Blockchain Architecture: Complete Guide

Blockchain architecture includes all the technological components behind blockchains and cryptocurrencies. Today we delve deep into these components and how they provide the building block for a whole new industry.

Back in 1991, a brand new innovation was in the works and was given the now-familiar name: ‘blockchain’. A group of researchers was aspiring to create a tool that could prove to be popular in the wake of the digital era. Their intent was to use this tool to timestamp digital documents, therefore making them impossible to backdate or modify. Fast forward to the late 2000s, wherein the mysterious figure, Satoshi Nakamoto, would adapt and reinvent this tool. In 2009, Nakamoto would go on to create the very first cryptocurrency, Bitcoin.

Nowadays, this blockchain-based project has become a popular name in finance. Not just because it’s a new form of currency, but because it is changing the world of finances and payments. Gone are the days when traditional physical money was the primary method of payment. Because of cryptocurrencies, some services can provide the option of paying with digital currencies.

Since Bitcoin’s launch, its rise in popularity extends to that of blockchain’s popularity. It is difficult to have a discussion about cryptocurrency without this technology being mentioned. And why wouldn’t it be? This innovative record-keeping technology is the backbone behind Bitcoin and various other cryptocurrencies.

So, as one could imagine, the architecture of this technology is quite complex. Properly understanding blockchain architecture and its process is not something one would describe as “easy.” This article will explain more about it and will help you understand the different components that go into its operation.

A brief overview

Many of you probably already know what blockchain is, but for the sake of context, we will briefly go over it.

For starters, blockchain sometimes goes by the name of ‘Distributed Ledger Technology’ (DLT). At its most basic level, blockchain is essentially a chain consisting of many blocks. That is one way of describing it. But technically speaking, the traditional sense of those words is not accurate. In reality, “block” and “chain” refer to the digital information that goes into storage on a public database. The “blocks” are the data and the “chain” is the database.

In order for a block to go on the database, the following four things must happen:

  1. A transaction needs to occur.
  2. The transaction needs to receive verification.
  3. The transaction goes into storage in a block. The dollar amount and both your digital signature and the sites (let’s assume your transaction was on Amazon) are all in this block.
  4. The block receives a hash (a code whose function is to map data of various sizes). It is at this point that the block is officially added to the chain.

Blockchain technology is what allows for the distribution – rather than the replication – of digital information. This distributed ledger provides a sense of transparency, trust, and data protection.

Generally speaking, blockchain technology possesses the core characteristics pertaining to three factors: decentralization, accountability, and security. This technique has the capability to improve operational efficiency, as well as save on costs significantly. It is not outlandish to predict that the demand and usage of applications deriving from blockchain architecture will continue evolving.

Miners

One cannot talk about blockchain technology without mentioning miners. They are responsible for the creation of new blocks on the chain. This process is called – you guessed it – mining. Obviously, this is not mining in the traditional sense; it is more digital and complex.

Each and every block within a blockchain has its own unique nonce and hash. It is also indicative of the hash of the previous block in the chain. With that in mind, it becomes clear that mining a block is not an easy task. This is especially true when you take large chains into account.

The special software that miners use for this procedure allows them to solve incredibly complex math problems. Specifically, these problems center on finding a nonce that generates an acceptable hash. The nonce is only 32 bits and the hash is 256 bits. Because of this, there are approximately four billion potential nonce-hash combinations. All of which miners need to uncover before the right one is found. As soon as that happens, it is said that miners were able to find what the community refers to as the “golden nonce.” From this, their block will become a new addition to the chain. 

Changing a block earlier in the chain in any way requires re-mining. Not just the block with the alteration, but all of the blocks that would follow. This is mainly why it is extremely challenging to manipulate blockchain technology. The best way to look at this is as “safety in math.” This makes sense, seeing as how finding golden nonces requires a lot of time and computing power.

Whenever there is successful mining of a block, all of the nodes on the network accept the change. As a result, the miner receives a financial reward.

Database vs. Blockchain framework

The conventional architecture of the World Wide Web utilizes a client-server network. In this particular case, the server retains all the necessary information in a single place. That way, it is considerably easier to update thanks to the server being a centralized database. Those in control are a wide variety of administrators with permissions.

