Welcome back to Flash Learn, your weekly series in learning all about blockchain!
In our second article we are going to see 5 unescapable, super important expressions from the blockchain world you should know for starters!
Peer-to-peer is a network of members communicating straight with each other, without a central entity.
Currently most of our systems are server-based, or centralized: we need a central entity to make a transaction with another node. For example, to pay our friend online, we need to reach out to our bank to make the transfer for us.
Our world right now is very much centralized, where corporations act as intermediators of our transactions, and gain benefits from connecting us.
Blockchain brings the possibility of building P2P networks, without the necessity of any central entity, connecting peers directly and more efficiently.
General ledgers to account for transactions are used by all companies, and have been around since the 13th century.
Blockchain bring us the possibility of a distributed ledger, where all members of the ledger can easily access and add to the shared records. This means, that a copy of the ledger exists on all the servers of the network, and all of these copies are updated with all the changes on the network. The ledger reduces multiple entries by all parties, significant amount of work, and becomes one single source of truth when it comes to transaction history.
Permissions define who has access, and different rights on the blockchain.
Currently we can define 3 types of blockchain: permissioned, permissionless or hybrid.
On a permissioned private blockchain each party has to receive permission to join the blockchain, and perform transactions. These chains tend to be smaller in size, and require less computational power.
On a permissionless public blockchain anyone has the right to join and interact. For example Bitcoin is a public chain, as anybody can join and buy and sell bitcoin.
Hybrid chains incorporate characteristics from both permissioned and permissionless blockchain. They have certain restrictions towards who has power to join, and perform certain functions on the blockchain.
Smart contracts are agreements programmed in the chain, where if a trigger is completed, a certain action happens. For example, if we decide, that you sell me a kilo of potatoes for $10, we put this agreement on the blockchain, and the moment I sign the delivery receipt (our trigger) the $10 dollars get automatically transferred to your account.
Contracts can be partially or fully self-executing, which means, that is a certain action happens, and it registers on the blockchain, they automatically do what they are supposed to. Smart contracts can provide excellent security and increased speed to transactions and contract laws.
On a peer-to-peer network, the members are the ones who decide, which transactions do they judge as valid, and add to the blockchain.
There is one member who decides to do the computation for adding the new block on the chain. Then, the many members need to have an efficient way to judge, that the transaction submitted by the other node is valid and true, and agree with the new state of the whole chain. This is where consensus mechanisms come in- the way to agree on the blockchain. A good consensus mechanism needs to be efficient for the network, decentralized to keep the nature of the blockchain, and provide enough security against malicious members.
Thank you for joining us for today’s lesson in Flash Learn! We continue our journey next week with digging into the technology behind blockchain, and explore hashing! Stay tuned, and in the meanwhile:
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