If you are looking for beginners guide to blockchain, then we can help you out. Here, we will go through every single element within the blockchain ecosystem and understand how this technology really works.
Blockchain for beginners is one of the most searched keywords on the internet. Blockchain’s popularity has grown tremendously in the last few years. With business, government, and enterprises adopting blockchain more, the value of learning blockchain has also increased. By learning about blockchain technology, you will be part of the next generation and understand how our economy will shape in the near future.
If you are a beginner, you need to start with a beginners guide to the blockchain that will simply explain everything. Today, we will go through a starter guide on blockchain and help you on your way to learn about it.
So, what is blockchain? Let’s explore.
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Blockchain Tutorial for Beginners: What Is Blockchain?
Blockchain is a peer-to-peer ledger system that allows peers to transact between them without any centralized authority. The peer-to-peer network is completely decentralized. To make it decentralized, each peer carries a copy of the ledger. The ledger can be a complete copy or a minimal copy required for it to stay connected and functional to the network.
To ensure consensus across transactions, consensus methods like Proof-of-Work, Proof-of-Stake, or others are used. Also, each transaction is completely secured with the help of advanced cryptographic algorithms. Clearly, the whole blockchain mechanism is used to taking advantage of trust, immutability, and transparency. The idea is the complete opposite of centralization.
In short, it is a network with peers capable of doing transactions without any centralized authority. This simple idea is single-handing changing how industries work. This is how blockchain records transactions in the ledger.
For example, healthcare can now be revolutionized to store patients’ data on the blockchain. This way, patients do not have to carry their own documents as everything will be stored on the network and click away. The patient can also share their data to research and help improve research on many critical illnesses. Also, it solves the counterfeit drug problem — helping both patients and drug companies.
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Blockchain Architecture for Beginners
Now that we now have an idea of blockchain, it is now time to learn about blockchain architecture.
The key components of the blockchain architecture are as below:
- Transactions
- Blocks
- Consensus
Apart from the general components, there are different types of blockchain architecture, including public, private, and consortium blockchain architecture. We will discuss this shortly after we go through the key components below.
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Block
A blockchain is composed of blocks. The blocks are stored in a linear fashion where the latest block is attached to the previous block. Each block contains data — the structure of the data stored within the block is determined by the blockchain type and how it manages the data.
We can take the example of the bitcoin blockchain. A block in bitcoin blockchain contains the basic information about a transaction, including the receiver, the sender, and the amount of bitcoin transferred.
Also, the first block of any blockchain is known as the Genesis block. Only the genesis block doesn’t have any preceding block. You will find more information about blocks in any blockchain tutorial for beginners.
In a block, there is important information known as the hash. The hash is used to determine any block’s authenticity and whether it should be attached to the current chain or not. The hash is unique to every block and hence cannot be replicated by any malicious block. It is also a gateway to understanding what the block includes. This enables the block to protect the contents. So, if someone tries to change the information within the block, the hash value will also change, triggering warning so that other blocks do not accept it.
Each block’s structure can be divided into three parts, including the data, hash, and the previous block hash.
Transaction
A transaction takes place within the network when one peer sends information to another peer. It is a key element of any blockchain, and without it, there would be no purpose of using a transaction.
A transaction consists of information, including the sender, receiver, and value. It is similar to a transaction done on modern credit card platforms. The only difference is that the transaction here is done without a centralized authority.
A simple example would be a user sending bitcoin to another user. The transaction initiates an agreed-contract blockchain which changes its state. As the whole blockchain is a decentralized network, it needs to be updated by all the nodes. Each node contains an exact copy of the ledger, and thus, a state of blockchain is created. Any single transaction can initiate a state change.
A block which we discussed earlier contains a bunch of transaction. There is a limit on how much transactions a block can contain. It depends on the block, transaction size and any imposing limit on how much transactions can stay in a block. The verification of the transaction is done by independent nodes based on the consensus method used.
Technically, each transaction can have one or more input and output. This way, the transactions are linked so that it can keep a proper note on expenditure done in the blockchain.
