Do bitcoins have any value in India?
Why the blockchain is safe
When a transaction is agreed between two parties, they define the transaction variables, such as the recipient, sender and the amount of the transaction. A data block is then formed from the individual transactions that take place in the same period of time. The data block is then stored in the global network in a decentralized and tamper-proof manner. The transactions contained therein are thus verified and the block is appended to previously validated blocks. Another block of the blockchain has emerged. This confirms the transaction for both parties. If there are several chains in a blockchain, the longest is always considered valid.
How can you imagine a transaction between two parties?
A blockchain address (comparable to a bank account) consists of two components, a private key and a public key. The public key is known to everyone in the network and allows the transaction history of a blockchain address (i.e. a user who remains anonymous) to be viewed and traced. In order to actually be able to access the user's account, however, the private key is required. This is necessary in order to be able to carry out transactions.
The example of a Bitcoin transfer between Bob and Alice is intended to illustrate the transaction principle in the blockchain. To understand them, you have to introduce two miners, Peter and Tom.
Step 1: Bob has 5 bitcoins in his bitcoin wallet (i.e. his bitcoin account) and now wants to transfer 2 bitcoins to Anna. To do this, Bob instructs his Bitcoint client (a program with which you can give up Bitcoin transactions) to send the 2 Bitcoins to Anna's Bitcoin address. For this Bob needs his private key and encrypts and signs the transaction with it.
2nd step: With the help of Bob's public key (which is known to everyone in the network) everyone can now verify that the transaction actually comes from the correct account, i.e. from Bob's account with the 5 bitcoins. At this point, security is guaranteed because no one can have encrypted the transaction in this way who does not have Bob's private key. The miners Peter and Tom now bundle the transactions of the past 10 minutes separately, including Bob's transaction to Alice.
3rd step: Peter and Tom's computers now generate hash values, which is a kind of checksum, from the information in the block (also the information that Bob transferred 2 of his 5 bitcoins to Alice). In order to attach the block to the Bitcoin blockchain and thus confirm the transactions, Peter and Tom do not have to generate any hash value, but a specific hash value (with a number of zeros at the beginning).
That makes their work more difficult, but creates competition. The winner will be compensated with bitcoins. This means that there are enough miners like Peter and Tom who take on the task of encryption and verification.
Peter and Tom now have to generate hash values until they have generated one that meets the requirements of the Bitcoin network. You can influence hash values by being able to change a value in the block to be encrypted that otherwise has no meaning, the so-called "nonce".
4th step: As soon as one of the miners, in our case Peter, has generated a hash value that meets the requirements of the Bitcoin system, he sends his solution to the network. The other participants review the solution and agree to it if it is correct. Peter now receives the number of Bitcoins specified for the mining activity transferred to his Bitcoin account.
5th step: If there is now consensus in the network about the correctness of the solution, the block is attached to the blockchain and the transactions within the block are confirmed. Thus, the transaction of 2 Bitcoins from Bob's account to Anna's account is confirmed for both participants and stored in a traceable way for all participants.
Why is the blockchain tamper-proof?
A block is validated using a hashing algorithm (SHA-256), which assigns an individual hash to each block. The hash is a series of numbers and letters and is based on all of the information stored in a block. For example, “Blockchain” results in the following output: 625da44e4eaf58d61cf048d168aa6f5e492dea166d8bb54ec06c30de07db57e1 If the text is now changed to “Blockchain1”, the result is a completely different series of numbers and letters: 0fc6e5e34f6899f5e104a4ca06e4c6e34f6899f5e104a2ca05a changed within this block, the hashing algorithm no longer calculates the previously formed hash value. This results in an error message and all participants in the network can see that a transaction has been changed within this data block. The participants in the network then do not accept this block and it does not become part of the blockchain. The transactions that are stored in this block are therefore not confirmed.
The correctness of the hash values of blocks and transactions is continuously checked by the miners in the network. In order to change a transaction in a block already stored in the blockchain, all subsequent blocks would also have to be changed. To do this, all calculation steps up to the block that the attacker would like to change would have to be repeated. Only an attacker with more than 50 percent of the network's computing power would be able to do this. Therefore, the distribution to many different miners, without one holding the predominance of computing power, is important and makes the blockchain safe from manipulation.
Since this so-called “Proof of Work” process is very energy-intensive, developers are currently working on an alternative called “Proof of Stake”.
The author Simon Göß is a consultant at the consulting firm Energy Brainpool, which organized a seminar on blockchain in the energy industry at the beginning of September. He works on consulting projects, scientific articles and studies on electricity market design, the profitability of innovative business models in the energy transition and price effects on European energy markets. The next seminar on blockchain in the energy industry will take place on November 16 (www.energybrainpool.com).
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