Owing to decentralisation, immutability, provenance, transparency, and tamper-proof security, Blockchain technology is exponentially replacing and bridging the gap associated with traditional databases used in many sectors today, including the financial, healthcare, supply chains, telecommunications, insurance, media and entertainments, amongst others.
Hence, it wasn't a surprise by the projection according to Grand View and Transparency Market Researches that corporations would spend $20 billion per year on blockchain technical services, by the end of 2024. While Blockchain wouldn't solely work on itself, it is integrated with a solid and reliable architecture that enables Blockchain to efficiently present its use cases. Therefore, this article would guide you on how Blockchain architecture works.
BLOCKCHAIN ARCHITECTURE, AND ITS COMPONENTS
Blockchain architecture is a distributed network that allows every node (users or computers) within the Blockchain to possess a replicated digital ledger of transactions. The algorithm or set of agreements that synchronises data between nodes on a blockchain is termed a consensus algorithm.
Below are the core components of blockchain architecture:
Nodes are users or computers on the blockchain network. They have an identical copy of the digital ledger via a consensus protocol.
Just like atoms, transactions are the smallest building blocks of a blockchain system. It involves a sender address, recipient address and a value. On the blockchain, the sender transfers a value by digitally validating the hash generated by adding the previous transaction and the public key of the receiver.
Transactions are bundled and distributed in the form of a block to each node. Apart from being distributed in a decentralised manner and verified independently by nodes as new transactions are distributed, transactions are also time-stamped.
Block is an encrypted data structure that houses information as a block header and transactions. It functions to aggregate transactions and distributes identical copies to all nodes on the network. Then, the transaction is made public to all nodes on the network, and each has a copy of the transaction.
Once a transaction is endorsed to be cryptographically authentic by the nodes, they are packaged and stored in the blockchain in the form of a block, in a process termed mining.
Block header on the other hand is the metadata that assists in assessing the validity of a block. The contents of a block header include the Version of blockchain used, Previous Block Header Hash, Timestamp, Merkel Root, and Nonce.
Every block has a hash code of the previous block. Timestamp helps to know when a block is created. Merkel Root is a single hash code that encodes for many transactions in one block which is passed to the next block. Nonce on the other hand is the number that blockchain miners are solving for, to get incentives.
Chains are a sequence of blocks, and it's from there where the name - blockchain, was coined. Each block in the chain contains different transactions. When a new transaction arises on the blockchain, a record of such a transaction is added to every participant's ledger on the system.
Miners are distinct nodes within the blockchain ecosystem that does the block verification processes before adding blocks to the blockchain structure.
Consensus protocol refers to the set of arrangements that facilitates blockchain operations. Examples include PoS (Proof of Stake), DPoS (Delegated Proof of Stake), PoW (Proof of Work), SBFT (Simplified Byzantine Fault Tolerance), PoET (Proof of Elapsed Time), and PoA (Proof of Authority).
HOW DOES BLOCKCHAIN ARCHITECTURE WORK?
To begin with, Blockchain works on IP protocol and offers peer-to-peer services with decentralised nodes. Hence, they are more secure, opposite to what's obtainable in centralised networks. However, a blockchain network or architecture can either be a permission-based or permissionless network.
The permission-based blockchain architecture is either a private or consortium blockchain. While both allow only authorised users within their blockchain ecosystem, private-based blockchains are majorly within one organisation and there could be total centralisation, while the latter (consortium blockchains) could allow users only within selected nodes and there is partial centralisation.
Permissionless blockchains architecture are called the public blockchain. They are open-source blockchain, such that the data and entry/access to the system aren't restricted and open to the public to participate. Examples of such Blockchain include Bitcoin, Ethereum, Litecoin, etc.
Some organisations use hybrid blockchain architecture - a type of blockchain technology that integrates a public, permissionless blockchain with a private, permission-based blockchain. This has the added advantage of allowing users to have control over who can access specific data stored in the blockchain, and what data is made public.
However, Blockchain architecture works by integrating its aforementioned components into action. It all starts with a transaction request. The transaction is bundled to form a block, which is created by mining.
Each node on a blockchain network has an identical digital copy of the transaction (block), owing to the consensus algorithm i.e Proof of Work or Proof of Stake, etc.
While other nodes on the network verify and process the encrypted data to be cryptographically accurate. Once it's validated, the nodes receive the reward for the consensus algorithm used in the blockchain. A new block is added to the existing blockchain network, and the transaction is finalized. Furthermore, the entire operation within blockchain architecture works on three important factors - decentralization, protection, and liability.