Blockchain tutorial for excel
So the fraudster will have to calculate the hash for this new transaction as well. So the fraudster will never be able to convince the world that he is right. Suppose we have a lot of participants. Many bilateral transactions are being made simultaneously. Then, all these transactions are recorded in a temporary log and after every 2 seconds the transactions that have happened are batch processed, as a block of data. The person who is creating this Hash for a block as mentioned above is doing a service to the blockchain and he needs to be compensated accordingly.
This person is referred to as Miner. All those who transact will pay a small transaction cost to the Miner for including their transaction in the block he has created. Since there is incentive for creating blocks, thousands of Miners race against each other to create the block as fast as possible. The balance sheet or an income statement of a participant needs to be derived from transactions records in which the participant was a Editor or a Taker.
The above description is a very simplified manner of explaining the concept behind blockchain. The actual technology may be way more complicated and it can be implemented in innumerable variations. Achieving Immutability In case any of the previous transaction is edited then the Hash of that transaction and all the following transactions will change. Anybody who wants to make a transaction can add a new row to this excel sheet to record their transaction.
When a contributor adds a row it is time-stamped and he also signs his name against the transaction so that others can verify, he was indeed the actual contributor. One of the columns in the row added is Hash. Since Hash of one row is dependent on Hash of the previous row every transaction added is dependent on the previous transaction and iteratively on all the previous transactions in the database. Thus we have a chain of transactions. When a row is added by one person, others who have the excel sheet validate the transaction by checking the Hash and checking that the Editor indeed had previously owned this asset he is giving away to the Taker.
Now this is collaboration. In case any of the previous transaction is edited then the Hash of that transaction and all the following transactions will change. This is because the content of the transaction is encoded in the Hash and this Hash is encoded in the next Hash and so on. Suppose somebody tries to commit fraud by changing previous transactions in their copy of excel sheet, then he will have to calculate the Hash of all transactions from the changed transaction to the latest transaction.
The copy of the excel sheet with maximum rows that majority of people have will be considered true. This is consensus driven collaboration. So the fraudster will have to calculate the hash for this new transaction as well. A blockchain is a shared distributed record book ledger that sits on many computers on the internet.
An analogy of a blockchain is an excel spreadsheet with one column, where each cell is a block that contains records and is linked to the previous cell. A shared set of records on lots of computers does not sound very complex, so what is all the fuss about? You are correct, the concept is not complex, however the cryptography and incentives that lie behind blockchains such as bitcoin are complex and novel. The key problem that blockchains solve is enabling trust between unknown parties.
This trust enables the removal of centralized middlemen, such as institutions like banks. Bitcoin is a peer to peer electronic cash system that enables online payments to be transferred directly, without an intermediary. However, digital money is not a new concept, online gamers have used digital money for some time. So why is blockchain so important if digital money is not new?
Well, blockchain solved two key problems that digital money had not solved at that point. The solution was to use a blockchain, a publicly visible, online ledger that keeps a record of all transactions. The network relies on Bitcoin miners who use computers to validate transactions, which are aggregated into chunks called blocks. Bitcoin users protect themselves from double spending fraud by waiting for confirmations when receiving payments on the blockchain.
These transactions have a higher probability of becoming irreversible as the number of confirmations rises most exchanges use 6 confirmations. The miners earn a reward of newly issued Bitcoin for authenticating blocks, but the network has scarcity in-built with a limit of 21 million coins.