You've probably heard the term "blockchain" used to refer to Bitcoin or other cryptocurrencies. Many people believe Bitcoin to be Blockchain. However blockchain is a technology underpinning digital currencies.
This article will help if you're new to blockchain technology or cryptocurrencies.
Let's take a look at the history behind blockchain to understand why and how it differs
Blockchain Technology: History
It may seem absurd, but the concept of blockchain was first considered by people in 1991. Stuart Haber and W.Scott Stornetta envisioned what we now call blockchain technology. They began working on cryptographically-secured blocks in chains that were impossible for anyone to alter.
These men upgraded the system, and included Merkle trees to improve efficiency and collect different documents on a single blockchain. In 2008, Satoshi Nakamoto, an unknown individual or group introduced blockchain to the public.
Satoshi has published a whitepaper, "Bitcoin: A peer-to-peer digital cash system." This document outlines how to create a safe and transparent digital currency with no central entity or bank involvement.
Even though the term blockchain was not used in the document, it explained how the technology works. Satoshi launched Bitcoin on January 9, 2009, but he resigned after a while and left the project to allow other developers to continue developing the Bitcoin technology.
Developers have begun to build a new peer-2-peer currency, which does not involve any central entities. Bitcoin Market, the first cryptocurrency exchange on the planet, was created in 2010. Lazlo Hannyecz from Bitcoin Pizza Guy made the first Bitcoin payment.
If asked when the blockchain was first created, we can reply that it was in 1991.
What is Blockchain?
Blockchain technology
According to Alex Tapscott (authors of "Blockchain Revolution"), "The Blockchain" is an incorruptible digital leadger of economic transactions that can also be programmed for recording financial transactions and virtually any other value.
Blockchain is neither software nor a company. It is a new, innovative way to record information on the internet. A blockchain is a collection of time-stamped blocks containing an immutable data record. It is managed not by one authority but by a cluster.
Every block is protected and linked with each other using cryptography principles.
Blocks
A block can also be considered a page of the ledger. Each block has data, timestamps and a hash for the previous block.
The type and amount of data saved in a block will depend on which blockchain it is. The Bitcoin blockchain stores details like the sender, receiver, and balance.
The block's hash acts as a fingerprint. It gives the blocks and all contents a unique identification. A hash is a representation of all transactions within a block.
The hash of a block previously used is always added to the new block to keep track of chronology and make sure that blocks remain valid. A timestamp contains the time at which the block was made to keep track on its creation and updating.
A new block must always point to the prior block. If the hash value of a new block does not match that of the previous block, then it indicates that the block has been altered.
The blockchain would declare all blocks invalid if you alter any block.
To protect the blockchain against manipulation or tampering, the hashing mechanism is insufficient. Hackers can quickly invalidate the blockchain by recalculating hash value of blocks. Computers are now faster.
The blocks are distributed among all machines to ensure that no one entity controls the network's information.
Each node keeps a copy in the ledger. This ensures data is never lost or remains accessible to all network members. All nodes agree that data added to the blockchain is valid if it contains any information.
The consensus algorithm provides the answer.
Because there are multiple blockchain platforms, different consensus algorithms are used for deciding if a particular block should be added or removed from the blockchain.
Let's look at how blockchain technology works.
How does Blockchain work?
Blockchain works on the following concepts
- Private Key Cryptography
- Distributed Network with an Open Ledger
- Incentives to maintain the network's transactions security and record-keeping
Private Key Cryptography
To transact over the Internet, two people must have their own private and public keys. This concept is used to create a digital identity for users on the blockchain.
The combination of public and private keys can be considered consent. A unique digital signature is created. Both public and privately held keys give users reliable ownership.
But cryptography alone will not protect digital relationships. It should be combined in tandem with authorization, which allows for the validation of transactions and permissions.
In the case Blockchain, authorization is made via a distributed network.
Distributed Network with shared ledger
The benefits of a distributed network can easily be explained by the following example: "trees have been cut down." If cameras were available to record the event, we could be certain about the cutting of trees in the forest. We have visual evidence that the event occurred, even though it is difficult to determine the exact cause.
The blockchain is similar in that validators are like cameras. Once they reach a consensus, they notice the same thing happening simultaneously. They verify computations mathematically instead of using cameras.
A network node creates a transaction, signs it with its private keys, and then starts it. Transactions contain the logic for transferring value, source address and destination address, rules and validation information.
