Hi, blockchain enthusiasts! As usual, we hope everyone is staying safe and taking extra precautionary steps in your everyday activities, especially if it requires you to be outside. Don’t forget to wear your mask and sanitize your hands regularly. Following our Blockchain for Beginner: FAQs (Series 1), today we brought to you Series 2.
To recap, in Series 1, we learn about what is blocks and blockchain cryptography. In today’s series, we are going to learn about blockchain’s transactions and consensus. We also have an interesting topic for Series 3, which is Blockchain Use Cases, so don’t forget to follow our page so you don’t miss out on our posts!
There are three key components of blockchain, which is blocks, transactions and consensus. We have learned about blocks in Series 1. So, let us look at blockchain transactions and consensus.
On the blockchain, a transaction usually consists of information, including the information of sender, receiver and value. It is like your credit card statements on your e-banking platforms, the only but very major difference here is that the transaction here is done without a centralized authority, which is in the traditional setting, your bank.
How can transactions be authorized if there is no central authority? This is where cryptographic keys are used. As explained in Series 1, you have the public and private keys that allow you to send and receive transactions without requiring a third party to verify the transactions. You can use these keys to perform your transactions to anyone, anywhere, at any time. Remember that the public and private keys fit together as a key pair.
While anyone can send transactions to the public key, you’d need the private key to unlock and access the transacted assets. While your public keys can be shared in order to receive transactions, your private keys must be kept secret as it provides you with the ability to prove ownership or spend the funds associated with your public address. If anyone has access to the private key, they will also have access to any assets associated with those keys.
Once your transaction is agreed upon, it needs to be authorized before it is added to a block in the chain. How are transactions on blockchains authorized? Through consensus.
A consensus is where the transaction is authorized. Although there is no centralized authority, your transaction must still be verified. You have to understand that different blockchains may have different consensus methods. Proof-of-Work (PoW), Proof-of-Stake (PoS), Delegated Proof-of-Stake (DPoS) and Practical Byzantine Fault Tolerance (PBFT) are the most popular consensus methods.
In a blockchain platform, consensus algorithms work as a set of rules that needs to be followed by participants in the platform, participants in a blockchain platform are usually known as nodes, nodes support the platform through validation and relaying transactions. Without nodes’ participation, no consensus can be achieved. This also means that the more nodes join to participate in the consensus, the stronger the network begins.
Let’s make it easier to understand; in a centralized system, there is an administrator that is in charge of updating a set of data. But in a decentralized blockchain platform, since there is no
administrator, the updating of the data is done by nodes that work on authenticating and authorizing the transaction done on the platform.
However, remember that blockchain technology is so borderless, thus the features, functions or methods in a blockchain platform can be customized to fit the needs of its author or user. As mentioned earlier, Series 3 will cover on Blockchain Use Cases, so we feel like it’s important to recap briefly how blockchain works below.
Firstly, a transaction is requested. The transaction can be either to transfer information or anything of financial value. Then, a block is created to represent the transaction. However, the transaction is not validated yet, so the block with the transaction is now sent to the network nodes. If it is a public blockchain, it is sent to each node. Each block consists of the data, the previous block hash, and the current block hash. The nodes now start validating according to the consensus method used. Once it is successfully validated, the transaction is now complete and the node now receives a reward based on their effort.
Don’t forget to follow our page for Series 3, till then, stay safe!