---
title: Blockchain Reference architecture
type: article
date: 2020-01-11
source: website
original_url: "https://navveenbalani.dev/index.php/articles/blockchain-reference-architecture/"
topics: ["blockchain"]
legacy_categories: ["blockchain"]
tags: ["blockchain-guide"]
summary: Blockchain design of today has moved beyond cryptocurrency. It has evolved into a platform that supports industry-wide use cases suitable for public and enterprise needs. The reference architecture shown below will serve as a foundation for building or implementing blockchain…
draft: false
---
Blockchain design of today has moved beyond [cryptocurrency](https://www.google.co.in/search?dcr=0&q=cryptocurrency&spell=1&sa=X&ved=0ahUKEwjZxLyO-5fXAhUSTY8KHRSkDDIQvwUIJCgA). It has evolved into a platform that supports industry-wide use cases suitable for public and enterprise needs. The reference architecture shown below will serve as a foundation for building or implementing blockchain applications for industry-wide use cases. It depicts a layered architecture that provides components and services necessary to implement blockchain applications for enterprise needs. It can be used to develop a blockchain of single or multiple networks (involving multiple business units or organizations) based on the business goals and objectives. One can follow the reference architecture to design both permissioned (private) as well as permissionless (public) blockchain applications.
##
The above reference architecture can be used to build any blockchain
applications. The architecture is divided into logical layers of importance.
These layers are Application, Smart Contract, Integration, Distributed Ledger
and Security. Let’s look at each of these layers and its components:
### Application
The application layer is where your end user or
client application sits. The client application typically kick starts your
business workflow by initiating a transaction. The transactions are executed by
the nodes using smart contract. The client application could be implemented in any
software language and can run on a wide variety of operating systems. The
application could use a command line interface (CLI) tool as provided by any
blockchain framework implementation or it could use language specific SDK
(Software Development Kit) to communicate with nodes on the network. As the
blockchain evolves beyond its traditional image of digital crypto currency
based network, we are seeing different types of clients and tools supporting
the blockchain framework. The client application can also listen to various
types of events occurring on the blockchain network and perform the necessary
actions on those events. The event may be as simple as providing status update
to the application from the network. One can also have a separate dedicated application
to monitor the blockchain network.
### Smart Contract
Smart contract is a software code that represents
transactions in the blockchain network. It is a collection of business rules or
conditions that are invoked by the nodes in the blockchain network. Smart
contract can have its own execution runtime or a virtual machine environment.
It can be made to run in a secured context, like a virtualized container. Smart
contract can be implemented in any software languages, the popular being, but
not limited to, Java, Python, Go, JavaScript and Scala. Smart contract can be
also written as services and placed in registries so that client can look up
for the same in a location independent way. The registries can be secured, and
access can be controlled so that only authorized clients can act upon that
contract. Smart contract itself can be made secured using cryptographic hash algorithms
so that it’s content (software code and related metadata) are made
confidential. Smart contract can also be programmed to communicate or broadcast
transaction state transitions in the form of events. It could be lifecycle
events of the contract itself. The application client can listen to these
events and handle them accordingly.
### Integration
In today’s world of disruptive technologies where
application integration and communication has become so imperative, no one
platform can stand in isolation. Blockchain is no different. Blockchain network
should be able to access any data outside of the network. The data could be
part of any external application or system that can provide significant value
to the blockchain workflow. Similarly, external system must also be able to
communicate with the blockchain network. One approach could be to setup an
external event hub, as a medium to exchange data with external systems through
event processing. An external application can listen on to a specific event on
the hub and accordingly perform some task. On the other hand, a smart contract
can listen to events coming from external systems and accordingly execute the
business function. The following section explains some other interesting use
cases in the integration scenario:
#### Artificial Intelligence (AI) Integration
Blockchain as we know is essentially a
distributed ledger with a decentralized and automated approach towards
transaction settlement process based on consensus. So, where does AI fits into
blockchain? AI can be influenced by data. Blockchain is a database with loads
of transactions that can be made available to branches of AI like machine learning
that can apply complex algorithms on data to optimize a particular business
function. The branch of AI can also be used to improve the overall business
process or workflow. AI algorithms can detect significant anomalies and perform
predictive modeling or analysis to find indicators that can reduce the transaction
cost and increase the revenue of business for all parties across the blockchain
network. AI solutions can also be employed for consensus between systems that
need to work autonomously. The
combinatorial power of AI and blockchain could be a real game-changer in the
future.
#### Cloud Integration
Blockchain architecture can be extended to
implement a component hosted on the cloud that can provide application
integration services like routing, data transformation, protocol translation,
extended certificate authority etc. This component can act as a middleware,
offering its capabilities as a ‘blockchain as a service' function in the cloud.
The blockchain implementation can provide adapters to connect to the middleware
component from within the blockchain network and outside of the network. The blockchain middleware component can be
hosted in a secured ‘sandboxed’ environment or inside a secured virtualized container.
An external application can interact with the blockchain middleware using
adapters and upon obtaining valid certificates to access the blockchain
network.
