Blockchain Technology

Blockchains are, in their simplest form, a distributed, public ledger.

This means that every transaction that happens on the blockchain is recorded, forever, within the chain and is available for anyone to see. 

Blockchains utilise cryptography in order to be secure, function and allow people access to the tokens they hold. 

They are more often than not decentralised meaning no one entity controls them.

 

Cryptography

Its use in blockchains

Cryptography allows data to be encoded in such a way that it can not be deciphered when looking at it. The only way to decipher the data, or turn it back into plain text, is to have access to the phrase that was used to encode it, or have the private key in an encryption pairing.

Cryptography is used not only when creating blocks for the blockchain but also to secure users wallets which hold your tokens. Wallets use what is known as public/private key encryption.  

A Chain Of Blocks

Building up the chain

Blocks in their simplest form are just a recording of transactions that have happened on the blockchain (e.g. sending tokens from one address to another).

A block of one or more new transactions is collected into the transaction data part of a block. Copies of each transaction are hashed (encrypted), and the hashes are then paired, hashed, paired again, and hashed again until a single hash remains (the encrypted data of all transactions that have so far taken place on the blockchain).

This hashed data is then stored in the block header. Each block also stores the hash of the previous block’s header, chaining the blocks together. This ensures a transaction cannot be modified without modifying the block that records it and all following blocks, which is very (very) difficult to do.

Concensus

Who gets to make blocks?

Different blockchains can have different rules and operate in different ways to reach consensus. We will look at the two most commonly used (although there are many!). In each, block creators are rewarded with the blockchains token when they mint a new block.

Proof Of Work

As pioneered by Bitcoin this method involves people or groups looking to be chosen to validate a block by working on difficult to solve math and cryptography problems.

This method involves huge “farms” of computer equipment – Bitcoin requires close to the entirety of Finland in electricity requirements. 

Proof Of Stake

One of the most used and efficient methods for consensus is called Proof of Stake. It consumes far less power, can throughput more transactions per second and can be even more secure.

Here nodes or validators are delegated (or staked) tokens by token holders. Those who are trusted and have a high number of stakers are selected to create blocks in a fair way to ensure decentralisation.

Evolution

How blockchains have evolved

Bitcoin was the first block based cryptocurrency to appear in the world. Created by the illusive architect called Satoshi Nakamoto. Bitcoin is a great store of a value but it is currently only successful at moving tokens from one address to another. However the technology has evolved since it’s inception with each new iteration building upon the last.

Now with the invention of Smart Contracts blockchains can be programmed to do much more than just move tokens from one wallet to another – you can now have decentralised finance offerings and applications.

v 1.0

(e.g. Bitcoin)

Store Of Value
Trustless
Decentralised

v 2.0

(e.g. Ethereum)

Smart Contracts
dApps
DAO’s

v 3.0

(e.g. Cardano)

Scalable
Metadata
Interoperable

Want to learn more?

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