🔗Blockchain Technology and Applications Unit 3 – Blockchain Architecture & Components

What's Blockchain Again?

• Decentralized, distributed ledger technology that records transactions across a network of computers
• Enables secure, transparent, and tamper-proof record-keeping without the need for a central authority
• Transactions are grouped into blocks, which are linked together using cryptographic hashes to form a chain
• Each block contains a unique hash, a reference to the previous block's hash, and a timestamp
• Blockchain technology is the underlying infrastructure for cryptocurrencies (Bitcoin, Ethereum) and has potential applications in various industries (supply chain management, healthcare, voting systems)
• Offers benefits such as increased security, transparency, and efficiency compared to traditional centralized systems
• Enables peer-to-peer transactions without intermediaries, reducing costs and increasing speed

Building Blocks: Key Components

• Nodes are the individual computers or devices that participate in the blockchain network
  • Each node maintains a copy of the entire blockchain ledger
  • Nodes validate and propagate transactions across the network
• Transactions represent the exchange of data or value between participants on the blockchain
  • Can include financial transactions, smart contract executions, or data updates
  • Transactions are broadcast to the network and added to a pool of unconfirmed transactions
• Blocks are data structures that contain a set of validated transactions
  • Each block has a unique identifier called a hash, generated using a cryptographic hash function
  • Blocks also include a reference to the previous block's hash, creating a chain of linked blocks
• Consensus mechanisms are protocols that ensure all nodes agree on the state of the blockchain
  • Examples include Proof of Work (PoW), Proof of Stake (PoS), and Practical Byzantine Fault Tolerance (PBFT)
  • Consensus mechanisms prevent double-spending and ensure the integrity of the blockchain
• Smart contracts are self-executing contracts with the terms of the agreement directly written into code
  • Automatically enforce the rules and penalties defined in the contract
  • Enable the creation of decentralized applications (dApps) on blockchain platforms (Ethereum)

How It All Fits Together

• Transactions are initiated by users or smart contracts and broadcast to the blockchain network
• Nodes receive the transactions and validate them based on predefined rules and consensus mechanisms
• Valid transactions are added to a pool of unconfirmed transactions, waiting to be included in a block
• Miners or validators (depending on the consensus mechanism) compete to create the next block by solving complex mathematical problems or staking their tokens
• The first miner or validator to successfully create a valid block broadcasts it to the network
• Other nodes verify the block and, if valid, add it to their local copy of the blockchain
  • The block's hash becomes the new reference for the next block, creating a chain of linked blocks
• The updated blockchain is propagated across the network, ensuring all nodes have the same copy of the ledger
• The process repeats, with new transactions being added to the pool and included in subsequent blocks

Types of Blockchain Networks

• Public blockchains are open and permissionless, allowing anyone to join the network and participate in transactions
  • Examples include Bitcoin and Ethereum
  • Transactions are transparent and visible to all participants
  • Maintains a high level of decentralization and security
• Private blockchains are permissioned networks controlled by a single organization or group of organizations
  • Access to the network is restricted to authorized participants
  • Offers greater control and privacy compared to public blockchains
  • Suitable for enterprise applications and consortiums (supply chain management, financial services)
• Consortium blockchains are semi-permissioned networks governed by a group of organizations
  • Combines elements of both public and private blockchains
  • Provides a balance between decentralization and control
  • Participants are typically pre-selected and have specific roles and permissions
• Hybrid blockchains integrate features of both public and private blockchains
  • Allow for controlled access to certain parts of the blockchain while maintaining public transparency
  • Enable organizations to leverage the benefits of both types of networks (Dragonchain, XinFin)

