Blockchain technology is rapidly gaining ground due to its unique features such as transparency, immutability (decentralization), traceability, and decentralization. All levels of society have spent money and allocated resources to study how blockchain could revolutionize the computing paradigm.
The distributed ledger model of blockchain makes it more secure and resilient than centralized models. Do you have a basic understanding of blockchain? Can you explain how it works, the problems it can solve, and how it is used?
What is Blockchain?
A blockchain is a collection of blocks that include timestamped digital records. The technique was originally presented by a group research team in 1991. It was designed to timestamp digital files so that they could not be tampered with or backdated.
It was abandoned until Satoshi Nakamoto revived its concept in 2009, to create Bitcoin.
It is a distributed ledger that stores digital records and distributes them across all nodes. Every node maintains a copy of the updated ledger. It becomes extremely difficult to change data after it has been added to a Blockchain.
What does "Block" mean in a Blockchain?
These components make up every block:
Bitcoin Blockchain is an example of this. It saves information about transactions such as sender, receiver, and number.
A hash of a block is similar in function to a fingerprint, which uniquely identifies the content and the block.
Once a block is created, it generates a hash. With every block that is changed, the hash value changes.
This is why hash values can help detect the changes made to blocks.
Every block contains the latest hash and the previous block's hash. This means that every block can be linked together and creates a "Blockchain".
How does Blockchain work?
Here is an example of how blockchain works.
We have a three-block chain.
Each block has its own hash.
1. Block1:
2. Block2
* Previous Hash: 3W8F
3. Block3
* Hash: 93G4S
* Previous hash: 2BR1
Block 1 is unique. Its previous hash value of 0000 is not available. Therefore, it cannot be referred back since it is the only block in the chain.
This block is often called the genesis.
Let's suppose you try to change the second block. The hash value for this block would also be affected by the change. This would result in block three being invalidated, as they no longer store the valid hash value of block one.
So it is clear that any change to any block will invalidate all the other blocks.
It is not enough to use the hash function to prevent data tampering. Computers are now faster and can analyze hundreds of thousand of hashes in a second. Hackers could recalculate blocks hashes to make the Blockchain legitimate.
The blocks are distributed across the network to different machines, known as nodes. This ensures that no central authority controls the data. Each node will keep one copy of the ledger.
Once data is captured in Blockchain, all nodes must agree that it's okay to store it there. But how do nodes agree to add a new block to the blockchain?
Blockchain uses different consensus mechanisms for deciding if a new block is necessary to be added.
What are the various Blockchain Consensus Protocols (or Blockchain Consensus Protocols)?
There are many protocols that can be used to create consensus on blockchain. Some blockchain platforms use customized consensus protocols in order to validate transactions. Here's a list of eight widely used consensus protocols.
Proof of Work (PoW).
Proof of Stake
Delegated Proof of Stake (DPoS).
A proof of authority
Leader-Based Consensus
Economy Based Consensus
Voting Based Consensus
Virtual Voting Consensus
Let's look into these consensus mechanisms.
Proof of Work (PoW).
Bitcoin introduced Proof-of-work, which is a consensus process.
The proof-of-work mechanism involves a solution for a mathematical puzzle, which requires a large amount of power. To find the solution to the problem, miners will have to compete.
One who discovers the solution to the mathematical power the problem can validate transactions while adding a new block and receiving rewards.
It is therefore difficult to tamper with the blocks due to the proof-of-work system. In order to tamper with one block, you would have the proof of work for all other blocks re-evaluated.
Blockchain is more secure than centralized computing models thanks to its use of hashing/proof-of-work.
Proof of Stake
Proof of Stake is an alternative method to Proof of Work. However, it uses a different process. It doesn't need as many CPU computations.
Here, the validators act as the creators of new blocks. They are selected arbitrarily on the basis of how much they have contributed. The number of contributions made to the network determines how likely they are to be chosen as validators. It depends on their wealth/stake. Contrary to the Proof of Work consensus, there is no compensation for validating transactions or mining. Thus, miners are charged transaction fees.
EOS, Cardano Ouroboros and EOS use this form consensus mechanism.
Delegated Proof of Stake (DPoS).
Delegated Proof of Stake consensus mechanisms sound the same as Proof of Stake. But they are entirely different.
Delegated Proof of Stake means that token holders are not responsible for validating the blocks. They select delegates who will verify the blocks on their behalf. There are usually 21 to 100 selected delegate, which are periodically changed and given an order in which to deliver blocks. There are fewer delegates which allows for efficient organization and time slots to release blocks. Vote token holders to remove delegate(s) and vote for another delegate if they publish invalid transaction or miss their time.
Delegated Proof of Stake is a system where miners can cooperate to create blocks. Steemit, EOS, and other blockchain platforms use the Delegatedproof of Stake consensus system.
