Just like Artificial Intelligence and Machine Learning, Blockchain is rapidly growing to become a mainstream technology in the industry today. Blockchain tech is no longer limited to the BFSI sector, and it is making its presence known in other domains, including healthcare, governance, retail, and logistics, to name a few. However, although Blockchain has made its way in the common vocabulary, not many are aware of the Blockchain architecture and how it functions.
In this post, we’ll talk about everything you need to know about Blockchain and Blockchain architecture. First, let’s start with the basics.
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Table of Contents
What is Blockchain?
A Blockchain is a decentralized and distributed ledger that was designed way back in 1991 to store and record financial transactions. However, it is capable of storing anything that has value. Essentially, Blockchain is an interconnected web or network of computers linked together instead of being connected to one central server. All the machines (or nodes) within this network can define and agree upon a shared state of data while adhering to some unanimously agreed upon constraints – although the system consists of multiple nodes, no single node can alter the data without the consensus of the entire network.
Since Blockchain is a distributed network, each node within the network maintains, approves, as well as updates the new entries. Each member cross-validates the records and procedures, thereby making the Blockchain network valid and secure. In this way, even if the members do not trust each other, they can establish unison on common grounds.
As the name suggests, a Blockchain consists of blocks containing specific information that is shared by all the connected machines within the peer-to-peer (P2P) network. These blocks are data structures that bundle sets of transactions and distribute the same to all the nodes in the P2P network. Each block is secured through a highly specialized cryptographic key. Furthermore, each block contains a Block Header – the metadata – that verifies the validity of the block. The block metadata of a block is made of the following six components:
- Version – The current version of the block structure.
- Previous block header hash – The reference to this block’s Parent Block.
- Merkle root hash – It is a cryptographic hash of all the transactions recorded in the block.
- Timestamp – The time of the creation of the block.
- nBits – The encoded form of the target threshold in the block header.
- Nonce (number used once) – A random value that the block’s creator can manipulate as and how they desire.
While these six components form the Block Header, the remaining part of a block contains the transactions included by the miner while creating the block. The users in a network create such transactions and submit them to the network to be included in a block. As these transactions continue to grow, the size of the Blockchain also continues to expand.
The decentralized and distributed features of the Blockchain make it transparent and accountable (every user in the network is accountable for any alterations in the chain). And the fact that everything recorded in a Blockchain is secured through cryptography makes it secure and reliable. These features of Blockchain have made it attractive to enthusiasts across all industries who are readily investing in Blockchain architecture to develop Blockchain-based applications.
Now, that we’ve cleared the basics of Blockchain architecture, we’ll dig deeper into it. Blockchain architecture consists of two core data structures:
- Pointers – These are variables that record information about the location of another variable. In other words, they point out the position of another variable.
- Linked lists – These are a sequence of blocks wherein each block has a unique data and is linked to the block following it via a pointer.
Going by this logic, the first block, a.k.a., the Genesis Block, in the chain does not contain a pointer (it is the commencing block). Similarly, the final block in the chain will have a null pointer (having no value).
Characteristics of Blockchain Architecture
Blockchain architecture has a few unique characteristics, including:
- Cryptography – Each transaction recorded in a Blockchain is secured through complex cryptographic computations validated by all the stakeholders involved.
- Decentralization – Each member of the Blockchain network has access to the complete database.
- Provenance – The origin of every transaction contained in the Blockchain ledger can be tracked and monitored.
- Immutability – Once a transaction is recorded in a Blockchain, it cannot be deleted. Only through the consent of all parties can the record be altered.
- Anonymity – Each user in the network has an address generated via the system itself – they do not have an identity. This way, the users can maintain their anonymity (particularly required in a public blockchain structure).
- Transparency – Since each member of the Blockchain can access the system and monitor the operations, there’s complete transparency in the process. Altering one block would mean that the whole chain has to be changed, and this is highly unlikely to happen (it requires enormous computing power to overwrite the blockchain network).
Types of Blockchain Architecture
There are primarily three types of Blockchain Architecture:
- Public Blockchain Architecture
In a public blockchain architecture, access to both data and the system is available to any individual who is willing to participate in the Blockchain network. Bitcoin, Ethereum, and Litecoin are some excellent examples of public blockchain systems.
- Private Blockchain Architecture
Unlike the public blockchain architecture, a private blockchain architecture can only be controlled by a group of authorized users belonging to a specific organization or those who have an invitation to participate in the network.
- Consortium Blockchain Architecture
The consortium blockchain architecture is comprised of a group of organizations and the procedures for the system are set and controlled by the select group of assigned users.
A public Blockchain is the pure decentralized Blockchain since it is open-ended and can be accessed by anyone willing to take part in an agreement or the system. All records are visible to every participating user in the network. On the contrary, a private Blockchain depicts the behavior of a more centralized system since it is administered and controlled by a select group of users who enjoy greater privacy.
Core Components of Blockchain Architecture
Six core components make up the Blockchain Architecture. They are:
- Node – It refers to a user/computer in the blockchain architecture. Each node holds an independent copy of the entire blockchain ledger.
- Transaction – It refers to the smallest building block of a blockchain system, that is, the records and information stored in the block.
- Block – It is a data structure that stores/records a set of transactions that is then shared (distributed) among all nodes in the network.
- Chain – It is a term for a sequence of blocks arranged in a specific order.
- Miners – This is a term used for the specific nodes that verify the blocks before adding them to the blockchain structure.
