Blockchain is hot. Everyone’s talking about it. Here in India, aggressive digitization policy set in motion by the government since it came to power in 2014 has been one of the primary drivers of the economic progress that has propelled the country back in the race to become the fastest growing major economy.
The Budget 2018 saw the Finance Minister lay out his government’s plan to place Blockchain at the heart of their effort to usher in the digital economy (more on this in coming days). Making it one of the hottest topics of discussion within the finance and tech community in the nation.
— Sbootcamp FinTech (@sbcFinTech) February 1, 2018
Disruptive technologies such as Block-chain and the Internet of Things, will have a profound impact in the way we live and work. They will require rapid adaptation in our workplaces: PM @narendramodi
— PMO India (@PMOIndia) February 19, 2018
So what really is Blockchain?
The Blockchain technology is a digitally distributed ledger system that allows untrusted parties to reach consensus and transact without the need of a centralized intermediary. Being a decentralized system, transactions on a blockchain are not subject to centralized control over data and thereby there is no central point of failure.
Having defined Blockchain for you, let us look at some of the key terms associated with it.
A Block is like a record book consisting of packages of data recorded permanently on the blockchain.
A tool available online to view every transaction history recorded on the blockchain.
The total number of blocks connected on the blockchain.
A form of incentive for the members of the blockchain network for successfully calculating the hash in a block.
Bitcoin is the first use-case of the Blockchain technology. It is the first decentralized, peer-to-peer, open source cryptocurrency that functions without the need of a centralized agency.
A ledger maintained by a centralized agency.
The act of successfully hashing a transaction and adding it to the blockchain.
When all participants of the blockchain network agree on the validity of the transactions, ensuring uniformity across the ledgers, a consensus is said to be achieved.
Cryptocurrencies are a virtual representation of digital assets which has no physical form and its supply is not determined by a central bank.
A decentralized application (abbreviated as ‘Dapp’) is an open source application operating autonomously on a blockchain that incentivizes the network in the form of cryptographic tokens.
A Decentralised Autonomous Organizations (abbreviated as ‘DAO’) can be described as an organization that runs without human intervention by relying on smart contracts or a pre-programmed set of rules governing the system.
Distributed ledgers are decentralized ledgers with data being stored across a network of decentralized nodes spread across multiple sites, countries or institutions.
A distributed network is a decentralized data center with the processing power and data stored across nodes spread across multiple sites, countries or institutions.
Difficulty is a term used to define how easy it is for a data block of transaction information to be mined successfully.
A virtual signature in the form of a digital code, a digital signature is used to sign on an electronically transmitted document for the purpose of verification of content and identity.
A problem pertaining to digital payments, double spending occurs when money is spent more than once.
Ethereum is a blockchain based decentralized platform for dapps that run smart contracts. Ethereum enables the development of applications on top of it, thereby eliminating the need for creation of an entirely new blockchain for each application.
The Ethereum Virtual Machine (EVM) is a Turing complete virtual machine that eases the process of creating decentralized applications by reading and executing smart-contract specific programing language compiled into a ‘bytecode’. Every Ethereum node runs on the EVM to maintain consensus across the blockchain.
A Fork is said to have occurred when an alternate version of a blockchain is created that runs simultaneously on a different part of the same network.
The first block of a blockchain.
A type of fork that makes previously valid blocks/transaction invalid requiring all participants to upgrade their client.
As per Wikipedia, a Cryptographic hash is a special class of hash function that produces a fixed-size and unique hash value from variable-size transaction input that makes it suitable for use in cryptography. Eg: SHA-256
The act of performing a hash function on the output data used for confirming transactions.
Hash Rate is the number of hashes that can be performed by a miner in a given period of time (usually a second)
Mining is the process of verifying blockchain transactions which are to then added to the chain. The necessity of verifying transaction requires incentivization for the miners, which is usually in the form of cryptocurrencies.
A multi-signature address allows more than one party to require multiple keys to authorize a transaction. This provides an added layer of security by having greater resistance to theft.
A node is a computer participating on the blockchain network.
Oracles provide data to smart contracts, connecting the real world and the blockchain.
Peer to Peer
Peer to Peer (P2P) refers to a decentralized interactions between two or more parties in a network. Participants of a P2P network do not need intermediaries and deal directly with each other.
A public address is a cryptographic hash of a public key that acts as a digital address that can be published anywhere.
Private Keys act as a password allowing access to a specific digital wallet address.
Proof of Stake
Proof-of-stake (PoS) is a type of algorithm by which a cryptocurrency blockchain network aims to achieve distributed consensus to validate transactions on the basis of coins (stake) held.
Proof of Work
Proof-of-work (PoW) is consensus distribution algorithm on the basis of performing a certain amount of computational work to solve a cryptographic puzzle. Unlike PoS, it requires mining data blocks by consuming electricity. More computational power provided results in more ‘work’ performed and hence higher rewards.
SHA-256 is a cryptographic algorithm used by cryptocurrencies such as Bitcoin.
Smart contracts encode a pre-programmed set of rules via a programmable language onto the blockchain that triggers on a specific scenario without an intermediary.
Solidity is Ethereum’s programming language for developing smart contracts.
All transaction taking place on a peer-to-peer decentralized blockchain that involves a small transaction fee. These transaction fees add up to account for the block reward when nodes process a block.
Turing complete is the ability of a machine to perform calculations that any other programmable computer is capable of.
A file that houses private keys. It usually contains a software client which allows access to view and create transactions on a specific blockchain that the wallet is designed for.
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