It is a decentralized, distributed and public digital ledger that is being used to record transactions across many computers within its network, so that any involved record cannot be altered at any time. All transactions recorded are permanent.
Pi is being built by design as a Peer-to-Peer (P2P) network that’s connected indirectly by utilizing security circles, nodes, trust graphs, quorums, quorum slices, and consensus.
Basically, decentralization means there is no central point within the network that acts as as a gateway to determine which transactions are processed before they are pushed through. This is what banks do. They hold the ledger, which is basically a list of transactions on record. They act as gatekeepers for financial information.
Blockchain Technology distributes the record of transactions to the entire network. Everyone will have the same record.
Each block stores information about each of its transactions such as the time, date, and cryptocurrency amount of each purchase.
Typically, if you make a purchase, it will have your name, and the service/goods you purchased.
In blockchain technology this information is encrypted. It is protected and instead you use a digital signature. A digital signature is represented as just a sequence of characters. It can only be created by a computer.
Example: Fred sends a digital message to Sally.
Fred uses his Private Key that only he knows, plus the hash value of the digital message which is calculated by the computer to create the Digital Signature.
Sally now receives the digital message along with the digital signature that Fred sent.
Sally’s computer now will proceed to decrypt the digital signature using Fred’s Public Key.
It then calculates the hash of the original message. The computer will now compare the hash it has computed from the message it received with the decrypted hash that was received with Fred’s digital message.
It should be the same, any difference in the hash values means it’s been altered.
Which means it is NOT valid.
A private key is a random hexadecimal number which should always be kept private by the one who holds the account. This should be shared with no one.
A public key is also a random hexadecimal number which is meant to be shared publicly on the open network. The address of each digital wallet is that digital wallet’s public key.
These two keys share a mathematical relationship. Still, it is impossible to use the public key to find out the private key. It can really only go one way, but while it’s theoretically possible to go the other way mathematically, the time to do it is not practical for even the most advanced computer systems all working together. This is why this system of using blockchain technology is very secure.
Digital signatures are used because they offer a way to validate one’s authenticity. The integrity of information that is transferred will remain.
A digital signature AND a public key are both necessary to secure a message.
Fred’s private key + Sally’s public key are combined to form the transaction. Sally can then decrypt the outer part of the information with her private key. Then decrypt the inner part of the information with Fred’s public key. This will ensure the right person received the right digital information. This is possible because private keys and public keys are linked with a mathematical relationship.
If the hashes match, the message is considered valid. Then this transaction is now listed on the ledger. Think of the ledger like a book that never ends. The genesis block would be the first page.
Each block would be considered like a page in a book. Each block contains a specific amount of valid transactions. Bitcoin for example has about approximately 500 transactions per block. Each block has a cryptographic hash of the previous block.
Hashing algorithms are very complex computational functions that help pretty much package information to produce a hash.
A hash is just a string of numbers and letters. A fixed number of characters to encrypt a digital message.
In regard to Pi, it will be using nodes which will be laptops/computers helping to provide a consensus to determine authenticated, verified and validated transactions. Because the network will have thousands of nodes each with knowledge of the same public digital ledger, it would be impossible for someone to alter a block in the blockchain. There is no computer system in the world that could capture that network and update it on every node.
The more nodes Pi will have, the more secure it will become.
This is only one of many reasons why we should all build a Node when it becomes available by 2020.
This type of technology has been around for a decade. Still, while many people are only beginning to understand it, it is still a very new concept for the majority of people out there.
Pi will be using the Stellar Consensus Protocol and Federated Byzantine Agreement Algorithm to process the smart contracts we will create as we process transactions between each other all over the world. It will be using one of the most advanced type of blockchain technology available today.