Get familiar with the terms related to blockchain with Blockchain Basics Flashcards.
Consensus
The last important part of blockchain architecture is consensus. It is the method through which a transaction and is validated. Each blockchain can have a different consensus method attached to it. For example, bitcoin utilizes Proof-of-Work (PoW), whereas Ethereum uses the Proof-of-Stake (PoS). There are other types of consensus methods as well that we are going to list below.
Consensus algorithms offer a set of rules. It needs to be followed by everyone in the network. Also, to impose a consensus method, nodes should participate. Without any node participation, the consensus method cannot be implemented. This also means that the more nodes join to participate in the consensus method, the stronger the network begins.
Bitcoin has a big network and offers a great incentive to become a miner. In fact, it also has one of the biggest miner communities out there. You will find more information about blocks in any blockchain tutorial for beginners.
The miners sometimes also follow their allegiance when it comes to making their point. For example, if there is a change required in the blockchain, miners can decide to at least protest against the change.
Miners or the nodes taking part in the consensus method can hijack the network if more than 51% of them are controlled by one entity. This attack is known as a 51% attack where more than half of the nodes are controlled by one entity. They can fake transactions and also make it possible to do double-spending.
How Does Blockchain Work
If you want to learn how does blockchain work in a step-by-step process, then we can go through it below.
Step 1: In the first step, a transaction is requested. The transaction can be either to transfer information or some asset of monetary value.
Step 2: A block is created to represent the transaction. However, the transaction is not validated yet.
Step 3: The block with the transaction is now sent to the network nodes. If it is a public blockchain, it is sent to each node. Each block consists of the data, the previous block hash, and the current block hash.
Step 4: The nodes now start validating according to the consensus method used. In the case of bitcoin, Proof-of-Work (PoW) is used.
Step 5: After successful validation, the node now receives a reward based on their effort.
Step 6: The transaction is now complete.
All of these processes can offer you the highest level of security in the network.
Types of Blockchain Architecture
Now that we have understood the core components of any blockchain network, we should also learn about the different types of blockchain architecture.
Public Blockchain Architecture
In a public blockchain architecture, anyone can participate in the network. The transaction’s public info is available to everyone. However, this doesn’t mean that the private data of a transaction are available anymore. Examples of public blockchain architecture include bitcoin, Litecoin, and Ethereum.
Private Blockchain Architecture
When it comes to private blockchain architecture, not anyone can access the blockchain. The administrator or the ruling set of nodes determines who can join the network.
Federated/Consortium Blockchain Architecture
The last type of blockchain architecture is the federated/consortium blockchain architecture. It combines the best features of both public and private blockchain. It is also heavily controlled and is best suited for enterprise blockchains.
To see the difference, let’s go through the chart below.
| Private blockchain | Public blockchain | Consortium blockchain | |
|---|---|---|---|
| Access | Private | Public | Public/Private |
| Consensus | Organization based | Public | Selected nodes |
| Efficiency | High | Low | High |
| Centralization | Yes | No | Partial |
| Consensus Process | Permission based | Permissioned based | Permissionless |
| Immutability | Not completely tamper-proof | Completely tamper-proof | Not completely tamper-proof |
Blockchain Consensus Methods
Consensus methods are an integral part of any blockchain type. It determines how fast, efficient, and secures a transaction is. That’s why, in this section, we will be going through different consensus methods.
Right now, there are tons of consensus methods out there. But for simplicity of discussion, we are going to cover the top four popular ones.
- Proof-of-Work (PoW)
- Proof-of-Stake (PoS)
- Delegated Proof-of-Stake (DPoS)
- Practical Byzantine Fault Tolerance (PBFT)
Proof-of-Work (PoW):
It is the first-ever consensus method used by a blockchain network. It was introduced with bitcoin. In this consensus method, there are miners who are responsible for validating a transaction. The hash of a new block is needed to be found so that it can be added to the network. The one who finds the first one gets rewarded with others. Blockchain Proof of Work requires extreme computational power and also has high requirements when it comes to hardware.