Consensus Mechanisms Explained

• Proof of Work (PoW) is a consensus mechanism used by Bitcoin and other cryptocurrencies
  • Miners compete to solve complex mathematical problems to create new blocks
  • The first miner to solve the problem broadcasts the block to the network for validation
  • PoW is energy-intensive and requires significant computational power
• Proof of Stake (PoS) is an alternative consensus mechanism that relies on staking instead of mining
  • Validators are chosen to create new blocks based on the amount of tokens they hold and "stake"
  • PoS is more energy-efficient and reduces the risk of centralization compared to PoW
  • Examples of PoS blockchains include Ethereum 2.0, Cardano, and Tezos
• Delegated Proof of Stake (DPoS) is a variation of PoS that involves voting and delegation
  • Token holders vote for delegates who are responsible for validating transactions and creating blocks
  • Delegates are incentivized to maintain the network's integrity and can be voted out if they misbehave
  • DPoS offers faster transaction speeds and scalability compared to traditional PoS (EOS, Tron)
• Practical Byzantine Fault Tolerance (PBFT) is a consensus algorithm designed for private and consortium blockchains
  • Tolerates up to ⅓ of malicious nodes in the network
  • Involves multiple rounds of voting to reach consensus on the state of the blockchain
  • Provides high transaction throughput and low latency, making it suitable for enterprise applications (Hyperledger Fabric)

Data Structure Deep Dive

• Merkle trees are data structures used to efficiently summarize and verify the integrity of large datasets
  • Transactions are hashed and paired repeatedly until a single root hash is obtained
  • Merkle trees enable efficient verification of transactions without the need to download the entire blockchain
• Patricia trees (Tries) are a type of data structure used to store and retrieve key-value pairs efficiently
  • Used in Ethereum to store account balances, smart contract code, and storage
  • Enables fast lookups and updates of state information
• Bloom filters are probabilistic data structures used to test whether an element is a member of a set
  • Used in blockchain networks to quickly check if a transaction output has been spent before
  • Helps prevent double-spending and improves transaction validation efficiency
• Chameleon hashes are a type of hash function that allows for limited mutability in certain circumstances
  • Enables the creation of redactable and updatable blockchains while maintaining integrity
  • Used in applications that require selective disclosure or the ability to update stored data (supply chain management, healthcare)

Security Features and Cryptography

• Public-key cryptography is a fundamental component of blockchain security
  • Each user has a pair of keys: a public key for identification and a private key for signing transactions
  • Transactions are signed using the sender's private key and verified using their public key
• Hashing algorithms (SHA-256, Keccak-256) are used to generate unique fixed-size digests of data
  • Hashes are used to link blocks together, creating an immutable chain
  • Hashing ensures the integrity of transactions and blocks, as any changes would result in a different hash
• Zero-knowledge proofs (ZKPs) are cryptographic methods that allow one party to prove knowledge of a secret without revealing the secret itself
  • Used in privacy-focused blockchains (Zcash, Monero) to enable confidential transactions
  • ZKPs enhance user privacy while maintaining the verifiability of transactions
• Multisignature (Multisig) is a security feature that requires multiple parties to sign a transaction before it can be executed
  • Helps prevent unauthorized access and enhances the security of high-value transactions
  • Commonly used in escrow services, decentralized autonomous organizations (DAOs), and corporate governance

Real-World Applications

• Supply chain management
  • Blockchain enables transparent and immutable tracking of goods from origin to destination
  • Improves efficiency, reduces fraud, and enhances trust among participants (VeChain, Waltonchain)
• Healthcare
  • Blockchain can securely store and share patient data, ensuring privacy and interoperability
  • Enables the creation of decentralized health records and improves data integrity (MediBloc, Patientory)
• Voting systems
  • Blockchain-based voting platforms can increase transparency, security, and accessibility
  • Helps prevent voter fraud and enables secure remote voting (Voatz, Follow My Vote)
• Decentralized finance (DeFi)
  • Blockchain enables the creation of decentralized financial applications and services
  • Includes lending platforms, decentralized exchanges, and stablecoins (MakerDAO, Compound, Uniswap)
• Identity management
  • Blockchain can provide secure, self-sovereign identity solutions
  • Allows users to control their personal data and reduces the risk of identity theft (Civic, uPort)
• Intellectual property protection
  • Blockchain can be used to register and track intellectual property rights
  • Enables creators to prove ownership and license their work securely (Binded, Bernstein)