The transaction must then be confirmed. A network computer system on the blockchain verifies transactions before they are stored in a single block. Once they confirm that the transaction occurred they add it to a block.
A block with the information, digital sign and timestamp of the information is broadcasted to all nodes within the network in order to make them accessible at all times.
Once data is saved to the blockchain, it cannot be modified or deleted. This makes it an incorruptible repository of transactions.
The following are the various types of consensus protocols used to verify transactions on the blockchain
The proof of work
Proof of Work (or Proof of Work) is a consensus protocol to stop cyber attacks. It is used to protect against distributed denial of services attacks, which exhaust the resources of a computer system by making multiple false requests.
Bitcoin was founded with the proof of work. Ari Juels and Markus Jakobsson coined this term in a 1999 publication.
Mining is an expensive and complicated computer calculation. Mining is used for creating trustless transactions in a distributed ledger, called the blockchain.
Here are the uses of mining:
Verification of the legitimacy and ignoring double-spending
Create digital currencies through rewarding miners for previous tasks
The node with the best mathematical power solution will only be able to authorize transactions and add more blocks to the Blockchain network. Because proof of work consensus does not allow for tampering, one must re-evaluate every computer computation that is used to generate all blocks in the blockchain network.
There is proof of stake
Proof of Stake is a consensus algorithm used to validate transactions and achieve distributed consensus. Peercoin was the first to implement Proof of Stake (PoS) in 2012. The algorithm is both secure and energy efficient.
In the proof of work algorithm, miners are paid for solving mathematical problems and validating transactions. The proof of stake algorithm determines which block's creator will be chosen randomly. This depends on how wealthy or long-lasting the digital currency is.
Proof of stake uses significantly less energy than the proof-of-work algorithm. There is no need to issue too many coins to encourage miners in managing the network.
This algorithm can be used for motivating individuals to participate in this system and to protect it from any individual who might want to control it. For a 51% attack to be successful, one must possess the majority of coins.
First, attackers would have to spend a lot to buy enough coins. If everyone started buying everything, individuals would be forced to leave the digital currency. In order to prevent hostile takeovers, prices would rise. Attacking the network will also reduce the coins value the attacker holds.
There is also a drawback to the proof of stake algorithm. It has a "nothing in stake" problem. Block generators are at risk when they have nothing to lose. This can be prevented by supporting and changing the history of blockchain transactions.
Delegated Evidence of Stake
Delegated Proof of Stake (DPoS), a type of consensus algorithm, aims to secure a cryptocurrency by speeding up the creation of blocks and transactions without affecting decentralized incentives.
To gain the right to authorize transactions and earn rewards, users will need to place their currency at the stake with the proofof stake consensus mechanism. Delegated Proof of Stake Consensus on the other hand is a variation of PoS and aims at achieving consensus efficiently.
DPoS uses the electoral process to maintain consensus. Users can cast votes for witnesses on DPoS-based crypto to help validate transactions. Users can also share their voting power with other users they trust, so that others can vote on their behalf.
Votes will be evaluated according to the size and proportion of their stake. Users don't have to hold a large stake in order for them to gain access the top tier. Votes can be cast by users with a substantial stake to select witnesses from the top tier.
The number of witnesses required by the top tier will be limited to a set number. These witnesses must validate transactions, create blocks, and then receive the associated fees.
Witnesses cannot alter transaction details, but they are able to prevent transactions from being included within a new Block. They can therefore be compared to miners using a proof system.
Users of DPoS consensus-based networks can vote for delegates. They are trusted members responsible for managing the network. These representatives are responsible for the governance and performance of the blockchain protocol. They do not validate transactions nor create blocks.
Leased Proof to Stake
Leased Proof of Stake adds to the original Proof of Stake. Waves introduced the Leased Proof of Stake, a new consensus algorithm that provides a better catch but with less power consumption. In the beginning, proof of stake didn't allow people with small coins to participate.
The Leased Proof of Stake algorithm allows smallholders the possibility to also take part in the staking process. By leasing their coins, they can avail the benefits. The introduction of leased PoS made a significant change in the market.
Proof of Elapsed Time
PoET is an efficient consensus algorithm used on the permissioned cryptocurrency.
The Proof of Elapsed Time algorithm uses an exact technique to hide transparency in the network. It also ensures secure login. Every member of the network is required to wait for a set amount of times, but this limit is randomly determined. If an individual finishes their part of the waiting time, they can start the ledger for creating another block.
Now it is up to the individual to wait for the appropriate time. The Intel Software Guard Extension is a requirement for the CPU that drives the algorithm.
