Hey everyone. Welcome back to the course. Up until now, we have learned some key features and the working of blockchain. Now we will start going deep into the functional understanding of the course, and see how our transaction works and how the consensus mechanism works. Let's take a small example. Suppose Alice in the US wants to send $5 to Bob in Australia.
In the traditional way of performing a transaction, she is going to use a third party service like bank or PayPal to send the money across to bomb. The third party services like banks always take time to process the overseas transactions and also charge some fees over the cross border transaction. Moreover, you do not even have the transparency for the transaction performed. For this example, we are only taking a small amount like $5. Now suppose the amount This quite large and required for some emergency, the associated time and fish food also increase. Let's visualize everything through a diagram.
As you can see in the diagram, Alice is making a transaction through a third party bank. And on the other end, Bob is receiving the transaction after a delay time interval and fees. This time required to process the transaction is prolonged. Moreover, if the sum of the money to be transferred is quite large, then the bank will also charge a hefty fee. Is it possible to do the same thing more cheaply and efficiently? Yes, it's possible and that's where the blockchain comes into the picture.
The transaction you saw in the last image was carried out through a trusted third party. The same transaction can also be done through a blockchain. How could we do that? In the core of blockchain, there is a ledger which keeps the record of all the transaction happening throughout the network. Alice, who wants to send money to Bob, she can use her private key to sign and broadcast transaction on the blockchain. And on the other end, Bob will receive the same quantity as specified by Alice.
There won't be any surcharges as we don't have any middlemen or third party, each node connected to the network will receive the message that Alice is updating her balance. This will be synchronized continuously with all the nodes which are part of the blockchain network, so that the current state of Alice account is maintained. Bob connected to the network will also receive the update, and as the transaction is directed towards his account, Bob will finally receive the money under his account address. There are several benefits of performing the transaction on the blockchain This will provide transparency to the participants and they can view how the transaction has been executed. This will also reduce the time and fees associated with the traditional transactions. In this diagram, you can see the process of using blockchain to do a transaction.
Alice, who is performing the transaction has a wallet associated with her account. Alice wallet is hosting a private key and public address. Alice uses her private key to sign the transaction. This digitally signed transaction is broadcasted on the blockchain network. Once the network is in complete synchronization with the new transaction, the node through which Bob is connected will receive the transaction and finally Bob will receive the money sent by Alice. Alice public key can also be distributed to Bob, which can be utilized to verify the transaction over the blockchain.
Now let's compare the transaction distribution between the traditional and blockchain networks. The apparent difference between the conventional transaction and the distributed transaction is that in a centralized transaction distribution, we have a central server. And every participant connects and views the transactions through the central server. But in a distributed approach, we have a shared ledger, where everyone has the copy of all the records, everyone can view the transactions and verify the details over the network. The centralized approach relies on one single entity controlling the full network. The individual body in charge of the system can provide or deny other people from viewing the transaction details.
Participants won't have transparency maintained. Moreover, they need to trust the central authority for data integrity and security. Apart from that, participants might be reading To pay a fee to the central body for maintaining their records in distributed, we don't need a trusted party everybody collaborates and reach a consensus to achieve truth inside the network. This is how a transaction gets distributed in a blockchain network. Next we are going to learn about the consensus mechanism which is a very critical function of the blockchain. Thank you for attending this session.
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