Blockchain & Web3 Technology

Blockchain is a technology that securely stores transactional information by linking blocks together in a specific cryptographic order. Therefore, blockchain is a type of distributed ledger or database used to validate and store digital transactional records.

How does Blockchain Work?

Whenever a blockchain is introduced to a new blockchain transaction or any new block is added to the blockchain, numerous nodes within the same blockchain implementation are generally required to execute algorithms to evaluate, verify, and process the history of the blockchain block.

The steps to validate a transaction are the following:

1. A transaction is requested
2. A block that represents the transaction is created
3. The block is sent to all the nodes in the network to be able to verify the transaction. The nodes will compete to place the transaction into a block with other transactions
4. To be able to append the block into the chain of prior blocks, require to solve a mathematic "puzzle"
5. For a block to be confirmed as valid, nodes must generate two hashes: a hash of all the transactions in the block and one proving that they have expended the energy required to generate the block by solving a special cryptographic puzzle with a pre-set level of difficulty. When a valid block is generated, the block is added to the blockchain.

Blocks are connected with each other through their respective hash codes, and technically, the whole blockchain ecosystem becomes Fort Knox. Whenever a blockchain transaction flag is raised, a blockchain consensus needs to be achieved to update it in the blockchain.

Instead of relying on a third party to mediate transactions, member nodes in the blockchain network adhere to a blockchain consensus protocol to agree on the ledger content, cryptographic hashes, and digital signatures to ensure the integrity of transactions. Once authenticated, these blockchain transactions are considered successful and irreversible. Transactions rely heavily on hash values and hash functions.

These hash functions are mathematical processes?that take input data of any size, perform required operations on it, and return the output data of a fixed size. For example, these functions can take a string of any length as input and return a sequence of letters of a fixed length. Regardless of the size of transactions, the final output will always be fixed and untampered.

If the message is modified, the hash value will change, making it impossible to reconstruct the original message.

Cryptography and Digital Signatures

Cryptographic keys are incorporated to send data throughout the network without compromising its safety and integrity.

These keys allow blockchains to respect users' privacy, uphold asset ownership, and secure the information of blocks in the network. Cryptography is applied throughout the entire blockchain to all the information that is stored and transacted.

Cryptographic hashes also help greatly as they ensure that even the smallest change to a transaction will result in a different hash value being computed, eventually indicating a clear change in the transactional history. While cryptographic keys are necessary for safety and integrity, digital signatures provide verification and authentication of ownership on the blockchain. Using cryptographic digital signatures, a user can sign a transaction proving the ownership of that asset, and anyone on the blockchain can digitally verify the identity to be true.

Web3

While blockchain technology helps organisations securely store and manage data without the need for intermediaries, Web3 is a decentralised web that allows companies to create decentralised apps (dApps) and services. Using blockchain and distributed ledger technology, Web3 aims to establish an increasingly transparent and secure Internet.

Combining blockchain with Web3 technologies allows organisations to build more efficient, secure, and transparent apps. Consequently, the connection between the two underpins a new digital economy in which assets are stored securely and exchanged without intermediaries.

Blockchain plays a major role in creating the Web3 infrastructure by enabling companies to decentralise services, including databases, social networking sites, and cloud computing. However, there are other technologies that allow dApps to analyse data in a Web3 environment much the same way as humans do it. These include:

• Artificial Intelligence (AI)
• Machine Learning (ML)
• Internet of Things (IoT)
• Virtual Reality (VR)

Because dApps are built on top of decentralised technologies, such as blockchain, they allow users to interact with decentralised systems as they would with traditional web apps. Developers can use dApps to build various applications, such as supply chain management apps, financial apps, and social networking platforms.

The following link provides an excellent view of the Web3 stack, which includes the Network Layer, Blockchain Interaction Layer, Presentation Layer and Decentralised Applications.

Web3 Stack

Smart Contract

Smart contracts were first introduced in the 1990s by a computer scientist and lawyer named Nick Szabo. Szabo famously compared a smart contract to a vending machine. Imagine a machine that sells cans of soda for a quarter. If you put a dollar into the machine and select a soda, the machine is hardwired to either produce your drink and 75 cents in change or (if your choice is sold out) to prompt you to make another selection or get your dollar back. This is an example of a simple, smart contract. Just like a soda machine can automate a sale without a human intermediary, smart contracts can automate virtually any kind of exchange.

Nick Szabo's idea for a smart contract

A smart contract, like any contract, establishes the terms of an agreement. But unlike a traditional contract, a smart contract’s terms are executed as code running on a blockchain like Ethereum. Smart contracts allow developers to build apps that utilise blockchain security, reliability, and accessibility while offering sophisticated peer-to-peer functionality —?everything from loans and insurance to logistics and gaming.

Smart contracts can be used in the following real-world scenarios:

• Data sharing between institutions is vital to effective clinical trials. With the support of smart contracts, professionals can seamlessly share data across the industry.
• Smart contract applications can make royalty payments easier in the music industry.
• You can use smart contract technology to offer fractional real estate ownership.
• Smart contracts can ensure lenders and loan seekers agree to clear terms and conditions, such as proof-of-funds and mortgage payment planning.
• Retailers can create smart contracts to enable fast payments to contractors.
• Smart contracts could create a secure environment for voting, reducing the risk of potential voter manipulation. Each vote using a smart contract is ledger-protected. Due to the encryption, these are incredibly hard to decode.

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