Proof-of-Stake (PoS):
Proof-of-Stake is used by 2nd generation blockchain network, Ethereum. It has a completely different approach as it doesn’t require extensive power consumption. Here coins are staked by the nodes. Ethereum has its own requirements on how coins need to be staked for it to be eligible to take part in the consensus algorithm. The nodes that have more coins staked have more chances to get rewarded. This also makes Proof-of-Stake investment heavy.
Delegated Proof-of-Stake (DPoS):
DPoS is a different type of PoS. It handles the node selection differently. The coin holders, in this case, select the nodes to take part in the consensus method. They can also vote while choosing or kicking a node. It is more suited for an established network with more trust. You can use this technology for blockchain business models.
Practical Byzantine Fault Tolerance:
PBFT is a way to solve the Byzantine Generals Problem. It enables nodes to decide whether to accept or deny the submitted information. The party maintains an internal state which is used to run a computation on new messages. If the party computation runs well, it then decides to share the transaction with other parties within the same network.
The final result has arrived when multiple parties have run computations on it, and the decision is based on the parties’ results. As not all nodes are required for the consensus method, it also has a low hash rate requirement. However, to make it successful, it requires well trusted nodes to work together. PBFT is used in popular projects, including Ripple, Stellar, and Hyperledger.
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Blockchain For Beginners: Enterprise Use Cases
In this section, our focus would be on the enterprise blockchain use cases. The blockchain use-cases will help you understand blockchain technology better. There are hundreds of blockchain use cases, but we are going to list only a few of them below for the sake of simplicity.
Supply Chain Management
Supply Chain Management currently suffers from a lot of problems. For example, the biggest problem in SCM is product counterfeit. By using blockchain for supply chain, products can be traced accurately, removing any counterfeit possible. It also improves transparency and ensures that there is a cost reduction on the whole part. Improvements in SCM also mean an improvement in different industries, including healthcare, food industry, etc.
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Healthcare
Healthcare also benefits from the likes of blockchain. Right now, there is no way for healthcare specialists to look at one single version of a person’s healthcare report. With blockchain for healthcare, it will now become possible for patients to have their reports stored on blockchain – which can be retrieved later on.
This way, doctors can work on a single report and give better medical services to them. It also makes the process efficient, improves the exchange of information, and brings the best possible way for patients to secure their documents to not have to carry them. Let’s check out more use cases in this blockchain for beginners guide.
Energy Market
Energy distribution companies are big players that provide services to almost everyone out there. For now, as a consumer, you need to wait for the big companies to provide you with an installation. This can take anywhere between a few days to a few weeks, depending on your location.
The energy market is currently a closed ecosystem with new players trying to revolutionize it with the help of blockchain technology. With blockchain, nodes will become capable of generating and trading electricity without the need for any centralized authority. There are many companies using blockchain technology for this sector.
This will relax the energy prices and improve energy reach in places where it was not possible before. There are projects like Grid+ and Power Ledger that are making all of these possible.
Real Estate
Using blockchain for real estate can benefit this sector greatly. Real estate is one big sector. Right now, there are plenty of players in real estate that are struggling due to one reason or another. One major reason behind the slow growth of real estate is the lack of efficiency in the whole system. If you wish to purchase a property, then you need to go through a slow, painful process that can take weeks to complete.
With blockchain, real estate can become more efficient with a safe and smooth transaction. All of these will be possible because of smart contracts that can automate tasks like buying or selling a property. It can also help do ownership verification and is cost-effective.
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Conclusion
This leads us to the end of blockchain for beginners guide. Blockchain is a one-of-a-kind technology. So, that means more and more companies will start to adopt blockchain into their businesses. Therefore, it’s safe to say, if you are just a beginner, you need to master a lot of elements before you can even consider becoming a part of this technology.
*Disclaimer: The article should not be taken as, and is not intended to provide any investment advice. Claims made in this article do not constitute investment advice and should not be taken as such. 101 Blockchains shall not be responsible for any loss sustained by any person who relies on this article. Do your own research!
