The Windows Club

Blockchain technology explained; Microsoft’s plan to develop Blockchain as a Service

A new technology that is slowly picking up in the online world is Blockchain technology. It is basically a distributed ledger technology that keeps a record of transaction data and online assets. Blockchain can be either private or public. An example of widely popular public blockchain is ‘Bitcoin’. Business establishments mainly invest in private blockchains that are used for keeping a record of transaction data in virtual environments (Cloud), accessible only to a defined or known network. Processes carried out within this infrastructure/network are tamper-proof.

What is Blockchain technology

To put it very simply, Blockchain technology is a distributed database that is used to used to manage & mantain a growing list of data blocks, using a P2P network collectively. These data blocks may be situated in different locations and not connected to the same Processor. A database is a collection of records. A distributed database is one which may be located in different locations and not be attached to a common Processor – but it may be located in the same or differnet physical locations and dispersed over a computer network. In a Blockchain, once a piece of data is recorded, it cannot normally be edited or changed.

Building this infrastructure, however, requires expertise in back-end cloud-computing capacity which Microsoft offers as BaaS or Blockchain as a Service. Giants like IBM too, offer this service but under a different name – IBM Blockchain.

In the case of Microsoft, the back-end infrastructure on Microsoft Azure is capable of meeting all the business needs. An added advantage, it offers- interoperability with other blockchains. Companies of any size to benefit from the collaborative economy with its Azure Blockchain as a Service (BaaS) program.

This video gives you a basic visual introduction to SHA256 Hash and the concept behind a Blockchain.

Microsoft Azure’s Blockchain Strategy

At its core, a blockchain is a data structure used to create a digital transaction ledger. This ledger does not rest with a single provider but shared among a distributed network of computers and is completely secure. How? It uses cryptography to create transactions that are impervious to fraud. Moreover, Blockchain value is directly linked to the organizations that participate in them.

The blockchain uses a distributed ledger to track transactions. It’s a write-only database used in accounting. The distributed ledger creates same copy of data across all participating nodes. A node is a person, thing or an entity that has decided to take part in the Blockchain.

If you don’t know this technology was initially designed to power Bitcoin. Participants in the blockchain can verify the transaction if it is valid and then write it to the ledger. Once this is done, transactions are then connected within a chain of blocks. All the transactions are grouped together in blocks. These blocks represent the order of transactions.

When these blocks are linked to previous blocks, it represents a chain of blocks hence, originally known as Blockchains.

The transaction can then track how the ownership changes. Transactions within the same blocks are considered to occur at the same time.

Read: What are Cryptocurrencies?

Traditional ledgers are centralized. Some person owns it. Blockchain safely distributes it across multiple parties. This negates the need for middle-men that makes it probably, one of the best innovations of a blockchain. Also, the technology helps in maintaining the multiple replicas of file chain system. So, multiple copies of the ledger are available. Changes made to one ledger cannot be effected to other unless accepted.

The process of decentralization as highlighted above has multiple benefits. One, it eliminates intermediaries. This helps industries to redefine their business models. Secondly, it reduces fraud by making the network highly secure and transparent. All this makes it difficult to change the historical records.

Finally, it increases speed and efficiency and also revenue and savings. Having said that, if there’s no central authority, how does one create encryption algorithm that ensures no manipulation occurs. Well, Blockchain solves all these problems and many others by replacing central authority with cryptography.

Its solution is based on a simple logic – develop an electronic payment system that completely relies on cryptographic proof instead of trust that allows two parties to transact directly with each other without the need of a trusted third party. Microsoft Azure BaaS is just based on the same solution. This breakthrough is however, a culmination of 6 steps,

  1. New transactions are broadcast to bitcoin network.
  2. Each participant collects new transactions into a block and timestamps them. (this is also known as hash )
  3. Each node works on finding a difficult proof-of-work.
  4. When a participant finds a proof-of-work, it broadcasts the block to all nodes. The first individual who successfully manages to find the proof wins the right to write the block to the permanent chain and also gets rewarded for his work later.
  5. The participants in the node can accept the block only if all the transactions in it are valid and not already spent. This, like in normal cases helps in developing a consensus (also the name given to the algorithm) and prevents participants from cheating.
  6. Finally, participants express their acceptance of block by working on creating the next block in the chain, using the hash of the accepted block as the previous hash.

All the digital assets you create remain protected via digital signatures and hashes. This, in turn are created via one-way hash function – a mathematical function that creates a unique output based on specific input with no way of deriving the input from the output.

In this way, Microsoft plans to grow the blockchain marketplace ecosystem with our partners & customers and develop key Azure blockchain middleware as a service.

Read next about the Blockchain Ecosystem – Blockchain 2.0 and Smart Contracts.