In 2008, Satoshi Nakamoto, whose true identity is still unknown, originally unveiled the notion of blockchains. The architecture improved and evolved over time, with Nakamoto employing a Hashcash-like technique. It eventually became a key component of bitcoin, a widely used cryptocurrency, where it functions as a public record for all network transactions. The size of the Bitcoin blockchain files, which included all of the network’s transactions and data, continued to balloon. By August 2014, it had surpassed 20 gigabytes, and by early 2020, it will have surpassed 200 gigabytes. Blockchains are divided into four categories. The following are the details:
Networks of Private Blockchains
Private blockchains function well for private enterprises and organizations since they run on closed networks. Private blockchains allow businesses to define their access and authorization choices, network characteristics, and other essential security features. A private blockchain network is managed by a single authority.
Blockchain networks that are open to the public
Public blockchains, which helped popularise distributed ledger technology, gave birth to Bitcoin and other cryptocurrencies (DLT). Certain obstacles and issues, like security weaknesses and centralization, are also addressed by public blockchains. Instead of being stored in a single location, data is spread across a peer-to-peer network with DLT. For confirming information validity, a consensus algorithm is used; proof of stake (PoS) and proof of work (PoW) are two commonly used consensus approaches.
Blockchain Networks with Permissions
Permissioned blockchain networks, also known as hybrid blockchains, are private blockchains that grant privileged access to approved individuals. Organizations generally set up these types of blockchains to get the best of both worlds, and it allows for better structure when determining who may engage in the network and what transactions they can do.
Blockchains in a Consortium
Consortium blockchains, like permissioned blockchains, feature both public and private components, however, a single consortium blockchain network will be managed by numerous companies. Although these blockchains are more difficult to set up at first, once they are up and running, they can provide greater security. Furthermore, consortium blockchains are ideal for multi-organization collaboration.
The Transaction Process
The way Blockchain technology confirms and authorizes transactions is one of its most important aspects. For example, if two people want to make a transaction using their private and public keys, the first person would attach the transaction information to the second person’s public key. This entire set of data is compiled into a block. A digital signature, a timestamp, and other crucial, relevant information are all included in the block. It’s worth noting that the block doesn’t contain the identities of the people involved in the transaction. This block is then sent across all of the network’s nodes, and the transaction is completed successfully when the proper person uses his private key to match it with the block. The Blockchain can store transactional records of houses, vehicles, and other items in addition to money transactions.
Here’s a real-world example of how Blockchain works.
Encryptions based on hashes
Hashing and encryption are used to secure data in blockchain technology, with the SHA256 method being the most used. The SHA256 algorithm is used to deliver the sender’s address (public key), the receiver’s address, the transaction, and his/her private key data. The encrypted data, known as hash encryption, is sent across the world and verified before being added to the blockchain. The SHA256 technique makes hash encryption nearly impossible to crack, making sender and recipient authentication much easier.
- Each block in a Blockchain has four major headers.
- Previous Hash: This hash address refers to the block before this one.
- Transaction Details: Information on all of the transactions that must take place.
- Nonce: An arbitrary number used in cryptography to distinguish the hash address of a block.
All of the above (i.e., the preceding hash, transaction data, and nonce) are sent using a hashing algorithm. This produces an output with a 256-bit, a 64-character-long value known as the unique ‘hash address.’ As a result, it’s referred to as the block’s hash.
Using computer techniques, many people around the world strive to figure out the right hash value to meet a pre-determined criterion. When the predetermined condition is met, the transaction is complete. To put it another way, Blockchain miners are attempting to solve a mathematical riddle known as a proof of work problem. The first person to solve it gets a prize.
Mining is the process of adding transactional details to the current digital/public ledger in Blockchain technology. Though it is most commonly connected with Bitcoin, the phrase is also applied to other Blockchain technologies. Mining entails creating a difficult-to-forge hash of a block transaction, maintaining the security of the entire Blockchain without the need for a central mechanism.