The Web3 ecosystem has seen exponential growth in the past few years. This ecosystem, which offers a decentralized paradigm for digital assets, is enabled by blockchains, which have become the bedrock of world-wide record-keeping systems. This article explains fundamental concepts in Web3, such as Blockchains, Ethereum, and Smart Contracts, and why they are useful.
Table of Contents
- What is Blockchain?
- History of Blockchain and Ethereum
- Ethereum and Smart Contracts
- The Architecture of Blockchain
- Benefits of Blockchain Technology
- Conclusion
What is Blockchain?
A blockchain is a distributed ledger technology that maintains a continuously growing list of ordered records, called "blocks," linked together using cryptography. They are a network of computers that have the same digital history of transactions, deals, contracts, and all other things of value that can be represented in the form of digital assets.
Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data (generally represented as a Merkle tree). The timestamp proves that the transaction data existed when the block was released, which is required to get into the hash of the block. Also, because each block carries information about the previous one, they form a chain, with each successive block reinforcing the ones before it, which makes data manipulation difficult since data in one block cannot be modified retrospectively without impacting all following blocks.
In essence, blockchain can be likened to an obsessive club whose members like to keep track of things. The club has a ton of complicated rules to ensure that every member writes down the exact same set of records about what happens each day (whether it’s bird sightings, or beer tastings, or flower sales). Once data is recorded and accepted, it becomes exponentially difficult to change because everybody will need to be present and agree to the change, and more records are being added to it. Also, every member is obligated to never stop talking about the club.
Then, usually outsiders are welcome to come check out their records at the club.
Here is the point.
Blockchain provides a space to store digital information that everyone can contribute to, but no one can change, and no single person or entity controls it. In this sense, a blockchain serves as the foundation for immutable ledgers, or transaction records that can't be changed, erased, or destroyed. Because of this, blockchains are also known as distributed ledger technology (DLT).
Hence, at its core, blockchain allows you to agree on data with strangers across the internet. Rather than depending on a single person or entity to keep track of everything, everyone on the network shares that responsibility.
Blockchain has become one of the most significant innovations of the 21st century given its ripple effect from the financial industry to manufacturing, education, and other diverse sectors.
History of Blockchain and Ethereum
The blockchain concept was first proposed by Cryptographer David Chaum in his 1982 dissertation "Computer Systems Established, Maintained and Trusted by Mutually Suspicious Groups". The dissertation which proposed cryptographically secured chain of blocks was further improved in 1991 by Stuart Haber and W. Scott Stornetta, their goal was to implement a system where document timestamps could not be edited. In 1992, Haber, Stornetta, and Dave Bayer incorporated Merkle trees to the design, which improved its efficiency by allowing several document certificates to be collected into one block.
By 2008, Satoshi Nakamoto conceptualized the first decentralized blockchain. Nakamoto significantly improved the architecture by incorporating a difficulty parameter to steady the pace at which blocks are added to the chain and employing a Hash cash-like approach to timestamp blocks without having them to be signed by a trusted party. The design was later implemented in 2009 and became a core component of the bitcoin cryptocurrency, where it serves as a public ledger for all transactions on the network.
Years later Vitalik Buterin, co-founder Bitcoin Magazine published a white paper that proposed a decentralized application platform. The proposal paved the way for blockchain technology to be adopted for purposes other than cryptocurrency. Blockchain technology was later separated from currency in 2014, and its potential for other financial, interorganizational transactions was explored. The move to establish blockchain technology beyond currency gave birth to the Ethereum blockchain system.
In 2015, the Ethereum Frontier network launched, enabling developers to write smart contracts and decentralized apps that could be deployed to a live network. Then the Linux Foundation launched the Hyperledger project, which is a multi-project open-source collaborative effort to advance cross industry blockchain technologies.
The growth of Blockchain and Ethereum has been consistent through the years and is gaining more adoption as we move into the Web3 era. Governments and enterprises now look to blockchain to tackle a variety of cases from voting, to real estate, intellectual rights, vaccine distribution and internet of things.
