Blockchain Primer

Simply put Blockchain is a Database. This database is distributed across different computers and each of these computers (Nodes is the correct word actually) acts as a storage system and validator. The

Blockchain can be explained in two ways- a. Blockchain is nothing but a database. The ecosystem is made up of computers connected to a network. Each computer is called a node. Node is a participant in the Blockchain world. Node acts as a storage system and validator. So it's a democratic system where no single node is superior. b. Blockchain is Distributed Ledger Technology (DLT). This is used to create a storage system for transactions in a distributed and immutable manner.

The immutability part of the system comes from the fact that no one can update/modify the records without that change being validated by other nodes. And if other nodes agree to the change then only the change is accepted. This leads to trust being built into the system. Blockchain also provides a feature where the originator and receiver of transactions can be easily verified. This is done via Digital Signatures. Blockchain implementations have different flavors. FOr example, Blockchain implementations can be divided into these categories-

Public Blockchain: Anyone can join and participate in the system. e.g. Bitcoin. You get the ability to mine coins and be a miner. I'll explain what mining means in a moment. Private Blockchain Only select or invited parties are allowed to participate COnsortium Blockchain: A closed group where enterprises come together and undertake/record transactions. e.g. few banks can come together and validate a loan type.

Blockchains are also categorized as per their capabilities

Blockchain Types

Based on how the participants are allowed to interact with the netwrok, these are the broad categories of Blockchain types-

TypeNatureProsCons
PrivateIs a permission based system and a restrictive blockchainPros:Highly scalable & Higher Transaction speedLess decentralized
PublicPermissionless, non-restrictive, the distributed ledger systemPros: Complete trustable, transparent, No intermediaries, SecuredHigh energy requirements, Costly machines
Consortiumbest suited for organizations where there is a need for both types of blockchains, i.e., public and privatePros: Best suited for organizational collaboration, Offers scalability and much securedLess anonymous compared to other blockchains, Less transparent

data structures in Blockchain

A Blockchain is made up of Blocks. A Block is a collection of transactions/data. As per the rules (as defined in the smart contract) of the blockchain system, a block size is determined. For example, a block size in Bitcoin is 1MB whereas in Etherium it's 175 GB! A Block in Bitcoin has these data elements

You can find the actual data here. Inside the block, there are individual transactions that are stored.

Also here's a great site which you can use to learn blockchain flow -

Blockchain Demo (andersbrownworth.com)

Consensus Mechanism:

For Blockchain to be minting to be finalized, 51% of the nodes need to agree to the committed block. A block is generated after a mathematical problem is solved by the miner. There's a race to solve the puzzle and whoever does it first is generally rewarded with coins. So the consensus needs to be there that a particular miner has indeed minted a new block. So there are various mechanisms of consensus.

Some consensus mechanisms for the Fintech world

Apart from the above-mentioned mechanisms, there are a few more mechanisms available but I am not going to discuss them in this post and would take these in a later blog. Some of the other mechanism types are -

  • Practical Byzantine Fault Tolerance

  • Federated Byzantine Fault Tolerance

  • DiemBFT

  • Proof-of-Elapsed-Time

This is an attempt to provide the relevant info on Blockchain part. Please let me know through your comments if you found the article useful or not.

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