Blockchain 101 – Explained and made simple
Table of Contents
What is a Blockchain
Blockchain also known as a distributive ledger (DLT) is a Peer to Peer based ledger that records every single transaction done on it by all participating users. The blockchain acquired its name from the block based protocol used to record all ledger transactions. By this we mean to say that each set of transaction information is stored in blocks. Each block contains the records of the previous blocks thus forming a chain of blocks called a blockchain.
Image of a Blockchain
Blockchains require several key elements to the code in order to make them work and remain stable. These elements are important in the blockchain function and allow people to make changes to the blockchain protocol without comprising its integrity. The following elements listed below will be discussed in more detail.
4 Basic Components of a Blockchain
The digital ledger also known as DLT [Distributive Ledger Technology] is continually updated database of all the transactions on the blockchain. The blockchain is comprised of transactions on a block that contain all the previous blocks transaction history ‘chained’ together by Cryptographic science also known as Cryptography.
Consensus is used to verify every single transaction from all participants on the blockchain. Without combined and complete consensus on the blockchain network the transaction are not verified and therefore rejected. This keeps the integrity of the blockchain in place. Consensus is required for public blockchains and not necessarily private blockchains.
The digital asset in this case being bitcoin. The asset is the transaction item on the blockchain being transacted. This transaction item can be any number of things not only cryptocurrencies like bitcoin. There are blockchains programmed for ID information, Legal documents etc..
Network participants also known as nodes on the blockchain are connected computers. These computers such yours or mine have stored the blockchain on their respective hard drives and remotely plug into it with an internet connection. This allows consensus to be made on transactions as noted above.
The 3 Components to Blockchain Security
While there are 4 basic components to the blockchain we also have to make mention of what holds the blockchain together and gives it security and reliability. These three components are founded in Cryptographic science which essentially makes the blockchain very secure.
A Merkle Tree is the collection of transaction information stored per block. It forms a type of tree structure. It is a cryptographic method of providing a digital signature to the blockchain. Click here for a more detailed explanation.
Smart contracts are protocols that are designed to carry out a specific task on the blockchain without human intervention. Smart contracts are very important as they carry out programmed tasks automatically when certain criteria are met. These actions are then noted on the blockchain which is irreversible. Click here for a more detailed explanation.
The Algorithm is a consensus based approach to verifying the transaction history on the blockchain. The algorithm on a blockchain can vary. For the Bitcoin Blockchain it is termed PoW [Proof of Work]. Some other blockchains will use a PoS [Proof of Stake] for example. These different algorithms serve the purpose of verifying the blockchain protocols.
Here is an example to simplify. PoW will be the mining of the bitcoin blockchain in that many nodes/computers are connected to the blockchain and as such solve the mathematical puzzle to release each new block. This process is an algorithm based approach to keeping the blockchain secure. PoW is proof of work – the ‘work’ is the mining to ‘prove’ each transactions and keep network security in place.
Blockchains are a complex subject matter to explain without getting technical. Understanding and building blockchains takes a lot of skill and knowledge. We see now that many blockchains are being developed and are already in use either publicly or privately. We hope to have made the subject of blockchain technology easier to understand.