A blockchain protocol is a set of rules and procedures that govern the operation of a blockchain network. These protocols ensure that data is shared and transactions are validated securely, consistently, and decentralized. In this article, we will explore the basic terms related to blockchain and help you understand this modern technology.
Blockchain (explained simply)
A block is essentially a file. Different platforms can store varying amounts of information in a block. For example, its maximum size might be 4 MB.
A block can be filled with any type of data, and once it reaches its limit, it is hashed using a cryptographic algorithm. This hash is then added to the next block, allowing data to continue being recorded seamlessly. This process creates a chain of blocks known as a blockchain.
As a result, the database retains information about all its previous versions. Instead of overwriting old data, each new block adds to it. Each block contains a unique hash of the previous block. This ensures data integrity and makes it nearly impossible to alter past transactions without changing all subsequent blocks.
This database is not stored on a single computer but is distributed across a network of computers worldwide. These computers, called nodes, ensure the system's functionality and verify its accuracy. A distributed database that is maintained by all nodes in the network. Each node has a copy of the entire blockchain, ensuring transparency and security. They can be full nodes, which store the entire blockchain and validate transactions, or light nodes, which store only a portion of the blockchain.
Key aspects of blockchain
Stemming from the way information blocks are created and stored, blockchain acquires its key aspects:
It offers a high level of security. Protocols maintain the security of the network by defining how data is encrypted and how transactions are validated to prevent fraud.
It is decentralized. Blocks ensure that no central authority controls the network, promoting a peer-to-peer structure. We discussed it in detail in the article about the Web 3.0 model.
Information is consistent. Protocols update the entire network with each transaction, ensuring all participants have the same information.
The system is scalable. They address the ability of the network to handle an increasing number of transactions and nodes.
Security and consensus mechanisms
A consensus mechanism is a method used in blockchain networks to ensure that all nodes reach an agreement on transaction validity and the overall state of the ledger. It is essential for maintaining security, decentralization, and integrity in a distributed system without a central authority.
Different blockchain protocols use various consensus algorithms to achieve these goals. Some common ones include:
Proof of Work, or PoW
Miners compete to solve cryptographic puzzles. The first to solve it gets to add the next block to the blockchain and is rewarded. This method is secure but energy-intensive.
The most popular blockchain protocol, Bitcoin, uses PoW for consensus but it focuses on secure, decentralized transactions and is limited to financial transactions.
Proof of Stake, or PoS
Validators are chosen based on the number of coins they hold and are willing to “stake” as collateral. This method is more energy-efficient than PoW.
The second popular blockchain, Ethereum, initially used PoW. In 2022, it transitioned to PoS with Ethereum 2.0. Ethereum supports smart contracts and decentralized applications (dApps), making it more versatile than Bitcoin.
Delegated Proof of Stake, or DPoS
Stakeholders vote for a small number of delegates who validate transactions and create blocks. This method is faster and more scalable.
Another blockchain protocol is EOS, which uses DPoS for consensus. It is designed for high scalability and fast transaction speeds. Like Ethereum, it supports dApps and smart contracts.
Blockchain: Conclusion
Blockchain ensures security, transparency, and decentralization by storing data in an immutable chain of blocks. Consensus mechanisms like PoW, PoS, and DPoS maintain network integrity, enabling secure transactions and decentralized applications.
Protocols like Bitcoin, Ethereum, and EOS showcase blockchain’s versatility across industries. As adoption grows, understanding its principles is key to leveraging its potential in the digital world and investing in it.
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