The emergence of Blockchain technology has opened a new trend for fields such as finance and banking, logistics, electronics and telecommunications, accounting and auditing, etc. So what is blockchain? What can be done?

1. What is Blockchain? (concept, classification, latest version)

Concept

Blockchain is a chain-block technology that allows the safe transmission of data based on an extremely complex encryption system, similar to a company’s accounting ledger, where money is closely monitored. and record every transaction on the peer-to-peer network.

Each block contains information about the creation time and is linked to the previous block, along with a time code and transaction data. Once data is accepted by the network, there is no way to change it. Blockchain is designed to  prevent fraud and alteration of data.

Blockchain technology – a combination of 3 types of technology:

– Cryptography : to ensure transparency, integrity and privacy, Blockchain technology uses public key and hash function.
– Peer-to-peer network : Each node in the network is considered a client and also a server to store application copies.
– Game theory : All nodes participating in the system must comply with consensus game rules (PoW, PoS protocols,…) and are motivated by economic incentives.

Blockchain systems are divided into 3 main types:

– Public:  Anyone has the right to read and write data on the Blockchain. This process of validating transactions on the Blockchain requires many participating nodes. Therefore, attacking this Blockchain system requires huge costs and is really not feasible. For example: Bitcoin, Ethereum,…
– Private:  Users only have read rights to data, no write rights because this belongs to an absolutely trusted third party organization. Because this is a Private Blockchain, transaction confirmation time is quite fast because only a small number of devices are needed to authenticate the transaction. For example, Ripple is a form of Private Blockchain, this system allows 20% of the nodes to be fraudulent and only the remaining 80% need to operate stably.
– Permissioned (also known as Consortium):  a form of Private but adds a number of other features, this is a combination of Public and Private. For example: Banks or joint venture financial institutions will use Blockchain for themselves.

Versions of Blockchain technology

– Blockchain 1.0 Technology  – Currency and Payment: The main application of this version is cryptocurrency: including currency conversion, remittances and creation of digital payment systems. This is also the most familiar field to us that sometimes many people mistakenly think that Bitcoin and Blockchain are the same.
– Blockchain 2.0 Technology  – Finance and Markets: Financial and banking processing applications: expanding the scale of Blockchain, including financial and market applications. Assets include stocks, checks, debt, ownership, and anything related to an agreement or contract.
– Blockchain 3.0 Technology  – Design and Operational Monitoring: Bringing Blockchain beyond the financial border, and into fields such as education, government, healthcare and art.

2. Outstanding features of Blockchain

Blockchain has the following outstanding features:

– Blockchain chains cannot be faked or destroyed:  in theory, only quantum computers can decode Blockchain and Blockchain technology disappears when there is no longer a global Internet.
– Immutable:  data in Blockchain cannot be edited (can be edited but will leave traces) and will be stored forever.
– Security:  Information and data in Blockchain are distributed and absolutely safe.
– Transparency:  Anyone can track Blockchain data going from one address to another and can compile the entire history on that address.
– Smart contracts:  are digital contracts embedded in if-this-then-that (IFTTT) code, allowing them to execute on their own without the need for a third party.

3. How does Blockchain work?

The most known and discussed application of Blockchain technology is  cryptocurrency . Bitcoin is a digital currency with the code BTC, just like the US dollar itself has no value, it only has value because there is a community that agrees to use it as a transaction unit. goods and services.

To keep track of the amount of Bitcoin that each person owns in certain accounts and track transactions arising from it, we need an  accounting book , in this case it is Blockchain and this is the reality. is a digital file that tracks all Bitcoin transactions.

This ledger file is not stored in a central server, like in a bank or in a data center, but rather it is distributed worldwide through a network of peer-to-peer computers. The game stores data and performs calculations. Each of these computers represents a “node” of the Blockchain network, and each node has a copy of this ledger file.

An easy-to-understand example of a cryptocurrency transfer protocol:

If David wants to send Bitcoin to Sandra, he will broadcast a message to the network and say that the amount of Bitcoin in his account will decrease by 5 BTC and the amount of Bitcoin in Sandra’s account will increase accordingly. Each node in the network then receives this message and maps the requested transaction to their copy of the accounting ledger, and accordingly both parties’ account balances are updated.

Encoding principle

In fact, the ledger is always maintained by computers in  a peer-to-peer network  connected to each other. Therefore, it will have some differences:

– In the banking system, we only know our own transactions and account balances, on the bitcoin Blockchain you can see everyone’s transactions.
​ – Bitcoin network is a distributed network There is no need for  a third party to act as an intermediary  to process transactions.
​ – The Blockchain system is designed in a way that does not require trust and is guaranteed by reliability achieved through special mathematical encryption functions .​

To be able to perform transactions on the Blockchain, you need a software that will allow you to store and exchange your Bitcoins called a cryptocurrency wallet. This cryptocurrency wallet will be protected by a special encryption method that uses a unique pair of security keys:  private key and public key .

