Blockchain can be termed as another hype or buzzword making its way to\nmainstream IT. It is a technology that will dramatically transform the way\nbusinesses are conducted. Today, organizations big or small operate in a\nnetwork. It may have a customer, supplier, distributor, financial\nintermediaries, global and local partners and so on. They all collaborate and\nconduct economic activities to achieve certain common set of goals. It\u2019s a\ncomplex web of business entities that make money by offering services to each\nother. In business terms, exchange of goods and services (also known as assets)\nis called a transaction. It is a formal transfer of value and ownership of an\nasset from one entity to another, i.e., parties to the business. Transactions\nbetween these entities must be recorded and maintained in a book of account\nalso called a ledger. Each business entity or organization maintains its own\nledger, which consists of day-to-day transactions. Third party intermediary\noften does the bookkeeping or maintaining of the ledger. This obviously leads\nto increase in cost and in some way duplication of efforts as each entity in\nthe business network maintains its own ledger of transactions. There is no\nclarity or transparency as to how the transactions are recorded and settled and\nthe process of reconciliation is often time-consuming. In a nutshell, the\ncurrent handling of accounts among the business network is less transparent and\ninefficient. So, what is the technology solution for this problem?<\/p>\n\n\n\n
The solution lies in creating a technology infrastructure that can\ndistribute or share the copy of ledger to all the entities in the business\nnetwork. This is where the blockchain comes into the picture. Blockchain is a\ndistributed ledger protocol that offers a more unique and innovative approach\ntowards maintaining transactions among business entities. Transactions are\nvalidated by all the entities and created as unit of blocks. Blockchain\narchitecture can be applied to public or private business network. With public\napplications, every business entity can view and validate the transactions,\nthough no one can alter it. In a private setup, ledger is permissioned, which\nmeans only authorized entities can act (like validate or view) on transactions.\nTransactions, in general, cannot be tampered with, i.e., its state cannot be\naltered. It means blockchain ledgers are immutable. Transaction payloads are\nsecured using cryptographic hash and digitally signed using public\/private key\nthereby certifying provenance. The digital signature proves the identity or the\nownership of the transaction or the digital token (asset) that is being\ntransacted. The blockchain transactions are generated with network-wide\nconsensus without the need of central server or authority. The consensus here\nmeans all the entities in a business network agree on the validity, state of\ndata and originality of the transaction.<\/p>\n\n\n\n
Note \u2013\nUnderstanding blockchain 1.0 and 2.0.<\/em><\/p>\n\n\n\n Bitcoin-based\nblockchain is popularly termed as blockchain 1.0. It is modeled around simple\ndatabase concepts with data insertion (transaction recording) happening\nsequentially in the distributed ledger. There was no special logic involved.\nThen came the modern blockchain applications that introduced the concept of\nsmart contracts. The smart contracts came under the blockchain 2.0 umbrella.\nSmart contract represents a software code that performs some logic, then just\nrecording transactions. Blockchain platforms like IBM HyperLedger, Microsoft\nBletchley, Ethereum, etc. are all part of blockchain 2.0 world<\/em>.<\/p>\n\n\n\n Here are the benefits of a blockchain network in a nutshell:<\/p>\n\n\n\n A blockchain network is setup based on the following principles:<\/p>\n\n\n\n Consensus:<\/strong> The network must\nbe in the state of consensus, i.e., the validity of the blocks of transactions\nmust be validated and agreed or accepted by all the nodes (or designated nodes)\nin the blockchain network. <\/p>\n\n\n\n Provenance:<\/strong> Provenance\ngenerally means place of origin. In the context of blockchain, it refers to the\norigin of the digital tokens or assets. The nodes in the network must know who\nis the owner of the digital asset and also track the change of ownership.<\/p>\n\n\n\n Immutability:<\/strong> In a blockchain\nnetwork, the ledger cannot be tampered with once the transactions are recorded.\nA ledger may have valid or invalid transactions. An invalid transaction is\naddressed by adding a new valid transaction of the same value. Data in the\nblockchain network is append-only and not subject to modification.<\/p>\n\n\n\n The following\ncomponents are the principal building blocks that can be perceived as the\narchitectural cornerstones of an enterprise blockchain:<\/p>\n\n\n\n Anything that can be transacted over the\nblockchain takes the form of digital tokens. Digital tokens represent assets\nthat hold value and have some form of ownership. Assets can be a physical asset\nlike a car, house, cash, etc. and non-physical or tangible assets like patents,\ncopyrights, intellectual property, etc. Digital tokens are secured using\ncryptographic hash algorithms which takes care of confidentiality aspect.\nTokens also have one more level of security in terms of authentication and\nauthorization. It must be signed by the owner to maintain secured identity. The\nconcept of authentication and authorization can be achieved with Public Key\nInfrastructure (PKI) using private\/public key cryptography.