Proving Authority (PoA).
Proof of Authority can be described as a modified Proof of Stake consensus mechanism. Here, validators are chosen based upon their standing in the network. This consensus mechanism is used for IBM Hyperledger and Ethereum Kovan Testnet.
Leader-based Consensus
The leader-based distributed ledger platform features a leader computing system where each member sends transactions to him.
The leader will send out the transaction order or may send blocks containing additional transactions.
Consensus Economy-Based
The Economy-based Distributed Ledger Technology system simulates an economy. Economic rationality manages consensus.
Here is a consensus algorithm that simulates how an economy functions, but doesn't account for the chaos in a real economy.
Voting can be used to add blocks on a chain that is part of the community.
One might be fined if someone votes in a block where no one else has. They might also make a lot of money if they vote for the block that everyone voted for. That's how economy-based consensus works.
Consensus that is based on votes
A voting-based consensus algorithm, in which nodes are allowed to join or withdraw the network, is different from proof-based algorithms. Every node on the network must verify the transactions in blocks together, as well as manage the ledger.
Nodes must first communicate with one another in this consensus before they can add the blocks to the chain.
The following voting-based consensus algorithms also qualify as
Byzantine fault tolerance consensus: To avoid cases of subverting, crashing and other forms of intolerant behavior.
Crash Fault tolerance Consensus. To avoid instances of crashing nos.
Virtual Voting Consensus
Virtual Voting Algorithm prevents the transmission of voting messages across networks. It follows the Byzantine Fail Tolerance Mechanism to ensure that no more then 1/3 of nodes on the network are malicious for any particular attack instance.
Since each node has a copy, any member can reach consensus without having to vote.
Each member has information on how another member voted.
Examining the various consensus protocols can help you choose the most efficient algorithm for building a blockchain application.
People have been interested in blockchain technology since its introduction. Everybody realized that this technology could serve many purposes, such as storing health records and conducting tax audits.
Now that you know the basics of Blockchain and how it works, let's get into the details about different types.
Blockchain as Document Sharing platform
It is possible to exchange documents by sending a Word Document to someone else and asking them to make edits. Problem with this approach is that you need to wait until the other person has sent you a copy.
It is because you can't edit it before the other person is done. Databases work in a similar way. Two people cannot edit the same record at one time.
Google Docs makes it possible for both parties to access the same record at once. A single copy of the record can be visible to both. You can access and recover the timestamped version of documents from anywhere.
The distributed model works when multiple people participate in the sharing of the same ledger.
Imagine you are required to share legal documents between multiple entities. Instead of transferring documents back and forth between people, how about if they are all shared? Blockchain can improve information sharing through transparency and traceability.
What are the different types?
There are three types.
Public Blockchain
Private Blockchain
Consortium Blockchain
Let's have a look at them.
Public Blockchain
A public blockchain allows anyone to become a part of the network. Everybody can view and write to the Blockchain data because it is publicly accessible.
A public blockchain can be wholly decentralized, as all parties involved have the same rights to read and write data.
Private Blockchain
Private blockchains can only be controlled by one organization.
Private blockchains may only be accessible by a select few people who are authorized to perform transactions and access the blockchain network.
Only organizations with full control over the blockchain can alter its rules and cancel transactions that were made according to the deployed regulations.
Consortium Blockchain
A consortium Blockchain, also known by permissioned blockchain network or the permissioned cryptocurrency network, can be a hybrid between a highly-trusted entity model from private blockchains and the low level of trust offered by public blockchains.
Instead of allowing all users to participate in the validation, only selected participants can be predetermined in a consortium block.
What are the main features of Blockchain technology?
Blockchain's unique features attract people's interest, including:
Immutability
Trust
Auditability
Transparency
Let's have a look at them.
Immutability
Blockchain is known for its immutable ledger. Any central the database is susceptible to hacking and will need trust in the third party to keep it secure.
An immutable block cannot be modified after it is written to the blockchain. The property of being immutable is that something can't be modified over time. It's a significant advantage in auditing. It's possible to prove that data hasn't been altered or tampered with as both a data recipient and data provider.
Trust
Currently, we depend on intermediaries (or middlemen) who can reduce transaction efficiency by charging a small fee to establish trust. The cost of goods or services will rise if trust is built between the parties.
Blockchain can distribute information over a network, eliminating the need for an administrator. When all nodes of the network have validated the transactions, trust can be built in the blockchain.
Auditability
The blockchain is impervious to any alteration and can be used as a source for verifying transactions. Auditors can directly verify transactions on the publicly accessible blockchain ledger instead of asking users to submit transaction reports or bank statements.
Transparency
Blockchain is a privacy-enhancing technology that ensures transaction details are kept private among all parties.
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