Introduction to Blockchain - Conceptualization and Applications (Part 4)

It's been a long time since my last post as I got stuck in some work. This is the last part of the introduction to blockchain series. In this post, we will touch upon a few more concepts of blockchain and their applications.
At the end of the post, we will also look into the concept of Hyperledger Fabric in brief.

Permission-less model

In this model, anyone can join the network, participate in the process of block verification to create consensus and also create smart contracts. For e.g. Bitcoin and Ethereum network. 

• In a permissionless world, one does not have to prove their identity to the ledger. 
• As long as you are willing to commit processing power to be part of the network and extending the blockchain, you are allowed to play. 
• Any miner who is playing the game by the rule may be able to solve the hash puzzle and verify the block of transactions to win the mining reward (Higher the mining power, better the chances of winning the mining reward).
• It is good for financial applications like banking using cryptocurrency.

Security

• Each block in a blockchain is connected to all the blocks before and after it. Thus, it is difficult to tamper with a single record because a hacker would need to change the block containing that record as well as those linked to it to avoid detection.
• Network participants have their own private keys that are assigned to the transactions they make and act as a personal digital signature. If a record is altered, the signature will become invalid and the peer network will know right away that something has happened. Early notification is crucial to preventing further damage.
• Blockchains are decentralized and distributed across P2P networks that are continually updated and kept in sync. Hence, blockchains don’t have a single point of failure and cannot be changed from a single computer. It would require massive amounts of computing power to access every instance (or at least a 51% majority) of a certain blockchain and alter them all at the same time.

Privacy

• For bitcoin, the transactions are pseudo-anonymous i.e. transactions are sent to cryptographically generated addresses.
• Let's say You want to send some cryptocurrency to your friend. Then her wallet listens for the transaction. 
• Your wallet will encrypt the transaction and only your friend's wallet will be able to decrypt it and accept it.

  

  source: coins.ph

• But the transaction amount is open to all the nodes in the network for validation.

Longest Chain in a Blockchain

source: www.ness.com

According to Satoshi Nakamoto's paper, the steps to run the network are as follows:

1. New transactions are broadcast to all nodes.
2. Each node collects new transactions into a block.
3. Each node works on finding a difficult proof-of-work for its block.
4. When a node finds a proof-of-work, it broadcasts the block to all nodes.
5. Nodes accept the block only if all transactions in it are valid and not already spent.
6. Nodes express their acceptance of the block by working on creating the next block in the chain, using the hash of the accepted block as the previous hash.

Nodes always consider the longest chain to be the correct one and will keep working on extending it. If two nodes broadcast different versions of the next block simultaneously, some nodes may receive one or the other first. In that case, they work on the first one they received, but save the other branch in case it becomes longer. The tie will be broken when the next proof-of-work is found and one branch becomes longer; the nodes that were working on the other branch will then switch to the longer one.

I'd also recommend having a look at this link which explains this concept in an interesting way.

Permissioned model in the blockchain

• A closed ecosystem in which each participant is well defined.
• Allow an organization to efficiently exchange information and record transactions
• Run by the members of an organization. Stakeholders “opt-in” to form a blockchain network.
• Only pre-approved entities can run the nodes that validate transaction blocks and execute smart contracts on the blockchain.

Some of the key attributes of a permissioned blockchain system include:

Decentralization

The degree of decentralization is based on how the members of the consortium choose to structure their business relationships. The concept of ‘no central control’ is not relevant here since the organizations are managed entities.

Transparency

It all depends upon how the business relationships are set up and how the blockchain is configured. Most permissioned blockchains do not have cryptoeconomic incentives built into them. The primary incentive of permissioned blockchain participants is to minimize the cost, time, and ease of sharing information.

Privacy

They offer fine-grained visibility into transaction details, along with metadata about those transactions. 

Governance

Governance is largely decided and agreed upon by the members of the blockchain business network. Economic incentives, code quality, code changes, and power allocation among peers are based on the business dynamics and the common purpose for which the network has been designed and built. This allows companies to move quickly and in ways that best fit their business needs.

Tokens

They generally don’t employ a cryptoeconomic model or monetary tokens due to the nature of these business networks.

Permissioned Blockchain Applications

Below are the few applications of the permissioned blockchain -

Provenance Tracking

By this, we can track the origin and movement of high-value items across a supply chain, such as luxury goods, pharmaceuticals, cosmetics, and electronics.

When a high-value item is created, a corresponding digital token is issued by a trusted authority, which acts to authenticate its point of origin.

Every time, the physical item changes hands, the digital token is moved in parallel.

A digital token is very tough to steal or forge than a piece of paper.

Hyperledger Fabric

• It is a permissioned blockchain that provides an enterprise-grade foundation for transactional applications.
• A shared ledger that supports smart contracts and ensures the security and integrity of recorded transactions.
• Unlike Bitcoin and Ethereum, it supports privacy and confidential transactions.

Conclusion

Pheww! so finally we have reached the end of this post and with this, we have also completed the first stepping stone in understanding the concept of the blockchain. 

In the next series of posts, we will look into the details of cryptographic concepts that make a fundamental blockchain. 

I hope you are liking my efforts. Please share your thoughts in the comments. You can also follow me on Twitter. 

Stay tuned for the next post. Happy learning!! 🌝