Introduction to Blockchain
In the last two decades, the internet went through a lot of transformations. Internet has the ability to safely transfer or receive money, because of Blockchain Technology and its components Online transactions became the next big thing.
Online transactions involve 3 parties: a Sender, a Receiver, and the middle party through which they make the transaction, which in most cases is a Bank.
The process of online transactions is very simple and easy. Although it requires the Sender and the Receiver to trust to bank completely. Online transactions can also create a very well know problem, known as “The Double Spending problem”. According to this problem, a person can make an electronic transaction more than once using the same digital money.
The first blockchain cryptocurrency “Bitcoin” introduced in 2009, It is one of the most controversial cryptocurrencies, as it introduced anonymous transactions with no governmental control.
Blockchain is a timestamped series of records that are immutable and managed by a cluster of computers. Thus, this technology got its name it’s as “blockchain” because down to its most basic level, it is nothing but a collection of blocks. Each of these blocks are secure and bound to each other using cryptographic principles. In blockchain, “block” refers to “Information” and “chain” refers to “Public Databases”.
Core Components of Blockchain Architecture
Blockchain architecture consists of Node, Transactions and Miners.
We can define a Node as the user or the computer within the blockchain architecture hence they store and preserve data. A full- node is a computer that has all the transaction history of the blockchain.
Nodes on the network continuously generate the current state of the blockchain which is represented by the transactions.
They make the state of the blockchain change after each transaction. With transactions produced in a vast amount, thus it is important to confirm and verify the genuine ones and discard the fake ones.
Miners work as Auditors and verify the transactions and also help avoid the “The Double Spending problem”.
Consensus Mechanism & Algorithms
When the nodes share data through a blockchain platform, there is no way to provide safe-guards against security violations.
For the ledger to maintain a consistent state the blocks should not be in the blockchain without majority consent, all the nodes involved should agree on a common content uploading protocol called “Consensus Mechanism”.
Consensus Mechanism has the following algorithms: “Proof-of-work” and “Proof-of-state”.
Proof of Work
Satoshi Nakamoto developed the first decentralized network called “Proof of Work”. Security and consistency were achieved in Bitcoin through the same. Currency exchange in bitcoin happens in a decentralized manner thus it requires authentication and block validation.
One of the major disadvantages of Proof-of- work is “Huge expenditure”.
Proof of State
Proof of State was designed to overcome the problems which were there in Proof of Work such as “High expenditure Costs”. Ethereum is also one of the major projects that implement Proof-of-state.
Proof Of State proposes the idea to buy a cryptocurrency and invest that money in the network. The money invested becomes directly proportional to the chance of becoming a block validator.
All the transactions of Blockchain are stored as records in an online ledger because of which it is becoming increasingly popular as it provides a way to make online transactions happen in safest way possible.