How does Blockchain Work?
Explore the technologies behind blockchain: cryptography, consensus mechanism and nodes.
Introduction
In the last chapter, we have introduced what blockchain is, how it originated, and why it is important. In this chapter, we are going to explore how the “blockchain” works. This is an issue related to technologies such as cryptography and consensus mechanisms.
Cryptography
Blockchain is open, transparent and immutable, but if someone randomly sends wrong transaction records to the blockchain, it will definitely cause problems. Therefore, the encryption method is rather important.
Each data on the chain is “locked” by the “public key”. To verify the data, the first step is to “insert” the public key into the lock to check whether it can be decrypted.
Asymmetric encryption: public and private keys
Before moving on to asymmetric encryption, let’s get started with symmetric encryption. In symmetric encryption, the same key is used for both encryption and decryption.
Then what is “asymmetric encryption”? It takes two passwords, which we call “public key” and “private key”.
The private key is very important. It is like the password of your personal account and should not be shared with anyone else; the public key is made available to anyone and is used to decrypt files signed by the private key.
As we already know, the blockchain is composed of many “blocks” connected in sequence, and the operations generated on each chain need to be verified and encrypted through the public and private keys.
When initiating a transaction, you need to sign the data using the private key. For other people on the blockchain to read the contents of the data, they need to use the other key - the public key - to access it.
Consensus mechanism
In addition to nodes, certain consensus mechanisms are also required to verify the legitimacy of the submitted data on the blockchain and to ensure that all participants in the blockchain network are updated with the correct information and reach a consensus. Each consensus mechanism adopts different algorithms and has its own advantages.
Proof of Work (PoW) and Proof of Stake (PoS) are the two most common consensus mechanisms
The most common consensus mechanism is PoW, which requires miners to solve complex cryptographic puzzles in order to add blocks to the blockchain. BTC, the largest cryptocurrency by market cap, adopts proof-of-work. Bitcoin has been live for more than 13 years, with its security being truly proven. On the other hand, Bitcoin is rather controversial due to its high energy consumption and scalability issues.
Proof of Stake (PoS), created at a later time, is considered a more efficient and secure alternative to PoW. It has gained increased popularity over the years. It should be admitted that, as the first consensus algorithm, PoW is somewhat behind the times.
Ethereum, with the most thriving ecosystem and numerous applications, completed The Merge in September 2022, signaling the official transition from PoW to PoS. After that, staking ETH becomes the only method to participate in validating, replacing the PoW mining that consumes computing power. In this way, Ethereum can ensure both sustainability and security, which prepares for future scaling solutions.
The consensus mechanism is crucial to the security and integrity of the blockchain network. By ensuring that all participants hold the same opinion about the public ledger, the consensus algorithm protects the network from malicious actions and ensures that only valid, legitimate transactions are added to the blockchain.
Who is securing the network
Unlike banks that use third parties to verify transactions, blockchains (such as Bitcoin and Ethereum) use computer networks distributed across the globe to check the authenticity of transactions. These computer networks are called nodes or miners.
Nodes are key roles in maintaining the operation of the blockchain
Nodes play a critical role in recording, verifying, and processing all data on the blockchain. It allows for peer-to-peer payments using cryptocurrencies like BTC and ETH in an anonymous, secure way. It also assists dApps to perform more complex transactions.
Nodes are vital in any blockchain network. They are like “guardians” who are constantly monitoring various behaviors on the chain to distinguish between “legitimate” transactions and “false” transactions, thereby avoiding the wrong data being recorded.
Key takeaways
A blockchain consists of a sequence of blocks. Each block contains the hash value, timestamp and transaction data of the previous block.
Different blockchains adopt different consensus mechanisms to verify the legitimacy of submitted data. The most commonly used ones are PoW and PoS.
The Ethereum blockchain switched from PoW to PoS in September 2022, replacing the computing power mining method with the more efficient and energy-saving ETH staking, laying a foundation for future scaling solutions.
Nodes play important roles in maintaining the operation of the blockchain system. They are responsible for recording, verifying, and processing all data.
