What Satoshi thought in Blockchain
In this segment, you will be introduced to a revolutionary technology that has the potential to disrupt existing business frameworks and come up with a new way of doing business - ‘Blockchain’. Before we dive into the basic idea of Blockchain, let's first hear it from Shebin on what was the thought process that lead to this revolutionary idea.
In the next video, Jeevan talks about the basic idea behind the Blockchain technology and how it has the potential to solve the current drawbacks of centralised systems.
Please read the example below to aid your understanding.
Let’s understand this further with a hypothetical example of a clothing store located in a small town. Since it’s the only store in the town, customers come in large numbers on a daily basis. Earlier, there were a few instances of mismatch in sales, inventory and revenue because the cashiers were inefficient in creating proper receipts, handling payments, and maintaining records. The store owner identified that having a centralised data store, that stores all the store information is causing the aforementioned issues. To address these issues, the store owner has implemented a unique mechanism. He set up four cash counters located near to each other. Every time a purchase/refund is concluded at any of the counters, the cashier at that counter rings a bell and announces the following details:
transaction number of the day
value of the sale/refund and
the time of occurrence
This specific procedure is followed for every transaction recorded, also a representation of the validity rules. The cashier notes the details of all transactions in the daily ledger. Once the announcement is over, all other cashiers record this transaction in their respective ledgers. Basically, every cashier records all the transactions done by every other cashier. This way all of them have the record of all the transactions done in that particular day. The ringing of the bell signals the intent of the cashier to announce a transaction. All bells have unique sounds. When there is a conflict in determining the order of transaction, the bell that was rung first is given preference. Once the transaction is noted, the other cashiers ring the bell once to confirm the activity. There is an assistant to support every cashier, and the assistant’s role is to monitor the transactions noted by the cashiers. The store owner might reach out to any of the assistants to confirm the presence or validity of any transaction. Hence, the store owner can track the transactions that take place in real time. This process is followed every day of the week.
The above scenario is synonymous with the concept of a blockchain. All transactions here are verified across a peer-to-peer network of cashiers. Absolute authority is not vested in any one cashier. Instead, it represents a decentralised system where all cashiers store the same copy of all the transactions that take place during the day. Also, the addition of any transaction to the registry is carried out via a consensus mechanism between the cashiers. The transaction log represents the registry of transactions or the distributed ledger. If any transaction is missed out by any of the cashiers, by announcing the transaction number every time the bell is rung, the other cashiers can rectify the order and ensure the ledger is consistent with other ledgers across the store.
Hence, another way of describing a blockchain is a decentralised database of transaction records which is distributed over all the participating nodes in the network.
Blockchain, as you learnt, is a combination of decentralised and distributed database containing a registry of transactions that are distributed among peers or fellow participants in the network. The registry includes a long list of transactions and is continually updated with new transactions as they take place. Starting from the very first transaction, a bunch of transactions is grouped into a block as per a predefined block size (1MB in case of Bitcoin). Once the block size is achieved by one block, the next set of transactions forms another block which is then linked to the block previously formed. Over time, a series of blocks is formed where each block is connected to another block that was created just before it. Thus, we call this chain of blocks as the blockchain.