Now, when it comes to the distributed network of blockchain architecture, the process is a little different. Each participant within the network preserves, approves, and updates any brand new entries. The system is under the control of not just separate individuals, but also by everyone that’s within the blockchain network. Each member makes sure that all records and procedures are in order. This, in turn, is what leads to the proper validation of data and security. Therefore, parties that do not have a lot of trust in each other are able to achieve a common consensus.

Put simply, the blockchain is a decentralized, distributed ledger, whether it be public or private. It consists of an array of transactions whose arrangement is in a peer-to-peer network. This network involves a large number of different computers. However, it’s in a way that makes it impossible to alter the data without the consensus of the whole network. In other words, without the consent of each separate computer.

blockchain architecture and data

Important structures

The representation of the overall structure of blockchain technology is by a list of blocks with transactions. Not only that, but they are in a specific order. The storage of these lists can either be in the form of a flat-file (txt. format) or in the form of a basic database. Two key data structures that are useful in blockchain include the following:

  • Pointers – These are variables that preserve information pertaining to the location of another variable. To elaborate, this points to the position of a separate variable.
  • Linked lists – These are a sequence of blocks. In them, each block possesses certain data and links to the consecutive block with the aid of a pointer.

The first block does not contain the pointer seeing as how this one is the first in a chain. In the meantime, there is the possibility of there being a final block within the blockchain database that contains a pointer holding no value.

Purpose and significance

It should come as no surprise that there are plenty of uses cases for blockchain technology. The government, medical records, and even agriculture all could potentially benefit from it. When it comes to blockchain architecture, it can serve the following purposes for various organizations and enterprises:

  • Reduction of costs – A lot of money goes toward sustaining centralized databases (ex. Banks and governmental institutions). From this, they make sure that the data current is secure from cybercriminal activity and other corrupt intentions.
  • History of the data – Within the structure of a blockchain, it is possible to review the history of any transaction at any point in time. This is an archive that is continuously growing. A centralized database, on the other hand, is more akin to a snapshot of information at a specific point.
  • The validity of data and security – Upon the entering of the data into the system, it becomes difficult to tamper with thanks to the blockchain’s nature. The process of record validation takes a certain amount of time. This is mostly because the process occurs in each independent network instead of through compound processing power. This essentially means that the system gives up performance speed, however, it guarantees high data security and legitimacy.

Different architectural types

All blockchain structures will typically fall into one of three categories:

  1. Public blockchain architecture: A blockchain architecture of this type basically means that the data and access to the system are available to anyone. That is to say, anyone who is willing to participate. Examples of this include Bitcoin, Ethereum, and Litecoin blockchain systems.
  2. Private blockchain architecture: In contrast to public blockchain architecture, the private system is under the control of users from a specific organization. Alternatively, those in control are certified users who have an invitation that allows them to participate.
  3. Consortium blockchain architecture: This particular blockchain structure typically consists of a few organizations. Procedures in a consortium are set up and are under the control of the initially assigned users.

Another way to describe blockchain is it’s a distributed journal wherein all parties hold a local copy. However, the type of blockchain structure and its context affects whether the system is more centralized or decentralized. This is indicative of the blockchain architectural design and who is controlling the ledger.

Many consider a private blockchain to be more centralized due to a particular group with superior privacy controlling it. On the contrary, a public blockchain has no limits and is therefore decentralized.

All records within a public blockchain are visible to the public. What’s more, anyone is able to participate in the agreement process. However, this is a lot less efficient. The reason for this being it requires a substantial amount of time to accept new records into the blockchain architecture.

When it comes to efficiency, the time for each transaction in a public blockchain is considerably less eco-friendly. This is mostly due to it needing an extensive amount of computation power in comparison to private blockchain architecture.

Key components

Below is a list of the core components of blockchain architecture:

  • Node – A user or computer that exists within the blockchain architecture. Each is in possession of an independent copy of the entire blockchain ledger.
  • Transaction – This is probably the smallest building block of a blockchain system, containing records and information. Be that as it may, it serves as the primary purpose of blockchain.
  • Block – A data structure that works as a way to keep a set of transactions. This is later subject to distribution to all nodes in the network
  • Chain – This is a sequence of blocks in a specific order
  • Miners – These are certain nodes that carry out the process of block verification. It will do this prior to adding anything to the blockchain structure.
  • Consensus (consensus protocol) – An important set of rules and arrangements that help carry out various blockchain operations.

Any new record or transaction in the blockchain indicates the construction of a new block. Each record will then be proven and receive a digital signature to ensure its legitimacy. Before this block becomes part of the network, it needs verification from the majority of nodes within the system.