<\/p>\n\n\n\n Smart Contract is one of the core component of\nmodern day blockchain or the so called blockchain 2.0. It’s a contract which defines and executes\ntransactions in the form of a software code written in a programming language\nof choice. It comprises of business operations that act on the state of the\nblockchain ledger. It contains business logic conditions that affect the state\nof a digital token (asset) in terms of its value and ownership. The conditional\nlogic or the business rules compiled together makes up a well-defined contract\nthat suggests how this transaction will be carried out and hence, the term\n‘smart’ contract. The smart contract can be written in any programming language\nlike Java, NodeJS, Scala etc. Smart contract can be made secured through\nencryption and digital signing.<\/p>\n\n\n\n The blockchain ledger is an electronic health\nrecord of a business. It is a system of records containing all transactions in\nthe order of its occurrence in a given business network. These transactions are\ninitiated by the client application and executed using smart contracts. The transactions by itself represent some\nkind of transfer of value of digital tokens recorded in the ledger. The ledger\nmust be immutable, i.e., no one should be able to tamper with the transactions,\nonce recorded in the ledger. The blockchain ledger is shared across all\nentities in a business network. Each node in the network maintains its own copy\nof the ledger. In a private blockchain network, ledgers are often permissioned,\nwhich means only authorized entities can act on a ledger.<\/p>\n\n\n\n Security in the blockchain can be enforced using\nauthentication and authorization. Different form of policies can be created\nthat can communicate different level of access controls for every step in the\nblockchain workflow. One possible example could be say, only nodes with\nappropriate permission levels can perform ledger validation. Another aspect of\nsecurity in the blockchain is the trust based communication. Trust based\ncommunication can be established using cryptography digital certificates. Every\ntransaction occurring between entities in the network can be digitally signed\nto protect its identity and verified using private\/public key pair. The\ntransaction payload itself can be encrypted using crypto hash algorithms to\nmaintain confidentiality. In a public blockchain, every node in the network has\nthe visibility and access to the transaction and block creation. In a\npermissioned blockchain, ledger access and manipulation to the ledger is\ncontrolled through the use of access control policies and creation of private\nconduits with only nodes within that conduit can transact with each other.<\/p>\n\n\n\n Consensus means agreement in majority. In a\nblockchain, all the nodes are equipped with their copy of the ledger that is\nsynchronized as and when the new transaction occurs. Every new transaction when\nvalidated and accepted by all the nodes in the network, the ledger is said to\nbe in the state of consensus. It means all the participants in the network\nagree to and accept the current state of ledger. There are many aspects of the\nblockchain workflow where the consensus is required. Consensus by itself can be\nadhering to different policies and thereupon validating the same. The nodes\nrefer to existing set of checklist or rules or policies to validate different\nlifecycle phase of transactions, right from its inception until it is finally\nrecorded in the blockchain. The consensus in some way implies network\nintegrity. The consensus as such cannot be broken through any kind of corrupt\nor hacking practice. In order to break the consensus, a whole new blockchain\nwill need to be created with ‘broken records, ‘ and that can be a huge task.\nThere are different industry-wide consensus protocols one can use in the\nblockchain application viz. Proof-Of-Work, Proof-of-Stake, Practical Byzantine\nFault Tolerance and many more. We will briefly discuss the popular algorithms\nin the \u2018Consensus Algorithm\u2019 section.<\/p>\n\n\n\n Nodes are the most important component in the network deployment model of blockchain. A node can be a physical box or different logical processes (nodes) in one physical box. They are the backbone of the blockchain architecture. Nodes collaborate with each other to form a peer model and work together to arrive at the consensus and keep the network in a consistent state. They typically validate and execute transactions in the network. Nodes in a blockchain can play various roles like the miners, validators, orderer, monitoring node, health check node, etc. (For more on miners and mining concept, you can refer to chapter 2 that explains permissionless Ethereum blockchain.) These roles assume more significance in a permissioned enterprise blockchain scenario. This is because in a permissioned blockchain, the network is managed and controlled using access control policies and these policies can be attached to the role of each node in the network. Each node in the network, by fulfilling its role equipped with set of policies, forms a group of powerful trusted entities that keeps the entire blockchain network more secure, stable, resilient and consistent.<\/p>\n\n\n\n
\n\n\n\nComponents of Blockchain<\/a><\/h2>\n\n\n\n
Digital Tokens<\/h3>\n\n\n\n
Smart\nContract<\/a><\/h3>\n\n\n\n
Ledger<\/a><\/h3>\n\n\n\n
Security<\/a><\/h3>\n\n\n\n
Consensus<\/a><\/h3>\n\n\n\n
Nodes<\/a><\/h3>\n\n\n\n