The Intel Software Guard Extension handles unique code execution on the network. PoET makes sure that all winners are pure and fair by using this system.
Byzantine Fault Tolerance
Lamport-Pease and Shostak introduced "The Byzantine Generals Problem" in 1982. It was designed to make sure that malfunctioning components that give conflict information are managed within a given system.
BFT is able to manage various types of faults in relation to the Byzantine Generic's Problem. The algorithm allows two nodes to interact securely over the network while they both display the same data.
If all of the peer-to–peer nodes reach a common decision, then consensus can be reached. BFT allows for repeated sending of an incoming message to other recipients. All nodes assume that repeated messages will eliminate the issue of Byzantine Nodes.
Practical Byzantine Fail Tolerance (PBFT).
Practical Byzantine Fail Tolerance often focuses on the state machinery. By replicating the system, it eliminates the Byzantine general problems. The algorithm assumes that nodes independent of each other can cause malfunctions and failures to the network.
Additionally, nodes are ordered in a specific way. PBFT selects one node to be the primary node. Other nodes serve as a backup plan. All nodes of the system are identical and interoperable with each other.
The PBFT consensus mechanism allows every node to verify information in the network. This avoids unreliable information problems.
They can however find out even if one or more nodes are compromised and all other nodes agree with majority voting.
Delegated Byzantine Failure Tolerance
The consensus algorithms for the blockchain ecosystem, Proof of Work (or Proof of Stake), are well-known. However, there are some who try to create advanced consensus systems. NEO is a popular blockchain platform that has developed a new consensus protocol: Delegated Byzantine Tolerance. This protocol is very similar to the DPoS.
Every NEO user has the ability to select delegate representatives who will represent their interests. Native cryptocurrency holders have a special interest in the platform.
It functions similarly to a country’s government which has citizens, speakers and delegate. Citizens can signify NEO tokens owners, delegates can signify bookkeeping nodes, and the speaker can be one of the randomly selected delegate.
Citizens vote for delegate, where all citizens are eligible to vote regardless of tokens. Randomly, one delegates is chosen as a speaker. The role for delegates is listening to citizens' demands.
Each transaction is kept under close scrutiny by the delegate and entered on a ledger. To verify a block, the randomly selected speaker proposes their block. They then send the block out to all other delegate in order for them to match their block with that of the speaker and guarantee validity.
Before the speaker's block can be validated and added into the network, at least two thirds of the participants must agree to it. If the 2/3rd of the delegates disagree, the new speaker is selected and the entire procedure is repeated.
Simplified Byzantine fault tolerance (SBFT).
The Byzantine Fault Tolerance consensus algorithm, simplified, works in a different way. The block generator collects transactions and authorizes them.
To validate transactions all network nodes need to adhere to specific rules set by the block generator. Once the rules are applied by the generator, the block signer confirms them. Then they add their signature. If any of the key blocks are missing, transactions are rejected.
Asynchronous Byzantine Tolerance of Faults (ABFT).
The Asynchronous Byzantine Failure Tolerance consensus mechanism demonstrates the system's ability not to propagate invalid messages or nodes failing to work, but it can keep an honest consensus within the network.
While Deterministic Byzantine is not asynchronous, but can be unbounded with message delays, consensus can still be achieved using FLP Theorem. Non-deterministic systems may reach an agreement with probability 1, however.
After understanding the different types of consensus algorithms it is time to look at some of these blockchain platforms to help you build your blockchain apps quickly.
Blockchain Technology Applications
Smart Contracts
A smart agreement is a computer program that executes automatically when specified conditions are met. The Ethereum blockchain platform was designed specifically for smart contracts. Smart contracts are independent of any intermediary or third party to establish trust, unlike traditional contracts. Smart contracts are coded as agreements between two or more parties. Smart contracts do not require intermediaries to operate. They are decentralized and can be used by all authorized parties. This allows for a reduction in time and conflict. Smart contracts on the Blockchain allow you to quickly and automatically settle business transactions.
Sharing Economy
Companies like Uber and Airbnb are growing quickly and so the sharing economy concept is a big success. Uber, for ride-sharing services to be available to users, is not an intermediary or centralized authority. The blockchain allows for peer-to -peer transactions, which opens up the possibility of direct interaction between participants. Startups such SnagRide (and BeeToken) are becoming blockchain's Uber, and Airbnb. These platforms allow users and businesses to communicate directly with each others, not through a third-party authority. It allows you transact without the need to pay transaction fees.
