¶ Understanding Blockchain Architecture
As we have previously discussed, Blockchain operates on multiple nodes, with each node interconnected in a decentralized network. We need to understand the Blockchain Architecture to make Blockchain apps.
¶ Blockchain Architecture
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Blockchain Network Topologies:
- P2P (Peer-to-Peer) Network: All nodes are equal, and there is no central server.
- Client-Server Model: In some blockchains, nodes may be classified as full nodes (validating transactions) or lightweight nodes (just interacting with full nodes).
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Cryptography in Blockchain:
- Hash Functions: Used to generate unique identifiers for blocks. Common algorithms: SHA-256, SHA-3
- Public-Private Key Cryptography:
- Public Key: Identifies the user on the blockchain.
- Private Key: Allows a user to sign transactions securely.
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Digital Signatures:
- Used to verify the authenticity and integrity of a transaction by ensuring it was created by the rightful owner.
¶ Consensus Mechanisms
Consensus mechanisms are protocols used to validate and agree on the contents of a blockchain ledger. They ensure that all nodes are synchronized and have the same data.
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Proof of Work (PoW):
- Miners solve complex mathematical puzzles to add blocks to the blockchain. This process requires significant computational power.
- Used by Bitcoin, Ethereum (before Ethereum 2.0 upgrade).
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Proof of Stake (PoS):
- Validators are chosen to create new blocks based on the amount of cryptocurrency they hold and are willing to "stake."
- Used by Ethereum (post-merge), Cardano.
¶ Blockchain in Action
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Smart Contracts:
- Self-executing contracts with the terms of the agreement directly written into code. Automates processes and reduces human error.
- Used in Ethereum and other platforms.
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Decentralized Applications (DApps):
- Applications that run on a decentralized network, often using smart contracts to facilitate transactions.
- Examples: DeFi platforms, games, decentralized exchanges.
¶ How Does BlockChain Work
A blockchain transaction starts when someone initiates it, and the information is encrypted and sent to a network of computers (nodes) to verify it. Once verified, the transaction joins a group of other approved transactions to form a new block.
The network then agrees on which block to add, and the selected node, or “miner,” earns a reward. The block is then linked to the previous one, forming a secure chain. Once added, the transaction is complete, and the details are permanently stored for anyone to view.
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Initiating a Transaction: A new transaction is created and enters the blockchain network. The details are encrypted using public and private keys for security.
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Verification of Transaction: The transaction is sent to multiple peer-to-peer computers (nodes) worldwide. These nodes check if the transaction is valid, like confirming if there’s enough balance.
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Formation of a New Block: Verified transactions are collected in a "mempool" by each node. These mempools then group together to form a new block.
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Consensus Algorithm: Nodes use a consensus mechanism to decide which block to add next, ensuring everyone agrees on the latest valid block. The node that successfully adds a block (a “miner”) receives a reward.
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Addition of the New Block to the Blockchain: Once the block gets a unique hash value, it is added to the blockchain. Each block links to the previous one through its hash, creating a secure chain.
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Transaction Complete: After the block is added, the transaction is finished. The record is stored permanently, and anyone can look it up to confirm.