Get To Know Blockchain: What’s Inside?
Popular Buzzword
Blockchain became a huge buzzword recently While a lot of us have heard about this technology, not many people know about why it is so popular or about the huge ecosystem accompanying it. So why is it so popular? How can a single technology have applications across so many sectors? And, why is the startup world jumping all over blockchain? In this short series we’ll demystify blockchain and reveal how Biotron is using it to build the most transparent data analytics platform on the market.
Consensus Driven Immutability
A blockchain is essentially a distributed database, but when its content contains financial transactions, it becomes a ledger. The ‘distributed’ part means that a copy of the ledger exists in the exact same form multiple times, on each participating node of a network. Such a network records all the transactions between participants to the ledger and packs them serially into blocks which are then chained together from newest to oldest. Blocks are linked together through a hash function which serves as a digital signature on each block. This unique signature is then added to a new block as the first transaction thus creating the chain of blocks. Now you know how blockchain got its name! The chaining of blocks through hash signatures secures a digital ledger’s immutability. The distributed nature of the entire system makes it resilient to vulnerabilities, hacks, and attacks.
In order to make it all work, the consensus part within the blockchain network nodes is provided by an issuer of the block. A new block is only added to the chain if valid proof is presented by an issuer within a dedicated time frame. Block producers are also known as miners, and their motivation is a reward by the blockchain network.
Basic parameters for the blockchain consensus mechanism are:
- Decentralised governance: A single central authority cannot provide transaction finality;
- Quorum structure: Nodes exchange messages according to particular protocols;
- Authentication: This process provides the means to verify the participants’ identities;
- Integrity: Enforces the validation of the transaction integrity (e.g. mathematically through cryptography);
- Non-repudiation: Provides the means to verify that the supposed sender actually sent the message;
- Privacy: Helps ensure that only the intended recipient can read the message;
- Fault tolerance: The network operates efficiently and quickly, even if some nodes or servers fail or are slow;
- Performance: Throughput, liveness, scalability, and latency are all built-in KPIs of the system.
It should be noted that the consensus of a distributed system differs from that of a blockchain network. In the former consensus is formed between the nodes, in the latter consensus is between economic, contract, or settlement participants. Currently there are several different blockchain consensus algorithms and each of them presents a different approach depending on their different goals:
- Proof of Work: Demonstrates that a participant has performed a specific task or piece of work;
- Proof of Stake: Demonstrates voting on the next block, based on its economic stake within the network;
- Delegated Proof of Stake: Demonstrates voting on the next block, based on the delegation of participants;
- Proof of Burn: Demonstrates that a participant burned tokens on an irreversible transaction (e. g. where the spent amount is lower than the reward);
- Proof of Elapsed Time: Demonstrates that a participant requested the shortest wait time from its local trusted enclave (provided by CPUs Software Guard Extensions);
- Practical Byzantine Fault Tolerance: Demonstrates voting amongst participants within trusted subnetworks.
Each of the presented approaches has a direct impact on the transaction’s price determined by a given proofing method.
