Components and Structure of Blockchain

Blockchain is not a single technology, but more of a technique. A blockchain is an architectural concept, and there are many ways that blockchains can be be built, and each of the variations will have different effects on how the system operates. In this chapter, we are going to cover the aspects of blockchain technology that are used in all or most of the current implementations.

By the end of this chapter, you should be able to describe the pieces of a blockchain and evaluate the capacities of one blockchain technology against another at the architectural level.

Here are the concepts we will be covering:

• Blocks
• The chain between blocks
• Hashing and signatures
• Block structure
• Block miners
• Block validators
• Smart contracts
• Blockchain speed

Blocks

Blockchain is a specific technology, but there are many forms and varieties. For instance, Bitcoin and Ethereum are proof-of-work blockchains. Ethereum has smart contracts, and many blockchains allow custom tokens. Blockchains can be differentiated by their consensus algorithm (PoS, PoW, and others)—covered in Chapter 7, Achieving Consensus, and their feature set, such as the ability to run smart contracts and how those smart contracts operate in practice. All of these variations have a common concept: the block. The most basic unit of a blockchain is the block. The simplest way of thinking of a block is to imagine a basic spreadsheet. In it, you might see entries such as this:

Account	Change	New Balance	Old Balance	Operation
Acct-9234222	−$2,000	$5,000	$7,000	Send funds to account-12345678
Acct-12345678	$2,000	$2,000	0	Receive funds from account-9234222...

The chain between blocks

In addition to the transaction ledger, each block typically contains some additional metadata. The metadata includes the following:

• A reference to the prior block
• Metadata about the network
• The Merkle root of the transactions, which acts as a check of the validity of the block

These basics tend to be common for all blockchains. Ethereum, Bitcoin, Litecoin, and others use this common pattern, and this pattern is what makes it a chain. Each chain also tends to include other metadata that is specific to that ecosystem, and those differences will be discussed in future chapters. Here is an example from the Bitcoin blockchain:

By Satoshi Nakamoto: http://Bitcoin.org/Bitcoin.pdf, MIT, https://commons.wikimedia.org/w/index.php?curid=24542868

If you are asking, What is a Merkle root?, that brings us to our next set of key concepts: hashing and signature.

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Hashing and signatures

Let's say you have two text files that are 50 pages long. You want to know whether they are the same or different. One way you could do this would be to hash them. Hashing (or a hashing function) is a mathematical procedure by which any input is turned into a fixed-length output. There are many of these functions, the most common being SHA-1, SHA-2, and MD5. For instance, here is the output of a hashing function called MD5 with an input of two pages of text:

9a137a78cf0c364e4d94078af1e221be

What's powerful about hashing functions is what happens when I add a single character to the end and run the same function:

8469c950d50b3394a30df3e0d2d14d74

As you can see, the output is completely different. If you want to quickly prove that some data has not been changed in any way, a hash function will do it. For our discussion, here are the important parts...

Digital signatures

Now that we've covered hashing, it's time to go over a related concept: digital signatures. Digital signatures use the properties of hashing to not only prove that data hasn't changed but to provide assurances of who created it. Digital signatures work off the concept of hashing but add a new concept as well: digital keys.

What are digital keys?

All common approaches to digital signatures use what is called Public Key Cryptography. In Public Key Cryptography, there are two keys: one public and one private. To create a signature, the first hash is produced of the original data, and then the private key is used to encrypt that hash. That encrypted hash, along with other information, such as...

Example block data

In this section, we are going to examine the data structures that are used in blockchains. We will be looking primarily at Ethereum, Bitcoin, and Bitshares blockchains to see key commonalities and differences.

Example Ethereum block

Here is the data from an example Ethereum block, from block 5223669:

If you remember, at the beginning of the chapter, we said there were three things common to blockchains: the reference to the prior block, the Hash of the transactions in the block, and network-specific metadata. In this block from the Ethereum network, all three are present. The reference to the prior block is contained by the block height and parent hash values. The Hash of the transactions is the hash entry...

Blockchain miners

Blockchain miners and blockchain validators (see the upcoming sections) both have to do with consensus, which will be explored in depth in Chapter 7, Achieving Consensus. Generally, blockchain miners are associated with blockchains. A PoW chain functions by having the computers that are miners compete to do the work needed to certify a block in the chain. Currently, the only major PoW blockchains are Bitcoin, Litecoin, and Ethereum. Most other systems use a variation of PoS consensus, which we will discuss in the next Blockchain validators section. We'll cover how mining works in detail in Chapter 18, Mining.

Blockchain validators

Blockchain validators are used by PoS systems. A PoS system works by requiring computers that wish to participate in the network to have stake—a large number of tokens—to assist in the blockchain. Unlike PoW algorithms, computers cannot join the network and expect to have any say in consensus. Rather, they must buy in through token ownership. Depending on the network, the naming convention for validators might be different. Tendermint has validators, Steemit and Bitshares have witnesses, Cardano has stakeholders, and so on. A validator is a computer with a positive stake (number of tokens) that is allowed to participate in the network and does so. Each chain has its own rules for how this works, and these will be covered more in-depth in Chapter 7, Achieving Consensus.

Smart contracts

Some blockchains are said to have smart contracts when they are able to perform actions and behavior in response to changes to the chain. These will be covered in depth in Chapter 14, Smart Contracts and Chapter 17, Decentralized Applications.

Blockchain speed

One ongoing concern for blockchain systems is performance. Public blockchains are global systems, with their system resources shared by all the users in the world simultaneously. With such a large user base, resource constraints are a real concern and have already caused real problems. For instance, a popular game called CryptoKitties was launched on Ethereum and caused the network to become congested. Other applications became nearly unusable, as the load from CryptoKitties overwhelmed the network.

How to calculate blockchain throughput

The quick and dirty way of calculating the throughput of a blockchain is as follows:

For Bitcoin, the transaction throughput is about 7tx/second. This is because of the...

Summary

Now you should understand the basic components of a blockchain. Blocks are groups of transactions grouped together and act as the fundamental unit of a blockchain. Miners are computers that create new blocks on PoW blockchains. Validators, also called witnesses and other names, are computers that create blocks on PoS blockchains. Digital signatures are composed of public and private keys and use mathematics to prove the author of the data.

The key ideas of hashing is to use a mathematical function that maps arbitrary data to a single, simple to deal with value. Any change to the data will make the end value very different

• It's essentially impossible to construct the original data from the hash, but it's easy to create the hash from the original data
• You can use these properties to prove that data has not been changed

In the next chapter, we will learn what...