The Paradigms of Blockchain Technology: Myths, Facts & Future

Fundamentals Of Blockchain

Structurally, a blockchain, as the name suggests, is a chain of blocks in which each block represent digital event(s) that have been executed. Every block in this blockchain contains some information about the particular transaction, a reference to the previous block in the chain and an answer to a complex mathematical question which validates the data within the block. This chain of blocks collectively constitutes the ledger and a copy of it resides on every node in the network. These copies are synchronized at regular intervals to maintain consistency of the records (Wright & De, 2015).

To execute an event or a transaction within the system, a block representing that event is created. This block is then verified via a consensus mechanism by majority of nodes on the network. If the block is invalid, the event is not executed and the transaction is declared as void. However, if the block is verified as valid by majority of nodes in the system, the event is executed and the block is appended to the blockchain. Every node makes this update to their copy of the database as consistency of records is crucial for this mechanism to function.

In order to verify the new proposed transaction, certain consensus mechanisms are used. Some of these are given below. Each of these mechanisms takes a different approach and utilizes different resources for the verification process.

• 1.

  Proof of Work (PoW): In the Proof of Work model (Figure 1), the miners within the network compete against each other to verify the transaction or to generate the next block of the blockchain. This is mainly done by solving complex mathematical and cryptographic puzzles. The first node to solve this puzzle proposes the solution and the new block to the rest of the nodes on the network. These nodes check the validity of the proposed solution and the new block that is generated. The miner receives a reward as compensation for the computational power and electrical energy that was spent. The reward is mainly in cryptocurrencies such as bitcoin that are mined during this process. This protocol however has a disadvantage of wasting a lot of computational resources.

Figure 1.

Proof of work consensus mechanism