How it works

The following is a step-by-step process on how blockchain architecture works in the form of a digital wallet:

  1. A request for a transaction is put in place.
  2. The creation of a block that is representative of the transaction occurs.
  3. Every node existing within the network will receive the brand new block.
  4. The nodes take time to validate the transaction. In exchange for their efforts, they will receive a financial reward.
  5. The block will officially become a new addition to the blockchain.
  6. The transaction finally reaches completion

What is inside a “block”?

Each block within a blockchain consists of the following factors:

  • Certain pieces of data
  • The hash of the block
  • The hash that belongs to the previous block

The data that is in storage inside each block largely depends on what type the blockchain is. Let’s use the Bitcoin blockchain structure as an example. In this particular system, the block retains data relating to the receiver, sender, and the total coin amount.

Think of a hash as some sort of fingerprint; a long record that consists of various digits and letters. The generation of each block hash is possible with the assistance of a cryptographic hash algorithm (SHA 256). As a result, this helps in making the identification of each block in a blockchain structure easier. Upon the creation of a block, it will automatically attach a hash. Any changes to a block will ultimately affect the change of a hash as well. Put simply, hashes aid in the detection of any alterations in blocks.

blockchain architecture and security

The final element that exists within the block is the hash deriving from a previous block. This effectively creates a chain of blocks. Moreover, it is the main element behind the security of the blockchain architecture. For example, block 40 points to block 41. The very first block in a chain is special in that all blocks with validation derive from the genesis block.

Any instance(s) of corrupt attempts on the block provoke it to change. All of the blocks that follow will carry incorrect information, thus rendering the whole blockchain system completely invalid.

Proof-of-Work & Nodes

Theoretically speaking, adjusting all the blocks with the help of strong and stable computer processors is plausible. However, a solution that eliminates this possibility comes in the form of the proof-of-work (PoW) system. This permits a user to reduce the speed of the creation process of brand new blocks.

Let’s once again use the Bitcoin blockchain architecture as an example. For this structure, it takes roughly 10 minutes to determine the PoW and includes a new block to the chain. Those responsible for doing this work are the miners, who are special nodes within the Bitcoin blockchain structure. As you may recall, miners receive a financial reward for their contributions. To be specific, they get to keep the transaction fees from the block they are verifying.

Each new user (node) that joins the peer-to-peer network of blockchain will receive a full copy of the system. As soon as a new block comes into existence, each node within the blockchain system will receive it. Afterward, each node validates the block and finds out whether the information that is present is indeed correct. Should everything turn out to be in order, then the block will go to the local blockchain within each node.

Consensus protocol

All the nodes that are inside the architecture of a blockchain help create a consensus protocol. A consensus system is an assortment of network rules. Assuming everyone abides by them, they will be able to provide their own authority inside the blockchain.

For instance, the Bitcoin blockchain has a very specific consensus rule. According to it, a transaction amount needs to be cut in half after every 200,000 blocks. Basically, if a block distributes a verification reward of 10 BTC, this value must be cut in half every 200,000 blocks. Likewise, there can only be 4 million BTC remaining to mine. This is because there is a maximum of 21 million BTC in the Bitcoin blockchain system set by the protocol. As soon as the miners unlock this amount, the supply of Bitcoins will come to an end, That is, unless the protocol changes.

Overall, this effectively makes blockchain technology an immutable and cryptographically secure system by removing any and all third-parties. It is impossible to meddle with the blockchain system as it would be necessary to alter all of its blocks. Moreover, calculate the PoW for each block again and take control of over 50% of the nodes in a peer-to-peer network.

Building the architecture

The design of a decentralized blockchain application is similar to any other normal software product. Requirements for its developments include functional specification, UX/UI designs, and a solid architecture plan. It is a vital step to identify the app’s functionality and user roles. What’s more, it’s crucial to think over the system flow and the interactions unfolding between the users and information.

So, you want to start building your own blockchain architecture. Well, in order to do that, it is necessary to take two things into consideration:

  • Blockchain network – This refers to the application’s infrastructure within a particular environment inside one organization or a few.
  • Blockchain code – This refers to the tasks and goals that the development of this blockchain solution wants it to perform.

