How Does Blockchain Work? Simplifying the Technology for Beginners
Blockchain technology functions as a network of interconnected nodes, forming a decentralized system without a central governing body. Each node possesses a copy of the data blocks. These blocks of data are arranged in series, that contain a complete history of transactions that have been made. This transparent ledger allows all users to view transactions. As users initiate transactions, the information is written into a block, ensuring the user’s anonymity. The block’s information, including its hash, block number, mining timestamp, contained transactions, and block size, is visible while the user’s identity remains concealed.
Blockchain technology operates based on a consensus mechanism, which can be seen as a form of trust and security. Various consensus mechanisms exist, including but not limited to Proof of Work (PoW), Proof of Stake (PoS), Delegated Proof of Stake (DPoS), and Proof of Capacity (PoC).
Various blockchain types exist such as public blockchains, private blockchains, consortium blockchains, and hybrid blockchains. A public blockchain is accessible to all, lacks central control, and grants equal authority to each node. It has features such as transparency, decentralization, security, and consensus generation.
In contrast, a private blockchain is exclusive, with members receiving invitations to take part. Different access levels are possible, and these blockchains function within enclosed settings, granting restricted entry. They offer features like selective admission, permission participation, identifiable identities, and improved scalability, as observed in frameworks like Hyperledger.
The hybrid blockchain blends advantages from both public and private variants, as seen in Ripple. This blend incorporates both private and public data, a mix of permissions, and diverse stakeholder intents, thereby optimizing processes.
Each blockchain has its own cryptocurrency. Cryptocurrencies are merely digital assets that act as a medium of exchange that governments have no control over. The decentralization aspect means no central body can control or influence their value. Cryptocurrencies exist in digital form as they are created by computers and operate as private pieces of code. The means of exchange are thus purely digital. The process of cryptocurrency creation is termed mining.
Within a block, transaction particulars, and previous and current hash values are stored. Moreover, a block has the capability to include executable code, referred to as a smart contract. These smart contracts function as the backbone of a blockchain lacking central ownership. The specified conditions within the smart contract code trigger automatic execution if the predefined action takes place.
Primarily scripted in Solidity, most smart contracts facilitate the development of Decentralized Applications (Dapps) on the Ethereum Network. The Ethereum Virtual Machine (EVM) stands as the runtime environment for these smart contracts. In addition, the EVM functions as a cloud-based computer operated collectively by all network nodes. It processes the logic encoded within smart contract code.
Following compilation, the smart contract is divided into Byte Code and Application Binary Interface (ABI). The Byte Code is deployed onto the blockchain, which contains opcodes that the EVM follows for execution instructions. Meanwhile, the Application Binary Interface (ABI) facilitates interaction between distinct smart contracts.
Hashing involves using algorithms to encrypt data. Unique blockchain platforms utilize distinct hashing algorithms; for instance, the Ethereum Blockchain uses Keccak256, while the Bitcoin blockchain relies on SHA-256. These algorithms transform data into unpredictable strings without necessitating a key. Because no key is involved, hackers are unable to decipher passwords or decrypt the data. It’s important to note that each hash generated is distinct and unique.
Bitcoin garnered widespread attention due to its anonymity. Account addresses are comprised of a combination of numbers and letters, which makes it highly impossible to know the user. Transactions solely feature wallet addresses. The Bitcoin blockchain works on the Proof of Work consensus mechanism.
Likewise, in the past, the Ethereum blockchain relied on the Proof of Work consensus mechanism but has since transitioned to the Proof of Stake consensus mechanism. A key limitation of Proof of Work is its substantial energy consumption. The mining process demands extensive computational power, resulting in elevated energy usage and the release of carbon emissions.
In conclusion, blockchain technology’s decentralized and secure nature has revolutionized industries. With various consensus mechanisms and diverse blockchain types, it offers tailored solutions. Challenges remain, but as blockchain evolves alongside other technologies, its transformative potential is promising.
