Blockchain Architecture: The Fundamentals, Structure, and Benefits

In this article, you will learn the core components of Blockchain architecture, key characteristics of Blockchain architecture, Blockchain algorithm, and types of Blockchain architecture.

However, there is a difference between various Blockchains, but herein is a general architecture. Meanwhile, it is worthy to note that some Blockchains like Polkadot, Ontology, Cosmos, etc operate multiple chains.

Before we go any further, let us explain Blockchain architecture.

What Is Blockchain Architecture?

Blockchain architecture explains everything that is involved in the development of Blockchain technology. You can refer to it as the basis of Blockchain technology. For example, the architecture of the World Wide Web uses a server-client network. The server confines all the information in one place (a single point of failure).

However, the architecture of Blockchain technology is such that every participant within the network approves, maintains, and updates new entries. In other words, the Blockchain architecture ensures that all records and data are valid and secured. Although the participants may not trust one another, they are always able to reach a consensus.

This architecture is made up of many structures and components that work together to provide users with an immutable system. This brings us to the components that form the basis of Blockchain technology.

The Core Components Of Blockchain Architecture

Here are the fundamental components of the Blockchain regardless of types.

The Block This is a data structure that stores all transactions, distributed to all nodes present in the Blockchain network. A block contains certain data, the hash of itself, and the hash of the block before it. Just like fingerprints, no two blocks have the same hash. Each of the blocks is created using a cryptographic hash algorithm for instance, (SHA 256). This ensures that individual blocks within a Blockchain structure can be identified easily.
Hashes help to identify changes in any block. The hash is the main element behind the security of any Blockchain architecture. Theoretically, a strong computer processor can adjust all the blocks. However, such a possibility is eliminated with the proof-of-work concept. The proof-of-work allows a node to slow down the process of creating new blocks.
Node This is a user or computer within the Blockchain architecture. It has an independent copy of the entire Blockchain ledger.
The Chain It is a sequence of blocks arranged in a specific order.
Miners/Stakers These are specific nodes that are responsible for carrying out the block verification process. This takes place before any block is added to the Blockchain structure. Meanwhile, miners are peculiar to Proof of Our Work-related Blockchain.
Consensus Also known as consensus protocol; it is a set of rules set to carry out every Blockchain operation. Every node within Blockchain architecture creates this consensus protocol. Once everyone abides by them, they become self-enforced within the Blockchain.
Transaction This is the smallest component of a Blockchain system which includes records, information, etc. In reality, it is the purpose of the Blockchain system. Before a transaction is added to a Blockchain, it must be proven and digitally signed for authenticity. It is also verified by the nodes in the system.

Key Characteristics of Blockchain Architecture

Below are the key characteristics you can see within a Blockchain architecture.

Immutability This is one characteristic that made Blockchain technology dependable. After entering record or data into a Blockchain system, you cannot alter or delete it.
Provenance It means that you can track the origin of every transaction that takes place within the Blockchain ledger.
Anonymity Each Blockchain user has a generated address and not a user identity. It helps to ensure the safety of user identity, especially in a public Blockchain network.
Transparency It is highly improbable to corrupt the Blockchain system. Before someone can corrupt a Blockchain system, such a person would need enormous computing power to overwrite the Blockchain network.

The Blockchain Algorithms

Since the inception of Blockchain technology, there have been lots of established algorithms. Also, more algorithms are being developed to solve the faults of the already existing algorithms. Let’s take a look at the various Blockchain algorithms.

Consensus algorithm Although they are complex, the consensus algorithm helps to create reliability on networks that involve nodes. It ensures that the majority of the nodes present in the Blockchain system conform to the existing rule or action. The chain doing the most work defines consensus. For instance, if you fork and change the Proof-of-Our Work (PoW), you will not have the mining power to secure it.
The Proof-of-Our Work (PoW) and Proof-of-Stake (PoS) are both existing consensus algorithms. Other broad types of consensus are the Byzantine Fault Tolerance (BFT) Model, Hybrid Model, delegated Proof of Stake, Proof of Burn. Meanwhile, the Blockchain Consensus Encyclopedia, suggests that there are over 72 consensus mechanisms.
Mining algorithm There are three major components:
Clustering is the analysis you carry out on a set of data. It also involves the generation of grouping rules that can be used to classify future data. The Association rule is the specific association relationship that exists among a set of objects in a database. Sequence analysis is the analysis of patterns that appear in a sequence. In a Blockchain network, miners use computers to quickly guess the answers to a puzzle. When a miner locates the hash that matches the target, he/she will be awarded in cryptocurrency. The block is then validated by each of the nodes in the network and added to their copy of the ledger.
When miner A finds the hash, miner B will stop all work on the current block. In Ethereum, a miner finds a block in 12-15 seconds. The algorithm automatically readjusts the difficulty level to ensure all miners remain within the 12-15 second solution time.
Traceability chain algorithms Traceability establishes the origin and all practices that support a transaction and planning activity of each node within a supply chain. They help to reach traceability decisions fast. Because of the interference mechanism, it runs faster than the consensus algorithm. The Takagi-Sugeno Fuzzy cognitive map uses the traceability chain algorithm.

Types Of Blockchain Architecture

There are three basic categories of Blockchain architecture and they include the following:

Public Blockchain architecture
Consortium Blockchain architecture
Private Blockchain architecture

The explanation of these three Blockchain types is in the table below.