There are a handful of open-source solutions that are handy for building a private blockchain architecture. Probably the most popular of the bunch is Hyperledger by the Linux Foundation. This project is one that IBM and other famous tech organizations commonly use. Hyperledger Composer provides users with a set of tools for the construction of blockchain architecture. Other solutions to help you build your own blockchain are Corda and Ethereum.

Network parties

Once an organization (or organizations) makes the choice to implement a blockchain solution, they are already building a network. It is possible to view the network as companies with their personnel. Alternatively, from the viewpoint of the technical infrastructure that exists within these companies.

To paint a clearer picture, let’s use diamonds as an example. Risks and challenges in relation to diamonds are present during every part of the process. They exist from the original extraction of diamonds to their final result. Consumers typically want to make sure that they are purchasing authentic diamonds, not counterfeits. Moreover, government institutions wish to keep a close eye on their taxation and exports. Blockchain architecture can be a helpful tool in removing these risks.

The parties who are participating in this network include the following:

  • Manufacturers of the diamonds
  • Government institutions
  • Transporters of the diamonds
  • Diamond sellers

Sharing the data

Blockchain solutions arrange all these parties into a peer-to-peer network. One that assists in the elimination of all risks and the construction of a clear-cut system. Everyone will gain access to the synchronized data of an immutable ledger. They will be able to monitor the diamond’s movements, from the manufacturing to the consumer. The blockchain ledger would preserve the sequence of all actions that take place like mining, refining, and inevitable distribution.

Oftentimes, each organization within a network owns a copy that syncs with clever protocols and technical layers of the blockchain network. These go by the name of ‘peers’. In order to outline several processes happening simultaneously, there is the Ordering Service. This is something all parties share. Specifically, parties that decide the transactions within the blockchain structure and what order they are in. With multiple users, there is a Membership Services Provider (MSP), which grants access for certain users inside the network.

Ultimately, all the transactions during this path are inside a general ledger. Using the diamond example, this includes photos, extraction location, color, serial number, and where it was cut, among many others. This information is what makes it authentic.

Creating the code

Following the establishment of the blockchain network, the next step is agreeing on the business transaction types. To elaborate, the ones that are occurring inside the blockchain architecture. In actuality, these rules are in the legal agreements. Logically speaking, as the terms reside within the blockchain code, this refers to a ‘smart contract’.

Much like in the real world, the blockchain contract consists of participants, assets, and transactions. For each transaction, there is the writing of a Transactional Processor Function (reflecting JavaScript). It establishes the things that will happen upon the generation of the transaction.

The skills you will need

Evidently, taking on the role of a blockchain developer is an incredibly demanding task. It requires the utmost technical skills, as well as an intricate background on the subject. In order to work with blockchain architecture, experiences with Computer Science or Engineering are most advantageous and attractive. Moreover, knowledge about consensus methods, structures of data, decentralized ledgers, both cryptographies and cryptocurrencies, and data security is also desirable.

Not too long ago, with the help of Ethereum and other blockchain software, developing a blockchain was easy. Ethereum is an open-source software platform that draws its foundation from blockchain technology. It allows for the construction and inevitable deployment of decentralized applications (DApps).

For the coding skills mandatory for developing a blockchain solution, it’s important to familiarize yourself with diverse programming languages. If the intent is customizable blockchain system implementation, programming languages like C++, Java, Python, C, and Ruby are preferable. For that matter, web development skills such as HTML, CSS, Node JS could come in handy.

Beyond exceptional programming skills, blockchain developers need to possess a solid understanding of business requirements and operations. Moreover, they must have great skills in negotiation and collaboration.

Key characteristics

Blockchain architecture provides a lot of benefits that businesses can take advantage of. Some notable characteristics include:

  • Cryptography – Blockchain transactions receive validation and are trustworthy courtesy of the complex computations and cryptographic proof among participating parties.
  • Immutability – Any and all records that are in a blockchain cannot be subject to tampering or deletion.
  • Provenance – This references the fact that it’s possible to determine the origin of every transaction residing within the blockchain ledger.
  • Decentralization – Blockchain members have access to the entire distributed database. In contrast to the centralized system, the consensus algorithm permits control over the whole network
  • Anonymity – Each and every blockchain network participant has a generated address instead of a user identity. This effectively maintains the users’ anonymity, especially within a public blockchain framework.
  • Transparency – It is impossible to corrupt the blockchain system. This unlikeliness stems from the requirement of an excessive amount of computing power to totally overwrite the network.
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