Main video
Related articles
How does Blockchain Work?
Explore the technologies behind blockchain: cryptography, consensus mechanism and nodes.
Introduction
In the last chapter, we have introduced what blockchain is, how it originated, and why it is important. In this chapter, we are going to explore how the “blockchain” works. This is an issue related to technologies such as cryptography and consensus mechanisms.
Cryptography
Blockchain is open, transparent and immutable, but if someone randomly sends wrong transaction records to the blockchain, it will definitely cause problems. Therefore, the encryption method is rather important.
Each data on the chain is “locked” by the “public key”. To verify the data, the first step is to “insert” the public key into the lock to check whether it can be decrypted.
Asymmetric encryption: public and private keys
Before moving on to asymmetric encryption, let’s get started with symmetric encryption. In symmetric encryption, the same key is used for both encryption and decryption.
Then what is “asymmetric encryption”? It takes two passwords, which we call “public key” and “private key”.
The private key is very important. It is like the password of your personal account and should not be shared with anyone else; the public key is made available to anyone and is used to decrypt files signed by the private key.
As we already know, the blockchain is composed of many “blocks” connected in sequence, and the operations generated on each chain need to be verified and encrypted through the public and private keys.
When initiating a transaction, you need to sign the data using the private key. For other people on the blockchain to read the contents of the data, they need to use the other key - the public key - to access it.
Consensus mechanism
In addition to nodes, certain consensus mechanisms are also required to verify the legitimacy of the submitted data on the blockchain and to ensure that all participants in the blockchain network are updated with the correct information and reach a consensus. Each consensus mechanism adopts different algorithms and has its own advantages.
Proof of Work (PoW) and Proof of Stake (PoS) are the two most common consensus mechanisms
The most common consensus mechanism is PoW, which requires miners to solve complex cryptographic puzzles in order to add blocks to the blockchain. BTC, the largest cryptocurrency by market cap, adopts proof-of-work. Bitcoin has been live for more than 13 years, with its security being truly proven. On the other hand, Bitcoin is rather controversial due to its high energy consumption and scalability issues.
Proof of Stake (PoS), created at a later time, is considered a more efficient and secure alternative to PoW. It has gained increased popularity over the years. It should be admitted that, as the first consensus algorithm, PoW is somewhat behind the times.
Ethereum, with the most thriving ecosystem and numerous applications, completed The Merge in September 2022, signaling the official transition from PoW to PoS. After that, staking ETH becomes the only method to participate in validating, replacing the PoW mining that consumes computing power. In this way, Ethereum can ensure both sustainability and security, which prepares for future scaling solutions.
The consensus mechanism is crucial to the security and integrity of the blockchain network. By ensuring that all participants hold the same opinion about the public ledger, the consensus algorithm protects the network from malicious actions and ensures that only valid, legitimate transactions are added to the blockchain.
Who is securing the network
Unlike banks that use third parties to verify transactions, blockchains (such as Bitcoin and Ethereum) use computer networks distributed across the globe to check the authenticity of transactions. These computer networks are called nodes or miners.
Nodes are key roles in maintaining the operation of the blockchain
Nodes play a critical role in recording, verifying, and processing all data on the blockchain. It allows for peer-to-peer payments using cryptocurrencies like BTC and ETH in an anonymous, secure way. It also assists dApps to perform more complex transactions.
Nodes are vital in any blockchain network. They are like “guardians” who are constantly monitoring various behaviors on the chain to distinguish between “legitimate” transactions and “false” transactions, thereby avoiding the wrong data being recorded.
Key takeaways
A blockchain consists of a sequence of blocks. Each block contains the hash value, timestamp and transaction data of the previous block.
Different blockchains adopt different consensus mechanisms to verify the legitimacy of submitted data. The most commonly used ones are PoW and PoS.
The Ethereum blockchain switched from PoW to PoS in September 2022, replacing the computing power mining method with the more efficient and energy-saving ETH staking, laying a foundation for future scaling solutions.
Nodes play important roles in maintaining the operation of the blockchain system. They are responsible for recording, verifying, and processing all data.
Main video
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