Characteristics	Public Blockchain	Consortium Blockchain	Private Blockchain
Consensus determination	All miners	Only selected set of nodes	One organization
Read permission	Public	Either public or private	Can be public or restricted
Immutability	Highly improbable to tamper	Could be tampered	Could be tampered
Efficiency	Low	High	High
Centralization	No	Partial	Yes
The consensus process	Permissionless	Permissioned	Permissioned

Conclusion

Blockchain offers solutions to organizations, centralized security, and privacy. Hence, Federated and Hybrid Blockchain becomes necessary. Hybrid Blockchain combines the strengths of public and private Blockchain. Federated Blockchain is solely for the consortium to manage organizational processes and governance. However, more research will deepen decentralization, privacy, and scalability with several Blockchains.

Also read: Applications of Blockchain Technology

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Proof of Transfer (PoX) Explained

Introduction:

When the initial release of Blockstack core was announced in 2015, it introduced a new concept of Blockchain over Blockchain. It used Bitcoin as an underlying Blockchain for the virtual Stacks Blockchain. It was a new concept. Blockstack had no intention of reinventing the wheel. Participants do not have to spend a tremendous amount of energy over mining instead it always believed that energy consumption should be reused. Proof of Transfer is the next step in this vision, with efficient consensus protocol and rewarding mechanism. Read more about Blockstack and Clarity.

Proof of Burn (PoB) in Stacks 1.0:

Stacks 1.0 Blockchain was launched back in 2018. In SIP-001 they announced that they’ll be using Proof of Burn (PoB) to process the transaction of virtual Stacks Blockchain over Bitcoin Blockchain.

Every new block on the Stacks chain is chosen via cryptographic sortition (a function by which block is chosen after some cryptographic calculations). In every new Bitcoin block that gets mined, the burn from every participant is used to calculate “Probability distribution” (what is the percentage share of their burnt Bitcoins). "Verifiable random function (VRF)” (a cryptographic function which generates random verifiable outputs) does its sampling. The VRF gives us a random sample and that’s how it selects the winner. The winner collects the transaction fees as well as Stacks token in reward.

Problem with PoB in Stacks 1.0:

Proof of Burn required participants to burn their Bitcoins to burn addresses, and in the initial days of the Stacks chain, the new cryptocurrency did not have enough value as the base cryptocurrency. So this bootstrapping can make miners unwilling to burn their Bitcoins.

Proof of Transfer (PoX) in Stacks 2.0:

Introduction:

In January, Stacks 2.0 was introduced after the hard fork of Stacks 1.0. In SIP-007, a new consensus algorithm was introduced which is called Proof of Transfer(PoX). It generalizes the concept of PoB. Instead of sending Bitcoins to a burn address, miners send their base cryptocurrency to a set of predefined participants' addresses.

This enabled the network participants to earn rewards in a base cryptocurrency for adding value to the new cryptocurrency. Also read: 5 Popular Consensus Algorithms used in Blockchain.

Selection of the winner:

The process of selecting a winning miner (i.e, the leader) is the same as it was in PoB (in stacks 1.0). Verifiable random function (VRF) generates a random sample using the “Probability distribution”. To calculate this, it uses the transfer of Bitcoins from every participant to a set of Bitcoin addresses.

Determination of addresses:

In PoB mining the consensus algorithm didn’t need to determine an address where miners would transfer their Bitcoins. Because in every cycle it was burn address.

However, in PoX, network participants must validate the addresses that they are transferring Bitcoins to. A set of Bitcoin addresses are iterated over in each reward cycle. In order to qualify for the reward cycle, an STX holder must:

Own a Stacks wallet with >= 0.02% of the total share of unlocked Stacks tokens.
Broadcast a signed message before the beginning of the reward cycle. The message includes:
- Locks the Stacks tokens for a protocol-specified lockup period.
- Specifies a Bitcoin address in order to receive the reward funds.

How the reward cycle works:

In Stacks, Blockchain miners compete with one another by transferring Bitcoins to set Bitcoin addresses. Before every reward cycle, the Stacks network must reach a consensus on the valid recipients. As Stacks Blockchain has its own independent properties from Bitcoin Blockchain, this can lead to missing block data, experiencing forks etc. Because of which consensus becomes difficult.

In order to overcome this problem, at the start of every phase two items are decided:

Anchor block:
The anchor block is a Stacks chain block.
Reward set:
This is a set of Bitcoin addresses that will receive the funds. Stacks chain state from anchor block determines the reward set. Reward set consists of Bitcoin addresses.

Verifiable random function (VRF) ensures that each miner has sent the reward to the same recipient addresses. If a miner sends funds which is not a valid address, the rest of the network ignores those transactions.
In order to reduce the complexity of the consensus algorithm, reward cycle lengths are fixed. If fewer addresses participate in the reward cycle then burn addresses fill the empty slots.

Conclusion:

Proof of Transfer (PoX) bootstraps the concepts of PoB. This allowed participants who added value to the Stacks Blockchain to earn rewards. Other than that the participants can use these rewards to fund app mining. There’s still research going on to improve some factors of this consensus algorithm and one of those factors is how to increase bandwidth, as Stacks Blockchain uses Bitcoin transactions. One solution that has been a center of attention is “Lightning Channels” of Bitcoin Blockchain. In the future, there will be updates and many more things coming such as testnet for Stacks Blockchain.

Need help with building your Blockchain project? Connect with Xord and get moving!
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