Table of contents

1. What is blockchain?
Blockchain is a distributed database that records network transactions and
organizes them into a hierarchical chain of blocks.
Blockchain has several advantages over other modern IT systems, which include:

* Decentralization allows all participating users to be part of the consensus, with

the ability to audit information stored on the blockchain, without the need for a
central authority.
* Transparency is ensured by granting universal access where every user has his own
full copy of the distributed database. This quality of blockchains makes them one
of the most trusted systems.
* Immutability guarantees that the recorded data will never be removed from the
ledger and remain accessible, offering members of the network to view the full
history of transactions.

2. How blockchain works

Blockchain, as a peer-to-peer network, makes use of clearly defined consensus for
executing transactions between the nodes. In terms of cryptocurrency, for instance,
the transactions will be related to the transfer of funds. In other applications,
transactions can be related to their respective process data.

Making transactions on the blockchain involves the following steps:

* Block formation. A blockchain node broadcasts a transaction to the network.

Transaction data is placed in the pool of unconfirmed transactions, where the
candidate block is formed.
* Block validation. Participants of the blockchain validate the new blocks by
solving a cryptographic puzzle. Blockchain rules determine the method of validation
(proof of work, proof of stake, proof of authority, etc.). After the successful
validation, the block is broadcasted to the network.
* Block acceptance. At least 51% of the nodes in the network must accept the new
block for it to be valid and appended to the blockchain. Finally, the blockchain is
extended, and the process repeats for new transactions.
In the Bitcoin network, for instance, the proof of work is used for block
validation. Any node in the network can attempt to validate the block through a
process called mining. Miners are awarded in cryptocurrency for every successful
validation of a new block.

Blockchains have a heterogeneous architecture made up of cryptographic algorithms

and mathematical models. The structure of the blocks plays a crucial role in
enabling distributed consensus and ensuring the security of the system. The blocks
that form the network consist of:

* Data which may include transaction records, contracts, or even IoT device
telemetry.
* Hash value of the current block is generated to serve as a cryptographic image of
the block that can be verified by anyone.
* Hash value of the previous block is an encrypted string used to link to the
previous block in order to form the chain.
* Timestamp. A record of the time when the block was created.
* Additional information including digital signatures, nonce value, etc.
Consensus (agreement) mechanism is enforced by the nodes in the blockchain network
to facilitate the admission of new blocks into the blockchain, secure verification
of the accepted blocks, and store data consistently inside the blocks. This
guarantees that every block is properly validated and that the stored data is
tamper-proof.
The original blockchain consensus method used in Bitcoin and many other networks is
proof of work (PoW). It requires members of the network to solve mathematical
problems that require strong computational power. Only blocks that contain valid
proof of work are accepted in the blockchain. The decentralized nature of the
blockchains, along with their use of crypto algorithms, and consensus mechanism,
make them one of the most secure architectures of modern information technology.