Transaction). One of the miners will process the transaction and update into Blockchain Network then broadcast the details to other Hosts for synchronizing transaction details. For this service, miners are rewarded with Cryptocurrency or some units of Cryptocurrency.

“Miners have a job and they are paid for that” Now you got this statement! Couple of questions must come to your mind and they can be one of the followings.

• Can anyone have the infrastructure of Blockchain Host?
• Can anyone participate to add Block into Ledger and get paid?
• If I have the complete access of Cryptocurrency transactions then I can hack the system. Can’t I?
• What will happen if all miners update a specific transaction at the same time?

Yes, anyone can have infrastructure of Blockchain and participate in adding Blocks in the network and get paid for that. There are some advanced algorithms and consensus mechanisms used in Blockchain Network to avoid concurrent update or duplicating Blocks. You can also tamper the data by hacking Blockchain Network but it is too costly.

How it is too costly because I already knew to verify the transaction as a Miner and it is very simple process.

Correct! You know how to validate transactions and add them into Blockchain Network so hacking must be simple. Yes, it is very simple but Not Easy! Have you heard about Hash? Yes, I mentioned in my last article that Hash is a type or method of Cryptography. All Cryptocurrency transactions are attached with Hashes which is known as Digital Fingerprint and then Miners have to decode or find the Target Hash (Matching Key) for validating and processing transactions.

Hashes! Does it really complicate? Yes, it is artificially complicated.

Target Hash for Digital Fingerprint (Hash) which is associated with the Cryptocurrency transaction should be identified by Miners. Target Hash is just like a random number (Nonce) by which Miners can process the transaction and add new Block.

How do Miners find the Target Hashes? As a miner, you have to either solve a Puzzle or win in a Lottery System to identify the Target Hash. Is it a difficult work? Yes, I told you already that it is artificially complicated in which miners require more effort and energy to find Target Hash.

Miners are rewarded with some units of Cryptocurrency for the time, effort and energy spent for Lottery System or Puzzle solving process for adding new Block. Miners can also make considerable amount of profit from the reward. If a miner wants to hack the system and tamper the previous transactions then miner has to put huge effort to find all Target Hashes in the ledger until the desired Block or Transaction comes. Do you know why? because all blocks are logically linked in Blockchain Network. Moreover tampered information cannot be updated to all other distributed databases without other Blockchain Host’s knowledge. This artificial complexity is considered as a main advantage of Blockchain which is the combination of Digital Ledger, Digital Fingerprint and Distributed Database. 

Blockchain Networking

There are 6 Blockchain Hosts are available in different regions and they are working for same Cryptocurrency. Gopal in USA, has advanced and high processing Blockchain Host infrastructure and he is also known as the most rewarded Miner. The rest of the Miners have medium infrastructure for Blockchain Network. Why I am talking about Blockchain Infrastructure now! Coming to the point!

Gopal’s hash-rate is high. Wait! What is Hash-Rate? Gopal can process more Hashes compare to other Miners because of having advanced Blockchain Infrastructure. Hash-Rate is the computing power of Processing Number of Hashes per Second. Now you got why Gopal is the most rewarded miner. Yes, he processed more hashes which made him to add more Blocks in Network and get more rewards as Digital Currency. Other miners have decent hash-rate and get paid for their transactions processing over the Blockchain Network.

Yuvaraj is one of the skilled Miners and he would like to hack the Blockchain Network. Reason is to modify the Blocks and Transactions in the network and add more Digital Currency into his personal or favorite Wallet. For achieving his goal, Yuvaraj has to find all Target Hashes for each Block in the Digital Ledger and update all Blockchain Hosts with new Blocks. Technically it is possible but effort is very high. This effort is as high as upgrading Blockchain Host Infrastructure and process more transactions. There are many chances to lose his infrastructure effort and energy without getting paid.

From these two cases, you can get an idea that success rate of Miners is far better than Hackers in Blockchain Network due to artificially complicated process.

Conclusion

Blockchain is the decentralized database network which helps to maintain transactions safely and securely. Cryptography and Digital Ledger idea provide more security to the transactions which is almost impossible to modify or tamper. Lottery and Puzzle Solving mechanisms are designed to consume more energy from the miners to validate and process a Block. At last, combination of above creates a solid decentralized database for maintaining transactions for Cryptocurrency.

Thanks for reading my article. Your patience & time are much appreciated. Please shoot your queries and I will try to answer as soon as possible. Have a nice day!

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