What are consensus algorithms in Blockchain? How does Blockchain technology work?

June 20, 2021
Versions of Blockchain technology

Basically, Blockchain is based on a distributed, digitized and decentralized ledger model.

Blockchain 1.0: Currency

In 2005, the idea of ​​creating a cryptocurrency was born. Blockchain ledger was born as a means of supporting the operation of this currency. In other words, Bitcoin, the first cryptocurrency is also the first application of Blockchain.

Blockchain 2.0: Smart Contracts

Blockchain has escaped the confinement by going beyond the field of crypto to Smart Contract. This technology has the effect of protecting smart contracts from the interference of people with bad intentions. When working on this type of contract, users will not need to spend money on authentication, operation and anti-fraud.

Blockchain 3.0: Decentralized Application

It can be understood simply by taking examples from the applications on CHPlay or the App Store, which are applications created by a certain organization or individual and under their control. In contrast, the applications appearing on the Blockchain are not under the control of any individual, but rather a collective of people present in the chain. That is the decentralization of applications on Blockchain.

Blockchain 4.0: Practical Application

Blockchain of this era not only focuses on the financial sector but also becomes a solution to the basic problems of life. Blockchain has the effect of supporting businesses to build a cross-platform working process, such as supply chains, automated order processing systems, payments, Internet data collection.

How does Blockchain technology work?

Blockchain's operating mechanism is based on consensus from the majority and without intermediaries. A block to be included in the chain must meet the following requirements:

All transaction information must be recorded and verified by individuals who have the right to manage the data in the block.

Next, after the conversion to a hash, the block is closed and chained.

Why is it impossible to edit data on Blockchain?

As mentioned above, the data stored in a block comes with a corresponding hash. When we modify the data in the block, the next five blocks in the chain will become invalid. Therefore, when we want to change a block, we must also ensure the validity of the following blocks.

Blockchain, on the other hand, works on a peer-to-peer network architecture, allowing everyone to have access to the network. Each recipient will own a copy of the Blockchain, and only when 50% of the nodes agree, a new block is considered valid and added to the chain.

Therefore, you will not be able to arbitrarily modify the content contained in a Block located in the Blockchain.

How many types of blockchain are there? ?

Based on several criteria, Blockchain systems are classified into 3 main categories:

Public Blockchain:

Public blockchain provides an open platform for people from many organizations or individuals to participate in trading and mining. An important point is that there are no restrictions on this public system. Therefore, this is also known as a “no-stakes” Blockchain as everyone is empowered to learn, record transactions and perform audits or review blocks in the chain regardless of time. This system is considered an open platform and operates on a decentralized consensus mechanism.

Private Blockchain

This is a Blockchain system set up to facilitate the sharing and exchange of private data between a group of individuals belonging to an organization or between multiple organizations. Private Blockchain is understood as a licensed chain, and only authorized people can access the chain and blocks. This system operates under a centralized mechanism.

Consortium Blockchain – Permissioned Blockchain

It is understood as a federated Blockchain consisting of a predefined set of nodes that are responsible for consensus as well as block validation. This partially centralized system is under the control of a select number of validating nodes, capable of deciding whether the block's data is public or restricted.

What are Consensus Algorithms in Blockchain?

The consensus algorithm is a procedure through which all members of the Blockchain network agree to reach a common agreement. Basically, the consensus algorithm ensures that every new block added to the chain is a unique version and is accepted by the nodes.

The consensus protocol in the Blockchain includes specific goals such as agreement, equal cooperation, and mandatory participation for each node. Therefore, each consensus algorithm aims to find a common agreement that benefits the entire system.

Blockchain consensus algorithms:

PoW

This is the algorithm that Bitcoin used. The main idea of ​​this algorithm is that nodes will have a chance to solve a "math puzzle", the sooner the node solves it, the next block in the chain will be mined.

PoS

This is considered an alternative of PoW. For this algorithm, instead of investing in hardware, participants will use their invested money as a base to place blocks that they think will be the next element of the chain. Based on the actual blocks added to the Blockchain, all validators will receive a reward corresponding to the amount they staked.

PoB

This algorithm allows miners to send coins to an address they cannot access, in order to find a chance to enjoy mining privileges on the system by a random selection process. Depending on the implementations, “miners” can use either blockchain application funds or alternative chain currencies, such as Bitcoin coins. The amount invested is proportional to the probability of being chosen to mine the next block.

PoC

This algorithm focuses on the space investment of the hard drive. As more hard drive validators appear, they will have the added advantage of being able to choose blocks to mine and receive rewards.

PoET

PoET is one of the fairest consensus algorithms in choosing the next block based on reasonable means. In this algorithm, every validator on the network has a reasonable chance of generating their own block. All nodes through a random interval, to receive information about generated blocks. The straight winner is the validator with the lowest timer value. The chain then adds the block from that person's node.

What is the Application in Finance of Blockchain?

This process is extremely important but also quite time consuming because of many factors such as intermediaries, banks and currencies. Fortunately, Blockchain can speed up and simplify this process by eliminating the role of intermediaries. At the same time, making money transfer more efficient. To date, Blockchain has helped reduce remittance costs from 5-20% to 2-3% of total funds, as well as providing guaranteed real-time transactions globally.

Help in other things

Not only related to property and economy, Blockchain is also active in the field of love. Specifically, the system can search online for a random bride and groom, giving them the opportunity to meet and get to know each other. The ultimate goal is to get married. In 2014, a couple named Joyce and David Mondrus became successful with this method,

What is Blockchain's Healthcare Application?

Instead of being stored on paper records or a computer's hard drive, the patient's medical records have been pushed into each block in the chain for decentralized storage, while allowing doctors and companies Access insurance to capture the patient's disease situation. In the event that a patient needs to be transferred, they simply move the information on-chain instead of complicated paper records.

Good luck!

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