- Consensus algorithm – It is a collection of rules and procedures that should be strictly adhered to for performing blockchain operations.
The blockchain architecture diagram given below further explains how the system works as a distributed digital wallet:
Earlier, we had discussed the components of the Block Metadata. Now, we’ll take a look at the elements of a block in a Blockchain. Each block consists of:
- Data – A block’s data largely depends on the kind of blockchain architecture it falls under. For instance, for Bitcoin or Litecoin, the data contained in the blocks will contain information of the sender, receiver, and the number of coins.
- The hash of the block – A hash is a unique key, almost like a fingerprint. It is a complex combination of digits and letters. Each block hash is created by using a particular cryptographic hash algorithm – SHA256. Immediately a block is created, a hash key is generated. Any changes made to the block will automatically alter its hash as well. In other words, the block hash helps to detect any modifications made to a block.
- The hash from the previous block – Apart from containing its unique hash key, a block must also contain the hash of the block immediately before it. It is this feature that helps create a connected chain in the blockchain architecture and is the main element behind its security.
Since all the validated blocks in a Blockchain are derived from the Genesis Block, any attempt to corrupt or violate a single block will create a chain reaction, promoting all the blocks to change. If this happens, all the blocks will carry the incorrect information forward, thereby rendering the whole Blockchain as invalid. However, changes can be made to the Blockchain architecture via the Consensus Algorithm.
What is a Consensus Algorithm?
The Consensus Algorithm refers to the mechanism or protocol that ensures that the local copy of the Blockchain ledger possessed by individual members are consistent with each other and are updated to the latest version. This helps ensure uniformity and synchronicity within the blockchain architecture. Here are the three most widely used Consensus Algorithms:
The POW requires you to solve a complex computation puzzle to create and add new blocks in the Blockchain network. So, you have to guess the particular string that produces a 256-bit hash, as propagated by the SHA256 hashing algorithm. Since one needs to make millions of guesses to verify the hash, it gets the name “proof-of-work.”
Proof of Stake (POS)
The POS protocol considers all the nodes in the system as validators who can validate the transactions to earn transaction fees. POS randomly selects these nodes to validate the blocks – the probability behind the random selection of a node depends on the amount of the stake it node has.
Simplified Byzantine Fault Tolerance (SBFT)
In this approach, there’s a single node (validator) that bundles the proposed transactions to create a new block in the Blockchain. The validator is termed as the Party. Here, when the minimum number of other nodes in the network rectifies the newly created block, a consensus is achieved.
How to create a Blockchain Architecture?
To build a Blockchain Architecture, first, you must take care of two things:
- Blockchain network – It pertains to the Blockchain application’s infrastructure placed within a particular environment either in one or a few organizations.
- Blockchain code – It refers to the tasks and goals the Blockchain application aims to perform.
Today, developing a Blockchain Architecture is easier, thanks to the widespread availability of open-source solutions. Hyperledger by Linux Foundation is the most popular platform used to build private blockchain architecture. Apart from Hyperledger, Ethereum and Corda are also excellent tools for developing Blockchain Architecture.
How to create a Blockchain Network?
A Blockchain network is formed when one or a group of organizations decide on investing in a Blockchain solution. This network could either be considered as individual organizations with their staff members or as a whole from the technical infrastructure viewpoint of all the organizations combined.
Usually, multiple parties are involved in a Blockchain network. The aim of Blockchain applications/solutions is to organize these parties by forming a transparent peer-to-peer system wherein each member can track and monitor all the activities in real-time. This feature helps eliminate all the risks associated with the transaction or business.
In a Blockchain network, each participating organization possesses an individual copy of the ledger that is synced with unique protocols and technical layers of the Blockchain network (peers). The Ordering Service can be shared among all parties controlling the transactions and their order in the Blockchain network. Again, the Membership Services Provider (MSP) feature allows access to particular users inside the network to maintain the privacy and security of the network. Finally, all the transactions contained in the network are recorded in a general ledger.
How to create the Blockchain Code?
Once the Blockchain network is in place, the parties involved must reach a consensus on the type of business transactions that should take place within the Blockchain Architecture. This consensus is achieved in the form of a legal agreement, known as Smart Contracts. This is the Blockchain Code, a.k.a., Chaincode. Just like any legal document, Smart Contracts contain the information of the participants, the assets, and the transactions that are to occur. Each transaction requires a Transactional Processor Function that outlines the processes that will happen once the transaction is executed.
The Benefits of Blockchain Architecture
By setting up a Blockchain Architecture in place, organizations can reap the following benefits:
- Cost reduction
Companies usually spend substantial amounts of money on maintaining centralized databases that are susceptible to cyber-attacks. With a Blockchain structure in place, one thing is sure organizations need not worry about security and system violations. Hence, they need not spend additional money on fortifying system security.
- Increased transparency
In a Blockchain structure, members can check the history of any transaction at any time. Thus, unlike a centralized database, this an ever-growing archive wherein members enjoy complete transparency.
- Data security
Once you enter information (data) into the Blockchain structure, it is almost impossible to tamper or corrupt it. Any alteration made to the Blockchain must be validated by all the members in the network, thereby making the process a lengthy and time-consuming one. Naturally, the data security quotient is very high in Blockchain Architecture.
So, that’s Blockchain Architecture in a nutshell!
We hope this helps you understand this emerging tech a little better.
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