How a Blockchain System Operates

Blockchain infrastructure is a complex, decentralized architecture that orchestrates many systems running asynchronously over the internet in order to create a secured database that records sensitive data of certain users into forms of transactions. First, let’s identify and define these ‘main artifacts’ of a Blockchain system; then, we will explore how they interact together in the system’s operations.

A Blockchain’s Main Artifacts

Ledger

The ledger is the logical, ‘central’ secured database of a Blockchain system. Data will be stored securely in the ledgers, which are replicated to many internet sites that are constantly synchronized together. Moreover, the ledger data is organized in a form of “chain of blocks” based on cryptographic protocols to achieve the fact that, in order to tamper a piece within a block of data, one must alter all of its following blocks. As a result, an attack attempting to change a record in the database must theoretically change all the following blocks in all replicated ledgers on many different sites across the internet.

Asset

Asset, or digital asset, is a logical property recorded in a Blockchain ledger as numeric symbols. In Bitcoin Blockchain, the asset is Bitcoin, whilst Ethereum defined Ether as native asset and tokens as user-defined ones. All Blockchain systems ensure the correctness, consistency, and provenance of their assets.

Wallet

A wallet in the Blockchain world is a user’s anonymous account that is associated with various types of assets. Each wallet has a unique ID (named ‘address’) corresponding with a private key kept secure by the wallet’s owner. The underlying, advanced asymmetric cryptography allows wallets to receive assets from any sources, but only the owners can ‘spend’ (transfer) them.

Transaction

A transaction is the actual information recorded into the chain of data blocks. Each transaction contains information about the flows of assets, including the senders, receivers, and amounts. Transactions are created by system clients (wallet owners or exchanges) and submitted to the chain for validation and verification before persistently recording to a chain block.

How Do Blockchains Operate?

Consensus

The most important and main operation of a Blockchain system is consensus. In a Blockchain system, as each party maintains a chain of data blocks and the blocks are continuously generated and added, the most effective way is that one party will create a new block and synchronize it to the other parties. Let’s say each stakeholder keeps a copy of the ‘common ledger’. The questions now are what the next line of writing in the ledger is and how to ensure the next line is the same in all copies.

In this consensus operation, the parties must come to an agreement as to who will be the one creating the next chain block. Throughout the course of Blockchain development, there have been different proposals on how to achieve a consensus. Bitcoin and Ethereum used Proof-Of-Work originally, and are transitioning to a new, advanced mechanism—such as Proof-Of-Stake, which comes with the recent hot Libra from Facebook.

In Proof-Of-Work, all parties will participate in a competition of solving a ‘relative’ complex problem; the winner (first to solve) will take the responsibility of creating the next new block. The winner will broadcast its solution along with the new block while the others will verify the solution and validate all transactions in the block before putting it into their local chain.

In Proof-Of-Stake, all parties will have a chance to be the ‘winner’ based on the total assets they are controlling. The more assets they have, the more likely it is that they become the ‘winner’. The overall idea is that the more money you have, the more attention and care you have to pay while spending.

Mining

Mining is the operation of trying to win the Proof-Of-Work competition. Indeed, in a Proof-Of-Work Blockchain, some parties are passive and simply receive the new block synchronization while others compete for the role of block creator. A prize for the winning miner is an amount of assets collected from system and transaction fees. The mining parties are usually quite powerful and have special hardware specifications that enable them to solve the problems so quickly. Nevertheless, there are mining pools in which some miners collaborate to speed up the solver and share the prize.

Who can interact with Blockchains?

There are two main kinds of Blockchain systems: permissioned and permission-less. The first one is usually used within a group of business organizations while the latter is for public use.

In a permissioned Blockchain system, only some parties are permitted to create new blocks while some others are only responsible for validating them. Accessing data from the Blockchain follows policies along with credentials, groups, and roles. For example, in a Blockchain for international trading, importers, exporters, banks, carriers, and governments have corresponding permissions to amend or access chain data such as creating/accepting orders, requesting/issuing letters of credit, and exporting licenses, declaring bills of lading, etc.

It’s much simpler in permission-less Blockchain system. Here, anyone is able to write or read data from the chain with a small transaction fee. For example, according to CoinDesk, the historic moment when leaders from South and North Korea met on April 27 and signed an agreement for peace between the two nations has now been permanently recorded on the Ethereum Blockchain. Similarly, with a small fee, one can securely and persistently keep his most remarkable moments and life events (e.g. his birthdays, wedding or graduation) on such a permission-less Blockchain system that his family, friends, followers and public audiences could keep be posted.

Summary

Blockchain technology is an evolving way to keep your data safe and maintain equilibrium between stakeholders. Being informed about a specific Blockchain system is a good start for managerial teams to utilize key benefits to further strategize for their business. For technical teams, an overview of Blockchain artifacts and operations is a good start to begin to dig into Blockchain’s underlying technologies such as hash functions, asymmetric cryptography, and peer-2-peer synchronization.

Thong Nguyen
Thong Nguyen joined LogiGear in 2009 as a software developer and has been leading LogiGear’s researching as a senior technology manager. He was responsible for setting up the innovation of TestArchitect, a leading tool in test automation. Adapting to Blockchain technology since 2018, Thong started leading a MOWEDE development team to deliver Blockchain projects. Thong also teaches testing domain and cryptography at the University of Sciences and is actively involved in LogiGear's internal technical seminars.
Thong Nguyen
Thong Nguyen joined LogiGear in 2009 as a software developer and has been leading LogiGear’s researching as a senior technology manager. He was responsible for setting up the innovation of TestArchitect, a leading tool in test automation. Adapting to Blockchain technology since 2018, Thong started leading a MOWEDE development team to deliver Blockchain projects. Thong also teaches testing domain and cryptography at the University of Sciences and is actively involved in LogiGear's internal technical seminars.