Blockchain Transaction Process

What is the blockchain transaction process?

• The transaction is requested

• Transaction is Broadcasted

• The transaction is validated by the miner

• The transaction becomes part of the new block created

• A new block is added to the blockchain - Transaction is complete

Features of Blockchain in Transaction Process

• Decentralized System

• Validation by Miner

• Block Creation

• Proof of Work

• Distributed Ledger

Transaction Initiation

What features are implemented in the blockchain transaction process?

• Cryptography Algorithm

• Decentralized Network

• Consensus Mechanism

• Distributed Ledger

What is a cryptography algorithm?

It is an algorithm that alters the data from plain text readable format to cipher text protected format and back to plain text.

What are the 2 types of cryptography?

1. Asymmetric key cryptography

2. Symmetric Key cryptography

Define asymmetric key cryptography

Asymmetric key cryptography uses two kinds of keys (public key and private key) and at any point, one key is used for encryption of the message, and the other is used for decryption.

Define symmetric key cryptography

Symmetric key cryptography uses only one key for encryption and decryption.

What kind of cryptography algorithm does the Bitcoin blockchain use?

Asymmetric key cryptography is used by the bitcoin blockchain to leverage the public and private keys of users to create digital signatures to initiate a transaction that is propagated through the network.

What are digital signatures?

A digital signature provides authentication and validation like normal signatures do and ensures the security and integrity of data recorded on the blockchain. It uses asymmetric key cryptography in which information can be shared using a public key and the primary keys are linked to users providing digital signatures as the quality of nonrepudiation.

Describe the digital signature creation.

• Signer takes information to be transmitted and runs a hash algorithm in order to generate 32 or 64-bit hash values

• Hash values are then encrypted using the signer's private key which results in a digitally signed document that is broadcasted into the network

• Once the verifier receives the digitally signed document, he decrypts the same using the signer's public key.

• The hash value created after decryption is then compared with another hash value locally generated by the verifier using the same hash algorithm as the one used by the signer.

• If the hash values are equal, then the signature is considered valid and the verifier can use the document.

Transaction Broadcast and Validation

Define decentralized network

It is a system where miners play an important role in the validation of a transaction taking place.

Describe a decentralized network

Blockchain is built on a decentralized network which is identified by the peer-to-peer connection of networks that play an important role in the validation of transactions. This eliminates the need for central authorities to govern the network and gives control to individual users. Decentralization makes the system fair and secure.

Describe a centralized network

A centralized network can be identified by a mandatory centralized point which can be a client, hub, or a piece of hardware through which all data on the network must pass.

Transaction Validation

Define consensus protocol

It is a fault-tolerant protocol that is used to achieve the necessary agreement on a single data value or a single state of the network.

What does a consensus protocol do?

It is a set of rules that decides the contribution of the various participants of the Blockchain. It ensures that all transactions occurring on the network are genuine and that all the participants agree on the consensus of the ledger.

What is Blockchain Protocol?

It serves as an underlying platform that holds the real transformative power of Bitcoin.

What are the features of the Consensus Protocol?

Efficient: Quick and simple exchanges without the involvement of third parties.

Secure: Difficult to hack as it's impractical to hack numerous devices at the same time to gather data. Even if the device fails, the data remains secure elsewhere due to decentralization.

Real-time Transactions: Peer-to-peer consensus protocols instead of central third parties or manual offline reconciliation processes enable real-time transactions.

Reliable: Impossible to tamper with the contents of a block without it being noticed.

Functional: Adopted in various industries for the development of new applications.

What is the role of a miner in a blockchain transaction?

Miners are an integral part of the blockchain ecosystem who ensure fairness and keep the network stable, safe and secure by approving transactions.

Define Proof of Work

It is a consensus algorithm in the blockchain that is used to confirm the transactions and produce new blocks to the chain.

What are the characteristics of Proof of Work?

• Nonce

• Hash

• Transaction

Define Nonce

A random number whose value is set so that the hash of the block will contain a run of leading zeros. Abbreviation for Number used once.

Define Hash Code

The code generated by taking input and converting it to cryptographic output using a mathematical algorithm is hash code.

Define Hash Pointer

It is a pointer to the location where information or hash of that information is stored. If we retrieve information that the pointer points at, we can get the hash of the information and confirm it to be unchanged. It requires information on the previous hash.

Define Proof of Stake

A low-cost, low-energy-consuming algorithm that states that a person can mine and validate the transaction based on how many coins the person holds.

Define Proof of Elapsed Time

It is a consensus algorithm that prevents high energy consumption and resource utilization following a lottery system.

Define Practical Byzantine Fault Tolerance (PBFT)

It improves the robustness and performance of transactions by directing peer-to-peer messages with minimal latency.