Blockchain part 2 of 6 – Concepts Underpinning How Blockchain Works

Blockchain’s name is derived from the way the system stores transactions in blocks which are subsequently linked together to form a chain. As the number of transactions grows so does the blockchain. The blocks record the time and sequence of the transactions. Each block possesses digital fingerprint in the form of a hash (maps a set of inputs to a set of outputs). The hash connects all the blocks together and prevents any of the blocks from being manipulated. This process of linking the blocks strengthens the verification process. There are four key concepts undermining how Blockchain works:
  1. Permissions – Blockchain can be permissioned or permissionless. From a business perspective, Blockchain will always be permissioned. Permissioned Blockchains allows for greater ability to constrain network participation and restrict transaction details, allowing businesses to comply with new data protection regulations.
  2. Shared Ledger – All transactions are recorded on a shared ledger. The ledger is permissioned, so participants can only see the transactions they are authorized to view.
  3. Agreement – Transactions are posted to the ledger through various forms of agreement, including the following:
  • Multi signature – A majority of validators must agree for a transaction to be valid.
  • Proof of stake – to validate transactions, participants must hold a percentage of the networks value.
  1. Smart Contracts – Is a set of rules that is automatically executed as part of every transaction on Blockchain. Smart contacts are designed to provide security that is superior to common law, while avoiding the costs and delays associated with traditional contract law.

What questions do you have?

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