Blockchain: Part6_Structure of Blockchain and Consensus!

Welcome back! This part will be beautiful. Concepts in this part, along with the past parts, will provide a complete picture of this whole concept of Blockchain. 

Structure of Blockchain A Blockchain is basically a database. A big difference between it and conventional client-server model of the database is that it is NOT centralized. A database in conventional sense is a centralized located and managed box of data. A common example is that you sign-up in an app for their service BUT all the data is in their server; and you know data is the new currency nowadays right *ahem-face-cough-book-cough*. You trade your identity to get the service AND also pay them? Does not make sense from this perspective isn’t it?

In Blockchain, every node connected to the chain is a database! A miner verifying the transaction and/or block is effectively working with the whole of Blockchain, having an incentive to honestly increase the length of the chain with verified transactions and blocks. This is the structure of the peer-to-peer network; where every node is connected to every other network. A node can send and receive the transaction/data from every other node. Every node has the local data of the latest agreed verified Blockchain. You will notice there is no centralized database here. Anyone can read OR write any information on the Blockchain (there are private and public flavors. Bitcoin or Etherium, for example, are the public Blockchains). Both, reading and writing have certain rules to follow (cannot emphasize that enough!). Note: Your public key is visible to all and NOT your other personal details. 

Moving on, I would like your attention to another interesting fact. Bitcoins, working on the underlying tech of Blockchain, enables anyone to mine Bitcoins. You don’t need a government OR any central authority to issue currencies here. Controlling of the currency by the government can lead to, well, unintended bad results off a well-intentioned policies (cough-demo-cough-ni-ahem-tization). In fact I got to know that during the initial phase of “demo”, many Indians converted traded their currencies and bought bitcoins. Lucky smart fellas I say! This is the real benefit of “decentralization” and this is how Blockchain is decentralized. Anyway, moving on further, let’s have a look at the structure of the Blockchain from a different perspective, for us to understand “consensus”. How does it survive the trust test? 

Consensus fundamentally, is a state of a system where agreement of the majority is accepted and that is the basis on which it operates.

If you remember, we got to learn on the rules of verification for both a Block and Transactions in Part3 and Part4 respectively; we also got the concept of “Proof Of Work” in Part4. Combining all this concepts and extrapolating on the structure of the Blockchain will help you visualize “consensus” mechanism at play here. The moment a digitally signed transaction is entered for verification check in the Blockchain, ALL the nodes and/or miners ACROSS the world compete with each other to verify those transactions AND get it added into a Block and then verify that block as well. All the nodes are competing for that reward (12.5 Bitcoins). The more computing power you have; the more chances you have to earn those bitcoins.

1.   An honest miner with all the honest intentions will validate the transactions and the block with all their computer might (finding that “nonce” which follow certain rules);

2.   Miner will then submit the valid block to nodes (which may OR may not be miners). Nodes, once they receive a valid block, will validate the block themselves (hashing themselves to check that nonce follow those rules) and IF they find that block valid, then will add the block in the local copy of their blockchain AND distribute it further.

3.   This process is repeated further and other hones nodes will do the same

4.   We will eventually reach a scenario where ALL the nodes will have added a valid block in the local copy of their blockchains (and hence the word “distributed” is used often in blockchain).

You might be wondering now – Wait a min, why invalid blocks were not added? – lets imagine there is a dishonest miner who somehow added invalid transactions of their own in a block, somehow had a great computing power to validate an invalidate block; had even greater power to link it with other previous block by changing the nonce of the previous block itself and then submit this invalid block to a node. Lets EVEN suppose that node is also a dishonest node here; used same computing powers to do the same and broadcasted that “bad-apple” (invalid block) to others… UNLESS 51% of the nodes do that simultaneously; that invalid bad-apple will NOT get added in the locally distributed copies of the blockchain. You now know how nearly impossible is that to achieve? Technically it is possible but it is nearly impossible for majority of the nodes to go bad at the same time with such HUGE cost.

No one needs a permission to be a miner; certainly an honest miner. No one needs a permission to operate as a node; certainly and honest node. This is peak decentralization isn’t it?! All the honest nodes and miners are working TOGETHER with dishonest ones. This is peak democracy isn’t it?! At the end; all the honest people are competing for the reward for being honest (and few are getting it too!). This is peak chaos-but-ordered isn’t it?!

I marvel sometimes at how Blockchain has unlocked some good psychological desires of humans AND at the same time using our other not-so-good desires to keep check on others.

I mean IF all of us were honest, the real value of honesty would have been null! In reality, there are many bad-apples, but good apples are good partly because they are inherently good and partly because bad apples are present. Blockchain is using both these flavors to actually become a big whole good-apple.  

I hope you see the value of a Blockchain now. BUT it is not applicable everywhere. There is a temptation across the world to hype this up and miss-apply to their organizations. However, whatever hype it does deserve, it is NOT applicable everywhere. So what are all those conditions which are best suited for it? We will deal with this in the next part.

Cheers…Pulkit