You do know what a blockchain is by now, and we are sure you have a good idea of how it works if you made it this far. In this chapter we will take a detailed look at each concept that makes a blockchain work individually. It’s worth noting that Bitcoin and thus blockchain as we know it is more than ten years old by now, but most concepts described in this chapter preceded blockchains by years or even decades. The clever combination of these parts in a formerly unknown way enabled something truly impressive.
The Elements of a Blockchain
First, we will give you an overview of the concepts to come and try to build a logical connection between them with a high-level description of their purpose.
The second article covers hash functions, a mathematical one-way function that plays an integral role in securing the data on a blockchain and mining.
Public Key Cryptography
Next we look at public-key cryptography, the concept that allows digital scarcity and ownership of data to exist. We have split this important article up in three parts: Elliptic Curve Cryptography, a specifc PKC scheme, the process of deriving an address from a private key and lastly, digital signatures.
One of the great innovations introduced with blockchain was solving the Byzantine Generals Problem: coming to consensus in a setting with many unknown and untrustworthy actors. Consensus mechanisms allow blockchains to achieve just that. In this subchapter we explain consensus in distributed systems, Proof of Work and other consensus mechanisms.
The Peer-to-Peer (P2P) Network
A Peer-to-Peer (P2P) network forms the infrastructure of a public blockchain. They allow for a permissionless digital money to function without the need for a central provider of infrastructure.
Here, we take a close look at mining. By now mining has become an entire industry, using highly specific hardware and operating in a very competitive market. We will try to paint a wholistic picture of how miners operate, from an economic as well as a technical perspective.
Without a central party coordinating software development, updates and the release of new features, new types of decentralized governance have emerged. We take a look at some of the decision making processes in public blockchain protocols.