Supply Chain Audits
Today's socially conscious consumers want to verify the authenticity of claims made by companies regarding their products. Distributed ledgers provide a fast and easy way for companies to track down products across the supply chain. Blockchain-based timestamping can be used to verify the location and date. This provides transparency in the supply chain ecosystem. Provenance, which is located in the UK, provides supply chain audit services to consumer goods. The Ethereum blockchain-based Provenance project makes sure that Indonesia's seafood suppliers have harvested fish to be sold in Japanese Sushi restaurants.
Intellectual Property Protection
It is possible to quickly distribute and reproduce digital information via the internet. Because of this, the internet has provided web users with a wealth supply of freely-available content. Copyright owners currently lose control of their intellectual properties, which can lead to financial loss. Smart contracts, on the other hand, can help protect copyrights and automate content sale, eliminating any risk of redistribution.
Mycelia uses blockchain smart agreements to build a peer–to-peer music distribution network that allows musicians to direct sell their songs to listeners and producers for license samples. It also allows users to make payments using fractional cryptocurrency amounts.
Management of Identity
Today, many people use the internet for various purposes. This includes shopping, ordering online payment and communicating via social media. Each of these tasks requires a digital identification. As a result, more and more people are using the internet to perform various tasks. The information they provide is shared without their permission. Blockchain can solve these issues by eliminating central authorities and giving control to individuals over their digital identity.
Privacy concerns and data breaches can occur when multiple IDs are shared for different purposes. Blockchain offers a path to self-sovereign identification on a decentralized platform that ensures identity documents have been verified and approved by all participants. It allows the ownership of digital identity to be in the hands of identity owners, and not third-party intermediaries.
Here are some of these popular blockchain platforms you can use to develop your blockchain applications
Ethereum
Ethereum is an open-source blockchain platform that can be used to create smart contracts and run them on a custom blockchain. It includes an Ethereum Virtual Machine, which provides run-time environments for Ethereum-based smart agreements. Each node of the network runs an EVM execution. Ethereum is a publicly accessible blockchain platform. This platform was developed to limit access and prevent mass consumption. The Proof of Work consensus algorithm is currently used in Ethereum 2.0.
It is also home to Ether, a native currency that fuels the entire Ethereum ecosystem. To run and execute transactions on Ethereum, developers must pay Ether fees.
EOS
EOS is the robust and flexible blockchain architecture designed for horizontal and vertical scaling of dApps. EOS platform supports authentication, asynchronous communication, account scheduling, and data storage across multiple CPU clusters/cores. It allows those who want to launch blockchain apps the ability to set permissions. EOS allows developers to create public and private blockchains.
Stellar
Stellar is an open-source distributed payments ledger that connects people, banks, and payment systems. It allows developers the ability to create banking tools and mobile wallets that involve payments. The Stellar Consensus Protocol is a protocol that allows consensus to be reached without the need to rely on a closed system for recording financial transactions. SCP is a method that optimizes safety over liveness. It pauses the network's progress until there is an agreement.
Hyperledger Sawtooth
Hyperledger Sawtooth a blockchain platform for businesses that enables the creation of distributed ledger networks.
Hyperledger Sawtooth separates the core system from its app domain to simplify the development of blockchain apps. It allows developers the freedom to specify the business requirements of the applications using the language they prefer.
The platform's modularity allows applications to pick the transaction rules, consensus algorithms and permissioning that best suits their business needs.
Hyperledger Fabric
Hyperledger Fabric a distributed ledger system that is supported by modular architecture. It delivers high levels of scalability. Resiliency. Privacy. Flexibility. Hyperledger Fabric, unlike open systems that allow anyone to access the network without permission, is private and authorized. It enrolls members through a trusted Membership Service Provider.
Hedera Hashgraph
Hedera Hashgraph offers distributed consensus in a lightning fast, secure and fair way. The platform, which is based on the hashgraph algorithm for distributed consensus, can process hundreds to thousands of transactions per seconds in a single shared. Because of this, the consensus latency of the platform can be measured in seconds.
The platform's resilience to DDoS attacks against consensus algorithms is achieved by asynchronous Byzantine Fail Tolerance. This allows it to achieve high-security at scale.
The Hedera Network offers smart contracts that can be used to create new features and correct bugs.
Once the designated arbitrator has approved smart contract updation with the key, the arbitrator's keys sign off on the transaction and give it a new code. The change is then reflected.
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