Ethereum and Smart Contract
Ethereum is a decentralized blockchain platform that creates a peer-to-peer network for securely executing and verifying application code, known as smart contracts.
The idea of smart contracts was originally described in 1993 by computer scientist and cryptographer Nick Szabo as a kind of digital vending machine. They are short programs that can be deployed and run on a blockchain to automatically execute transactions if certain conditions are met without requiring the help of an intermediary company or entity.
In traditional contracts, a document describes the terms of the relationship and agreement between two parties. If one Party A violates the terms, Party B has the right to take Party A to court for not complying with the agreement. A smart contract fortifies such agreements in code so the rules are automatically enforced without the involvement of courts (or any other third party).
Smart contracts allow participants to transact without the need for a trusted central authority. Transaction records are immutable, verifiable, and securely distributed across the network, giving participants full ownership and visibility into transactional data. As a cost of processing transactions on the network, a sender must sign transactions and spend Ether which is Ethereum's native coin.
The adoption of smart contracts has yielded benefits from speed efficiency and accuracy, to trust and transparency, to security and savings.
The Architecture of Blockchain
The traditional web architecture employs client-server networks, in which the server stores all the necessary information in one location for easy updating and control by a number of administrators. Whereas, blockchain uses a peer-to-peer network, in which each participant in the network has the right to maintain, approve, and update new entries.
A blockchain organizes data into groups called blocks, each of which contains a set of data and has a specific storage capability. When full, they are closed and connected to the preceding block, producing a data chain known as the blockchain. All new information that follows that freshly added block is compiled into a newly formed block that will then also be added to the chain once filled. Also, each block is given an exact time stamp when it is added to the chain.
All blockchain structures can be categorized into the following:
- Private blockchain architecture - This means the blockchain network is in a restrictive environment like a closed network. They are controlled by specific authorized users. The private blockchain is also referred to as permissioned blockchains or enterprise blockchains. They are typically fast and can handle transactions more quickly than public blockchains.
Public blockchain architecture - As opposed to private blockchain architecture, the public blockchain architecture is accessible to everyone and permissionless. They are completely independent of organizations and can run as long as there are computers connected to them. Participants can access past and current records, conduct mining activities, find bugs, and propose changes because the source code is open source.
Hybrid blockchain architecture- A hybrid blockchain architecture combines both private and public blockchain architecture. It allows organizations to set up a public permissionless system alongside a private restricted system, which enables them to control access to specific data stored in the blockchain and what data is available publicly.
Consortium blockchain architecture-This is also known as a federated blockchain and is similar to a hybrid blockchain. The main difference compared to a hybrid blockchain is that multiple organizational members collaborate on a decentralized network. They limit access to the blockchain to a particular group of organizations, eliminating the risks that come with just one entity being in control of the blockchain.
Some of the core components of the blockchain architecture include:
- Block- These are data structures that store a set of transactions and redistribute them to all nodes in the network. * Chain- A set of blocks that are arranged in a specific order
- Transaction- The smallest building block of a blockchain system (records, information, and so on), that serves as the blockchain's purpose.
- Node - A user or computer with an independent copy of the whole blockchain ledger within the blockchain architecture.
- Miners- Dedicated nodes that execute block verification before adding anything to the blockchain structure.
- Consensus protocol- A collection of rules and agreements that govern how blockchain transactions are carried out.
Benefits blockchain technology
Blockchain provides several benefits for individuals, organizations and enterprises. Some of the benefits include:
Trust- Due to its complicated computations and cryptographic evidence among participating parties, blockchain transactions are validated and trustworthy. Also,
Security and decentralization- Each member of the blockchain system have access to the entire distributed database. in contrast to a central based system, consensus algorithm allows for control of the network. Also, every transaction in the blockchain ledger cannot be modified nor removed.
Transparency and Anonymity- The blockchain system is almost impossible to tampering, and each participant has a randomly created address, which protects the users' privacy.
Conclusion
Blockchain has emerged as a viable technical solution for enterprises all around the world. It has shown to be an effective technique for dealing with complex challenges. As a result, the advantages of blockchain technology for enterprises, also translate into a need for blockchain skills.
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