In this article, let’s discuss the fundamentals of a blockchain geared toward the beginner. Blockchain technology has become a transformable technology across many industries. It became popular in reference to crypto currencies or more specifically Bitcoin. Blockchain and algorithms are what give Crypto currencies their trustworthiness. Without blockchain cryptocurrencies would not be in existence today. In this blog post, I will attempt to help you understand blockchain and its impact on data transactions and new emerging technologies.
A blockchain is much like a digital ledger. What makes the blockchain secure and trusted is that the digital ledger is duplicated over a network of computer systems. This allows the blockchain to be accessed by everyone in the network. Each block contains a series of entries, and each block is linked together into a chain, which is where the term blockchain comes from. While each block contains a collection of transactions, once added to the blockchain they are very difficult to modify.
Key Features
1. Decentralization: Traditional databases are governed by a central entity or authority. In blockchain the data is propagated across a network of computers enhancing security and reduces a single point of failure.
2. Transparency: Every transaction is visible to everyone on the network.
3. Immutability: When a block is added to the chain it becomes nearly impossible to alter it. This makes the record more secure and unalterable.
4. Security: Cryptographic techniques are used to ensure that data is secure, and that transactions are authenticated.
Blockchain serves as a type of ledger or a list of transactions. It ensures secure, transparent, and tamper-proof transactions. This is crucial for digital currencies, as it fosters trust in a trustless environment. Other examples of using blockchain technology would be patient data in healthcare organizations such as patient-centered EHRs, faster medical credentialing, and transparent supply chains. In the automobile industry vehicle fleet administration and vehicle-to-vehicle communication is being utilized to assist in vehicle management.
1. Creating a Block
Let’s break down the code components for a very basic, fundamental blockchain:
Each block contains data (like transactions), a timestamp, its own hash (a unique identifier), and the hash of the previous block. The hash is like a fingerprint, uniquely identifying each block and its contents. The code here is in Python but can be translated to C++ or other languages.
class Block:
def __init__(self, index, transactions, timestamp, previous_hash):
...
self.hash = self.compute_hash()
2. Linking Blocks into a Chain
Once the block is created they need to be chained together. Therefore in code the new block should reference the hash or id of the previous block. Once this step has been created it will create an unbreakable chain.
class Blockchain:
def __init__(self):
self.chain = []
...
3. Adding Transactions
Now that the blocks are created we can add transactions to the blocks. When the block is filled with the transactions the block is added to the chain.
Consensus mechanism PoW or PoS
One of the most important component in the blockchain technology is the consensus mechanism. There are a few methods we can use. The Proof of Work algorithms PoW or the Proof of Stake PoS. There are several others as well including the Proof Of Authority PoA. In crypto the two popular mechanisms are PoW and PoS. We will stick to those two for now.
4. Implementing Proof of Work
PoW is the process of validating transactions and mining new blocks. It involves solving a complex mathematical puzzle, which requires computational power. It’s essential for maintaining the integrity and security of the blockchain. This is one of the reasons video card prices sky rocketed. Everyone in the game wanted to mine Bitcoin in order for the GPU’s to solve complex mathematical problems. In return they would be rewarded. This caused havoc in the gaming community since all the GPUs were bought up by the miners.
def proof_of_work(self, block, difficulty=4):
...
Proof of Stake (PoS) as an Alternative
Concept of PoS
Proof of Stake (PoS) is a consensus mechanism alternative to PoW. It involves validators who ‘stake’ their cryptocurrency holdings to gain the right to validate transactions and create new blocks. They must stake their crypto currencies and hold the stake without selling them.
Key Differences
- Energy Efficiency: PoS is more energy-efficient than PoW, as it doesn’t require extensive computational work.
- Validation Process: In PoS, validators are chosen based on their stake and various other factors, unlike PoW’s competitive puzzle-solving.
- Security Implications: PoS incentivizes maintaining network integrity; validators risk losing their stake if they approve fraudulent transactions.
Blockchain’s technology has extended beyond cryptocurrencies. Various sectors have begun developing applications using blockchain technology as a secure and efficient method of processing transactions. Blockchain technology and consensus mechanisms like PoW and PoS will be transformative in our understanding of how transactions and data are more secure and trusted. The impact of blockchain technology will impact a wide range of industries worldwide.