#### IoT integration
A new wave of integration will involve arbitrary
devices to communicate with the blockchain network. Different types of IoT
devices or sensors can inject data into the blockchain network that can then be
validated by the blockchain nodes. A standardized middleware can be implemented
that can take the data from the device and perform the necessary conversion and
transformation of data as required by the blockchain network. The peers or the
nodes in the blockchain network can then go about validating this data using a
specific consensus algorithm using smart contracts.
---
Note - For more details on blockchain & IoT
integration, refer to this overview article - [/articles/blockchain-and-enterprise-iot)
---
### Distributed Ledger
This distributed ledger is the core persistent
layer in the blockchain architecture. It provides a decentralized and
distributed database containing the transaction entries. These entries are
recorded in the order of its occurrence and composed into hashed blocks. The
database or the ledger, therefore, represents a chain of hashed blocks of
transactions with each block referring to the previous block in the chain. The
ledger is shared across the blockchain network, which means every node has a
copy of the ledger, and each node verifies the transactions independently. When
every node agrees and confirms the authenticity of the transaction, the ledger
is said to be in consensus. The
blockchain network uses different consensus algorithms to arrive at the
consensus. The consensus algorithm is a set of rules and conditions that
governs the transaction. The blockchain network implemented for the public has
a permissionless ledger, while in a private network or a consortium, a ledger
can be made permissioned. A permissioned ledger introduces some form of access
control in the way transactions are accessed and managed.
#### Ledger Conduits
For a permissioned-based blockchain network, one can implement a
pattern called ledger conduits. Conduits can be thought of as private channels
in the blockchain network where two or more nodes perform transactions even
more privately. The nodes must be members and authorized to use these conduits.
Conduits are small networks inside a large network. Such a pattern further
enforces security when implementing blockchain in an enterprise.
#### Consensus Algorithms
The blockchain network typically is governed by anonymous entities or
nodes that are not trusted. The consensus is all about providing the trust
factor in the network. Each node can update the blockchain network with data in
the form of transaction that eventually needs to be verified before it can be
officially recorded as part of block in the ledger. There are different
consensus algorithms that convey how the block (of transactions) is created and
validated, thereby enforcing trust in the network.
##### Practical Byzantine Fault Tolerance (PBFT)
This is the consensus based on majority. Each node updates and
validates the blockchain network based on certain given set of rules or
conditions. If majority of the nodes in the network reflects the same result
upon update, then the network is said to be in consensus. There could be few
rogue nodes that could violate the network rules, but their outcome is not
accepted as it goes against the accepted algorithm. The algorithm should
fulfill the necessary conditions, and all the nodes must agree and execute the
same conditions to derive at the desired output.
##### Proof-of-work (PoW)
One of the first and traditional algorithms devised is the
Proof-of-Work. Bitcoin-based blockchain network and Ethereum use this algorithm.
Unlike PBFT, PoW does not need consensus based on majority. It is an algorithm
that takes enormous computing effort. Only nodes with greater computing power
can take up the PoW. The first node that completes the task with the desired
output gets a chance to create the block and is compensated for its efforts.
PoW typically involves some kind of cryptographic hashing to achieve the
desired target or outcome. We will talk of PoW in detail in Chapter 2.
##### Proof-of-Stake (PoS)
With PoW, one needs enormous computing power that results in high-energy
consumption. This may not be desirable. PoS overcome this by providing an
alternative approach called the stake of the user. The user possessing or
owning highest digital currencies (or some asset) gets a chance to create the
block in the blockchain network. So instead of investing in high power
computing nodes, one can rather buy out cryptocurrency (or own assets) and
increase their stake to validate and create a block of transactions.
**Security**
We talked about security earlier in the components of blockchain
section. Security is one of the important components in the blockchain
architecture. Based on the implementation of blockchain - whether
permissionless or permissioned, required security and consensus strategies are
applied. In public blockchain, every node can participate in the network, while
in the permissioned network you have some form of access control that only
allows required nodes to participate in a transaction.
Every entity in the blockchain network must be bound to an identity.
In a permissionless network, entities are typically restricted to users
participating in the transaction, while in case of a permissioned network, the
entities comprise of organization, nodes, users and anything that has a role to
play in the blockchain network.
For a permissioned blockchain, Public Key Infrastructure (PKI)
platform can be used where a trusted Certificate Authority (CA) can issue
crypto credentials. The crypto credentials could take the form of certificates
and keys. Private keys can be used for signing and public key for verification.
It results in a trusted network where all the participants know who they are
and their roots of trust. Now as the parties involved in the blockchain network
might leverage their own crypto credentials, possibly setting up their own CA,
it is essential that the blockchain implementation provides a plug-and-play
service or a level of abstraction to effectively manage, verify and validate
entities using different security mechanism across the network.
In short, the blockchain security should be equipped with five effective measures viz. authentication, access control, integrity, confidentiality, and non-repudiation.
In the next series, we will go over how to build applications using Hyperledger fabric and Ethereum -
Building Blockchain Applications Using HyperLedger -
Building Blockchain Applications Using Ethereum -