Blockchain

Definition

Basic kinds

• Public blockchain: Available to anyone who wants to participate in the network. Transactions are visible and verified by all participants (e.g. Bitcoin, Ethereum).
• Private blockchain: Reserved for a select group of users, usually used in companies to manage internal data, with limited access and control over transaction verification.
• Consortium blockchain: A hybrid type in which a group of organisations share network management and transaction verification, which enables increased transparency while protecting data.

Main roles

• Among the applications of blockchain we can include:
• processing payments and money transfers – speeding up settlement and reducing (or eliminating) transfer fees;
• supply chain monitoring – providing full asset tracking;
• digital identity – controlling digital identities and access to data;
• data sharing – securely storing and moving enterprise data;
• copyright and royalty protection – ensuring artists retain rights to their works, transparent distribution of royalties (in real time);
• IoT network management – IoT network regulator function (identification of connected devices, activity monitoring, authentication of devices added to the network);
• healthcare – management of clinical trial data and electronic medical records in compliance with RODO regulations.

Basic elements

• Block: A block is the basic unit that stores transaction information. Each block contains transaction data, a timestamp, and a reference to the previous block, creating an immutable chain. Blocks can contain different types of data, depending on the application of the blockchain.
• Chain of blocks: A chain of blocks is a sequence of interconnected blocks in which each block is linked to the previous one through a cryptographic link. This structure guarantees that no transaction can be changed or deleted without invalidating all subsequent blocks.
• Hash: A hash is a unique identifier generated for each block based on its contents. Any change in a block causes a change in its hash, which ensures the integrity of the data. Hashing algorithms, such as SHA-256, make data difficult to forge.
• Smart contracts: Smart contracts are self-executing contracts written in code that automatically perform certain actions when set conditions are met. They are used in many applications, from payments to supply chain management.
• Nodes: Nodes are computers participating in the blockchain network that store copies of the entire chain of blocks and verify new transactions. Nodes can be full (a full copy of the blockchain) or light (storing only key data).
• Consensus mechanism: A consensus mechanism is how nodes in a blockchain network reach agreement on the current state of the database. Popular consensus mechanisms include Proof of Work (PoW), Proof of Stake (PoS), and Delegated Proof of Stake (DPoS). These mechanisms ensure that only verified transactions are added to the chain of blocks.
• Crypto wallets: Wallets are used to manage private and public keys that enable blockchain transactions. The private key enables the signing of transactions, while the public key enables verification of transactions.
• Asymmetric cryptography: A cryptography system used to secure transactions on a blockchain that uses a pair of keys: private and public. This system enables authorisation of transactions and ensures data security.

Mechanism of action

• Transaction creation: The user initiates a transaction, which is then sent to the blockchain network where it is encrypted using asymmetric cryptography.
• Transaction validation: The transaction is verified by nodes in the network using a consensus mechanism, such as PoW or PoS. Nodes check that the transaction complies with network rules and that funds are available.
• Adding transactions to the block: Approved transactions are grouped into blocks. The block is then added to the chain of blocks and receives a unique hash that identifies its contents.
• Linking blocks: Each new block is linked to the previous one through its hash, which creates a chain of blocks. This structure ensures that a change to any block invalidates all following blocks, which protects against tampering.
• Distributing copies in the network: The updated blockchain is distributed to all nodes in the network, which store full copies of the chain of blocks. As a result, data is available and secured on multiple nodes.
• Execution of smart contracts (optional): In the case of blockchains that support smart contracts, when certain conditions written in the contract are met, the code automatically performs actions, such as transferring funds or updating data.
• Monitoring and auditing: Blockchain enables transparent monitoring of all transactions. Each transaction is permanent and unalterable, which enables auditing and increases user confidence in the system.