Introduction to Blockchain Technology
Blockchain is a distributed ledger or database consisting of multiple blocks of data. These blocks are securely connected by cryptographic hashes, therefore they form a chain of blocks where each new block contains information about the previous one.
There are multiple use cases for blockchains, but the most common is financial, where the blocks keep transactional data. The main ideology behind its adoption is decentralization and avoiding a single point of failure as well as a single point of authority.
Understanding Decentralization
Blockchains are usually formed of multiple nodes, without the need of central servers, where the database is distributed across all the nodes in the network. They operate by the rules of a consensus algorithm protocol. The most widely used consensus mechanisms are Proof-of-work (PoW) and Proof-of-stake (PoS). The general idea is that consensus between nodes is accomplished if most of the nodes agree on the state of the network. For example, Ethereum uses PoS, and the condition there is that at least 66% of the nodes should agree. This secures the network, meaning that if a node tries to tamper, the other nodes disagree and prevent possible fraud. These consensus mechanisms play a crucial role in securing the blockchain against attacks, such as Sybil attacks (where an attacker controls multiple nodes) or 51% attacks (where an attacker controls the majority of the network’s computational power).
How Consensus Mechanisms Work (Technical Overview):
- A node proposes a new block containing a batch of transactions to be added to the blockchain
- Other nodes in the network validate the proposed block by checking the validity of the transactions and ensuring they comply with the network’s rules and protocols
- Once validated, nodes participate in a process to reach an agreement on whether to accept the proposed block and add it to the blockchain
- Consensus algorithms define the rules and procedures for reaching an agreement. Different consensus algorithms, such as Proof of Work (PoW), Proof of Stake (PoS), or Practical Byzantine Fault Tolerance (PBFT), employ different mechanisms to achieve consensus
- In many consensus mechanisms, nodes are incentivized to participate honestly and follow the protocol rules. For example, miners in PoW systems receive rewards for successfully mining blocks, while validators in PoS systems risk losing their staked assets if they act maliciously
- Through communication and computation, nodes in the network reach a consensus on the validity of the proposed block. Once consensus is reached, the block is added to the blockchain, and the process repeats for subsequent transactions
Hashing algorithms: Securing the Blockchain
As mentioned, blockchains use hashing algorithms. We can skip the part where I explain that Bitcoin and Ethereum are the most widely used blockchains and will proceed with information about their hashing.
Bitcoin uses SHA-256, while Ethereum uses Keccak-256.
Bitcoin and SHA-256:
SHA-256 is a cryptographic function and it’s part of the SHA-2 family (Secure Hash Algorithm 2), where 256 represents the bits in the hash function.
There are assumptions that Bitcoin might need an update due to the development of quantum computers in order to keep the network safe, however this is a topic for another blog.
Ethereum and Keccak-256
Keccak-256 comes from the SHA-3 family, hence it resembles the SHA hashing algorithm. With Keccak-256 it is possible to convert an input to a hash output. It is a one-way hash function with a fixed length output of 256 bits. So, you can convert the input to a hash, but it is not possible to determine the content based on the hash.
Now, let’s explore how blockchain technology is paving the way for the next generation of the Internet, known as Web3.
Transitioning to Web3: The next evolution of the Internet
Some of you probably remember the Internet in the late 90s. Those who had access via ADSL saw static pages with text and graphics, but no interaction with them was possible.
Then platforms like MySpace and others appeared, platforms where you can post, customize your profile visually with HTML & CSS, write statuses and communicate with other people. This interaction between people developed even more when Facebook appeared. Not long after that multiple platforms and tools for creating blog sites appeared, so that now virtually everyone was able to create a basic website. The Internet then became even more integrated into our lives with the adoption of e-commerce sites.
Do you notice the difference between the first stage of the Internet with the static pages and the second which is now most certainly an indispensable part of our lives? These stages are called Web 1.0 and Web 2.0
As you can imagine, the next stage would be Web 3.0, but what does this mean? Web 3.0 (or Web3) is a new concept which stands on a few pillars – blockchain technologies, decentralization, tokenization and transparency. It’s important to discuss a few concepts in order to get a good grasp of Web3 – Smart contracts and dApps.
Exploring Smart contracts in Web 3
A smart contract is a digital agreement that is signed and stored on a blockchain network, which executes automatically when the terms and conditions are met. The terms and conditions are written in blockchain-specific programming languages such as Solidity. (Solidity is used for programming on EVMs or Ethereum Virtual Machines and uses ECMAScript syntax which makes it very friendly for developers who are already familiar with JavaScript) Smart contracts enable the automation of processes and the execution of decentralized applications (dApps) without the need for intermediaries. This programmable functionality unlocks a wide range of use cases, such as decentralized finance (DeFi) and others.
Decentralized Applications (dApps): Building The Future of the Web3
dApps play a crucial role in the Web3 ecosystem, providing decentralized alternatives to traditional centralized services. These applications run on distributed networks of computers, leveraging blockchain technology and smart contracts to offer enhanced security, transparency, and censorship resistance. Examples of popular dApps include decentralized exchanges (DEXs), decentralized social networks, and decentralized autonomous organizations (DAOs).
Conclusion: Embracing the promise of Web3
In conclusion, Web3 represents a paradigm shift towards a more decentralized, transparent, and user-centric Internet. By leveraging blockchain technology, smart contracts, and decentralized applications, Web3 promises to revolutionize various industries and empower individuals worldwide. As the ecosystem continues to evolve, developers, businesses, and users need to stay informed and actively participate in shaping the future of Web3.
Stay tuned for the next part as we delve deeper into the exciting world of Blockchain technology and Web3.