If a message is encrypted with a particular public key, only the owner of the private key that is a pair with this public key can decrypt and read the message content.

When you encrypt a transaction request with a private key, you are creating a digital signature that is used by computers in the Blockchain network to check the sender and the authenticity of the transaction. This signature is a text string and is a combination of the transaction request and your private key.

If a single character in this transaction request message is changed, the digital signature will change accordingly. Therefore, it is difficult for a hacker to change your transaction request or change the amount of Bitcoin you are sending.

To send Bitcoin (BTC), you need to prove that you own the private key of a specific wallet because you need to use it to encrypt the transaction request message. Once your message has been sent and encrypted, you no longer need to reveal your private key.

Rules of the ledger

Each node in the Blockchain is  keeping a copy  of the ledger. Therefore, each node knows what your account balance is. The Blockchain system only records each requested transaction and does not track your account balance.

To know the balance on your e-wallet, you need to authenticate and confirm all transactions that have taken place on the network that are related to your e-wallet.

Verification of this “balance” is performed using calculations based on links to previous transactions. Looking at the image above, to send 10 BTC to John, Mary needs to create a transaction request that includes links to previously occurred transactions with a total balance equal to or exceeding 10 BTC.

These links are considered as input values, nodes in the network will verify if the total amount of these transactions equals or exceeds 10 BTC. This is all done automatically in Mary’s wallet and checked by nodes on the Bitcoin network, Mary just sends a 10 bitcoin transaction to John’s wallet using John’s public key.

In fact, the nodes will check all transactions related to the cryptocurrency wallet you previously used to deposit Bitcoin (BTC) by referencing the transaction history. Having a record that stores unused BTC and is kept by network nodes simplifies and speeds up the verification process. Therefore, cryptocurrency wallets avoid the situation of double spending transactions.

The source code on the Bitcoin network is  open source, meaning anyone with a computer connected to the internet can participate in the network and make transactions.

However, if there is any  error in the source code  used to broadcast transaction request messages, the associated Bitcoins will be lost forever.

Remember, there is no customer support or anyone who can help you recover a lost transaction or forgotten password to your cryptocurrency wallet because this is a distributed network. Therefore, you need to  store  your password or private key of your wallet extremely  carefully and securely .

Principle of block creation

Transactions, after being sent to the Blockchain network, will be grouped into blocks and transactions in the same block are considered to have occurred at the same time. Transactions that have not been committed within a block are considered unconfirmed.

Each node can group transactions together into a block and send it to the network as a hint for the next blocks to be attached later. Any node can create a new block. So, the question is: which block will the system agree with? Which block will be next?

To be added to the Blockchain, each block must contain a piece of code that serves as an answer to a complex mathematical problem created using an  irreversible hashing function .

The only way to solve such a mathematical problem is  to guess random numbers , which when combined with the previous block content produce a system-defined result. This can often take about a year for a typical computer with a basic configuration to be able to correctly guess the numbers for the answer to this math problem.

The network stipulates that each block is created every  10 minutes  , because in the network there are always a large number of computers focused on guessing this sequence of numbers. The node that solves such a mathematical problem gets the right to attach the next block on the chain and send it to the entire network.

So what happens if two nodes solve the same problem at the same time and transmit their resulting blocks simultaneously to the network? In this case, both blocks are sent to the network and each node builds successive blocks on top of the block it received first.

However, the Blockchain system always requires each node to build on the longest blockchain it receives. So if there is any ambiguity about which block is the last, then as soon as the next block is resolved each node will apply to the  longest chain .

Since the probability of building blocks simultaneously is very low, it is almost impossible for multiple blocks to be solved at the same time and multiple times creating different following blocks. Therefore, the entire blockchain will quickly stabilize and merge once every node reaches consensus.

4. Practical application of Blockchain technology in life

Some industries that Blockchain technology can  impact  include:

– Automotive technology Automotive (Automotive)
– Manufacturing (Manufacturing)
– Technology, media & telecommunications (Tech, media & Telecommunications)
– Financial services (Financial Services)
– Arts & Entertainment (Art & Recreation) )
– Healthcare
– Insurance –
Retail
– Public Sector
– Real Estate
– Agriculture
– Mining
– Transportation Transportation and Logistics
– Technical infrastructure works (Utility)

Currently, many large companies and corporations are building their own networks using Blockchain technology. It is certain that Blockchain will create a revolution in the next few years in Vietnam and play an increasingly larger role in changing the IT world.