Advanced Blockchain Concepts

In this chapter, we will discuss the advanced concepts of blockchain and the various protocols, challenges, and solutions to it. In the earlier chapters, we looked at the consensus protocol or algorithm as one of the most critical components, or building blocks, of the blockchain. When we speak about blockchain, the first thing that comes to mind is security and the blockchain consensus algorithm. We will look into these challenges and the solutions. From there, we will progress into smart contracts and how they work with the protocols in the blockchain.

In this chapter, we will cover the following advanced concepts of the blockchain:

• Consensus protocols, which are the running engine of the blockchain
• Types of consensus algorithms
• Key challenges in the blockchain to maintain privacy
• Smart contracts
• Distributed applications

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Introduction to consensus protocols

A consensus algorithm is a process implemented in distributed processes or systems to achieve agreement on some particular data. The blockchain consensus algorithm keeps the ledger transactions synchronized across the network to ensure that ledgers are only updated when the appropriate participating board approves transactions and, when ledgers are updated, they are updated with the same transactions in the same order. This process is called a consensus, and the protocol program that keeps this running is the consensus algorithm. That is why a consensus is considered to be the running engine or heart of blockchain.

So, consensus primarily establishes a strong technology infrastructure layer for the blockchain, which makes it the most critical part. It ensures that every next block that gets added to the blockchain is the one and only true version...

Types of consensus algorithms

The following three consensus algorithms or protocols are used in the majority of blockchain platforms:

• PoW
• PoS
• PoET

We will also do a quick comparison of these three, in the later sections. Before we look at these different consensus algorithms, let's take a look at the reasons behind the variety of algorithms. The following are some of the reasons for that variety:

• Business need: Business demands drive which algorithm to use.
• Use case: The use case for using a public or private blockchain influences which algorithm will be used.
• Token need: Not every business case needs to use tokens or cryptocurrencies, and may just want to use the underlying blockchain with a consensus.
• Security and privacy: Security requirements may vary, and the same goes for privacy. Some may want a public blockchain, while others may prefer private ones.

• Performance...

Key privacy challenges of the blockchain

Let's take a look at some general challenges regarding privacy in blockchain and the solutions to overcome those challenges. Eric Hughes, cofounder of the Cyberpunk Movement, UC Berkeley, and a well-known mathematician, said in 1993 that privacy in an open society requires anonymous transaction systems. Until now, cash has been the primary system. An anonymous system empowers individuals to reveal their identity when desired, and only when desired. But, is this the case with Bitcoin and public blockchain? There is a popular delusion that Bitcoin is anonymous and untraceable. It's an understandable mistake, given Bitcoin's popular use case, which was the infamous Silk Road we covered in earlier chapters.

The FBI was able to trace and expose people involved in this case with the help of immutability in the Bitcoin blockchain...

Smart contracts and decentralized applications

We discussed Bitcoin and blockchain in earlier chapters, and how this entire technology is the next big innovation after the internet. Besides all the unique features of the blockchain, such as immutability, cryptography, and security, smart contracts make blockchain an even more innovative technology. Besides the P2P network and private key cryptography, blockchain program is something that governs the execution of money flow in a programmatic manner. These programs are a kind of smart contract that remains at the core of blockchain. If you look at a typical standard contract agreement between two parties, it basically dictates the terms of a relationship, where these terms or relationships are then usually enforced by legal entities. On the other hand, smart contracts enforce their relationships with smart code written using cryptographic...

Summary

In this chapter, we learned about some of the advanced concepts used in blockchain and covered various consensus protocols used in various blockchain implementations. We also looked at some of the key challenges to privacy on blockchain and how solutions such as ZKP can help safeguard privacy. Then, we progressed to discussing smart contracts, one of the core building blocks of blockchain; how they are written; what they are; and how they are executed. We also looked at Dapps, when to use them, and when not to use them. In the next chapter, we will look at some of the general practices used to safeguard Bitcoin and cryptocurrencies in general.