Blockchain Fundamentals: What is Blockchain Anyway?
This blog dives into the fundamentals of blockchain, explaining its structure, the nature of its transactions, and the core concepts of security and consensus.
Our recent workshop Blockchain Fundamentals ft. Matheus Pagani of Venture Miner, provides an accessible and comprehensive introduction to the fundamentals of blockchain. Blockchain is reshaping the digital world by offering a secure, decentralized way to manage data and transactions. Whether you're building decentralized applications or exploring its possibilities, a solid grasp of blockchain concepts will empower you to innovate in this dynamic field. This blog builds on the workshop, outlining the core principles of blockchain technology:
At its core, a blockchain is a [replicated] [deterministic] [state machine].
The decentralized nature of blockchain ensures that no single entity controls the process, enhancing security and transparency, much like maintaining fair play in a game through its consensus mechanism.
For those ready to delve deeper, check out resources we curated for you to get hands-on practice and explore more advanced topics like smart contracts.
What is Blockchain?
At its core, a blockchain is a public database that is updated and shared across many computers in a network. This decentralized structure ensures no single point of control, enhancing security and transparency. The term "blockchain" combines two key concepts: "block," which refers to the groups of data stored consecutively, and "chain," indicating that each block cryptographically references its predecessor, forming a secure, unalterable chain.
Blocks are the fundamental units of storage in a blockchain, containing transaction data and a cryptographic hash of the previous block. This linkage ensures that altering any block would require consensus from the entire network, making unauthorized changes practically impossible. Thus, blockchain acts as a replicated, deterministic state machine, where each state transition is triggered by transactions and recorded in new blocks.
Blockchain Transactions
Transactions are the lifeblood of blockchain, representing actions that update the system's state. When you send assets to someone else, this transaction data is included in a block. Each block updates the state of the blockchain, ensuring a consistent and agreed-upon record across all nodes in the network.
In a blockchain, a state machine is a computer science concept where the system transitions through multiple states but can only be in one state at any given time. Each block in the blockchain represents a discrete step in the state machine, updating the state based on the included transactions. This ensures a clear and verifiable progression from one state to the next, starting from the Genesis Block, which defines the initial state.
Security and Consensus
Blockchain's security relies on its consensus mechanisms and cryptographic principles. Each block's hash includes the hash of the previous block, creating a chain that is extremely difficult to alter without the approval of the entire network. Consensus protocols like Proof of Work (PoW) or Proof of Stake (PoS) ensure that all participants agree on the blockchain's state.
Consensus mechanisms are essential for maintaining the integrity of the blockchain. They prevent issues like double-spend attacks, where two transactions attempt to spend the same assets. In a decentralized network, determining the order of transactions is challenging, but consensus protocols provide a globally accepted order, ensuring that only one transaction can be valid.
Finality in blockchain refers to the point at which a transaction is considered irreversible and permanent. Multiple confirmations by the network nodes ensure that a transaction has been permanently added to the blockchain, preventing fraud and double-spending.
Data on the Blockchain
Data on the blockchain, known as on-chain data, becomes immutable once recorded and verified by network nodes, forming part of the distributed ledger. This on-chain data includes transaction information, token balances, and smart contract code, all visible to network participants. Conversely, off-chain data encompasses sensitive information, large files unsuitable for blockchain storage, or data not requiring immutability. Smart contracts can still interact with off-chain data, and Web3 applications often use both types of data to function effectively.
A blockchain acts as a public ledger for transacting value and recording these transactions, where users have decentralized identifiers (DIDs) that uniquely identify them and track their transactions. These actions are recorded on a public ledger, verified by a network of nodes, making the entire transaction history publicly accessible. If you want to change data in the blockchain, you create a transaction that must be accepted by all nodes. The transaction ensures changes are fully applied or not at all, maintaining consistency. Transactions are cryptographically signed, ensuring only authorized changes are made. This decentralized nature incentivizes participants to process transactions through a transaction cost, mitigating issues like double-spend attacks. Transactions are processed in batches (blocks), and consensus mechanisms ensure a globally accepted order of transactions.
Practical Applications and Metaphors
To simplify the understanding of blockchain concepts, let's use everyday metaphors. Imagine a game where each player must agree on the rules and outcomes before advancing to the next level. In blockchain, each "player" is a node in the network, and every transaction must be validated by the majority of these nodes. This ensures a consistent view of the data and prevents any single player from cheating.
For instance, if a player wants to transfer assets, the transaction is proposed to the network, verified by the nodes, and only added to the blockchain when validated. This analogy helps illustrate how transactions are processed in batches (blocks) and how each block represents a complete step in the state transition. The decentralized nature of blockchain ensures that no single entity controls the process, enhancing security and transparency, much like maintaining fair play in a game through its consensus mechanism.
Getting Started with Blockchain
For those ready to delve deeper, continue with hands-on practice and explore more advanced topics in smart contracts and blockchain technology. The blockchain landscape is vast and filled with opportunities, underpinned by the ethos of open-source contribution and development.
To enhance your learning, utilize online resources, engage with blockchain communities, and participate in workshops. Begin by coding and deploying simple smart contracts to understand blockchain's functionality, with our follow-up workshop Intro to Solidity ft. Matheus Pagani of Venture Miner.
Embarking on a journey with blockchain technology transcends theoretical knowledge; practical experience is crucial. Embrace a hands-on approach—experiment, make mistakes, and learn from them. This trial-and-error process is invaluable for mastering the complexities of blockchain.
Get Involved
Watch the full Workshop + Q&A here.
Follow @MatheusPagani77 + @ventureminer on Twitter
We encourage all of you to check out the Venture Miner Academy and join their TG group to find out about future events!
Interested in learning more about blockchain 101? Check out the resources below:
Start learning Blockchain 101 with UETH’s AI-assisted learning modules for free! We breakdown concepts into bite-sized analogies that are easy to digest.
Watch our follow-up workshop, Intro to Solidity ft. Matheus Pagani of Venture Miner to explore the essential elements and techniques of Solidity, and learn the knowledge and skills you need to start creating your own smart contracts.
Follow the UETH YouTube channel and watch all our workshop episodes ▶️ featuring projects developing compelling real world applications and use cases.
Apply for SheFi Cohort 11, a curriculum designed to make Web3 learning accessible and inclusive.