Education: Blockchain Technology

Blockchain is a decentralized distributed database (ledger) of immutable records accessed by various business applications over the network. Client applications of related businesses can read or append transaction records to the blockchain. Transaction records submitted to any node are validated and committed to the ledger database on all the nodes of blockchain network. Committed transactions are immutable because each block is linked with its previous block by means of hash and signature values. Protocols such as Gossip and Consensus ensure that the submitted transactions are transferred to all nodes and committed on all blockchain nodes consistently.

Blockchain ecosystem consists of blockchain client, blockchain node, blockchain network, transaction processor and consensus process.

Blockchain client is an application that creates transaction message in a prescribed format and submits it to blockchain node through web API. It may be any existing application, which posts transaction message to blockchain node. Clients are restricted using Public Key Infrastructure (PKI) technology at blockchain node level.

Blockchain node is a server node that runs blockchain services responsible for receiving the transaction and transmits the transaction to other blockchain nodes. With respect to the design, the node participates in consensus process to commit the block of transaction data to ledger database.

Blockchain network is a network of linked nodes used for read, write transactions into ledger database. The topology is based on the nodes participating in consensus process. Traditional systems are centralized where all data and decision-making is concentrated on a single node or cluster of nodes. In decentralized systems, the data and decision-making are spread out among a large number of nodes. These nodes maintain copies of the shared database and decide among themselves which data is to be committed to the database using consensus mechanism. Decentralized networks can be an interconnection of centralized or hub-and-spoke type networks. A distributed network is a special case of decentralized system where every single node in the network maintains the shared database and participates in consensus to determine which data is to be committed to the database.

There are at types of blockchain networks

public blockchains,
private blockchains,
consortium blockchains and
hybrid blockchains.

Public blockchains

A public blockchain has absolutely no access restrictions. Anyone with an Internet connection can send transactions to it as well as become a validator (i.e., participate in the execution of a consensus protocol). Usually, such networks offer economic incentives for those who secure them and utilize some type of a proof-of-stake or proof-of-work algorithm.

Some of the largest, most known public blockchains are the bitcoin blockchain and the Ethereum blockchain.

Private blockchains

A private blockchain is permissioned. One cannot join it unless invited by the network administrators. Participant and validator access is restricted. To distinguish between open blockchains and other peer-to-peer decentralized database applications that are not open ad-hoc compute clusters, the terminology Distributed Ledger (DLT) is normally used for private blockchains.

Hybrid blockchains

A hybrid blockchain has a combination of centralized and decentralized features. The exact workings of the chain can vary based on which portions of centralization and decentralization are used.

Sidechains

A sidechain is a designation for a blockchain ledger that runs in parallel to a primary blockchain. Entries from the primary blockchain (where said entries typically represent digital assets) can be linked to and from the sidechain; this allows the sidechain to otherwise operate independently of the primary blockchain (e.g., by using an alternate means of record keeping, alternate consensus algorithm, etc.).

Consortium blockchain

A consortium blockchain is a type of blockchain that combines elements of both public and private blockchains. In a consortium blockchain, a group of organizations come together to create and operate the blockchain, rather than a single entity. The consortium members jointly manage the blockchain network and are responsible for validating transactions. Consortium blockchains are permissioned, meaning that only certain individuals or organizations are allowed to participate in the network. This allows for greater control over who can access the blockchain and helps to ensure that sensitive information is kept confidential.

Bitcoin and blockchain are not the same. Blockchain provides the means to record and store bitcoin transactions, but blockchain has many uses beyond bitcoin. Bitcoin is only the first use case for blockchain.

Proof of work

A proof of work is a piece of data which is difficult (costly, time consuming) to produce but easy for others to verify and which satisfies certain requirements.
In order for a block to be accepted by network participants, miner must complete a proof of work which covers all of the data in the block.
The difficulty of this work is adjusted so as to limit the rate at which new blocks can be generated by the network to one every 10 minutes.
Due to the very low probability of successful generation, this makes it unpredictable which worker computer in the network will be able to generate the next block.

Ethereum

Functions as a platform through which people can use tokens to create and run applications and create smart contracts
Ethereum allows people to connect directly through powerful decentralized super computer
Language- Solidity
Currency- Ether
Uses- POS

Smart Contracts

• A smart contract is an agreement or set of rules that govern a business transaction;

• It’s stored on the blockchain and is executed automatically as part of a transaction

• Their purpose is to provide security superior to traditional contract law while reducing the costs and delays associated with traditional contracts.

Hyperledger

Hyperledger is an open source collaborative effort created to advance cross-industry blockchain technologies.
It is a global collaboration, hosted by The Linux Foundation, including leaders in finance, banking, Internet of Things, supply chains, manufacturing and Technology.

Consensus

Consensus is a procedure to select a leader node, which decides whether the block of transactions is to be committed or rejected. Earlier versions of blockchain system used Proof of Work (PoW) for consensus process. Every node or participatory node is given a mining task, and a node elected as leader completes the mining task first. Mining task is to find or calculate a certain pattern value of hash value by adding nonce to current hash. Node that participates in mining process requires heavy computing resources. Latest consensus protocol uses PoET, “Proof of Elapsed Time”. Every node in the consensus process selects random time and keeps decreasing. The node that reaches zero first is selected as leader.

Transaction

Transaction is a unit of business data within Block. Block is a set of transactions bundled with signatures and hash value of previous block. Genesis block is the first block of chain created during installation and configuration.

Merkle Tree

Merkle Tree is a tree data structure in which leaf node holds hashes of every transaction and intermediate node holds hash calculated from immediate child nodes. In blockchain, a block consists of one or more transactions and its respective tree of hashes. In a distributed system, this tree is used to maintain data consistency among all participating nodes.