Principles and development of blockchain

Preface

Blockchain is a distributed database technology that is decentralized, non-tamperable, safe and trustworthy, and is widely used in cryptocurrency, smart contracts, digital assets and other fields. This article will introduce the principles and development history of blockchain.

1. Principle of blockchain

Blockchain is a decentralized database based on cryptography technology, distributed systems and consensus mechanisms. It uses an advanced data structure called a block to package data records and transaction records together, and uses cryptography technology for protection and verification. Blockchain can be used to record various types of data, such as digital currency transactions, item ownership, smart contracts, etc.

In the blockchain, each block contains multiple transaction records, and each transaction record contains information such as the sender, receiver, and transaction amount. Each block has a unique hash calculated from the hashes of all transactions in the block, the hash of the previous block, and some additional data. In this way, if the data of any block is tampered with, it will affect the hash value of subsequent blocks, thereby making the entire chain invalid.

Blockchain uses a consensus mechanism to ensure the security and credibility of data. The consensus mechanism means that in the blockchain network, multiple nodes need to reach a consensus, that is, reach the same transaction records and data status, in order to update the blockchain. Common consensus mechanisms include Proof of Work, Proof of Stake, Delegated Proof of Stake, etc.
Proof of Work (PoW) is the earliest consensus mechanism used in blockchain. It was proposed by Satoshi Nakamoto, the founder of Bitcoin, to solve the double-spending problem and prevent network attacks in decentralized systems. The core idea of ​​the workload proof mechanism is to allow miners (referring to nodes involved in verifying transactions) to consume computing resources and obtain the right to add new blocks by calculating complex mathematical problems, thereby achieving consensus and security.

1.1 Proof of work

The working principle of Proof of Work is that every time a node wants to add a new block to the blockchain, it needs to complete a computational task, which is found within a certain range of random values. A value that satisfies a specific condition, which is called a Difficulty Target. Miners need to calculate a large number of random numbers to find a value that meets the difficulty target. This calculation process is very computationally resource intensive, so only the miner who completes the calculation first can obtain the right to add a new block and receive a certain number of Bitcoins as a reward.

Bitcoin uses the SHA-256 algorithm for its proof-of-work calculations. SHA-256 is a very complex hash algorithm, and the hash value of each block must be less than the difficulty target, which is a very difficult computational problem. Therefore, miners need to use a large amount of computing resources in order to quickly complete computing tasks and obtain the right to add new blocks.

The following takes Bitcoin as an example to explain in detail the working principle and process of proof of work:

1. Each block contains multiple transaction records and a block header. The block header contains the hash value of the previous block, the hash value of the transaction record, timestamp and other information.

2. Miners need to select a certain number of transaction records from the transaction pool, combine them into a block, and calculate the hash value of the block header.

3. Miners need to calculate a random number called a Nonce, add it to the block header, and recalculate the hash of the block header.

4. If the new hash is less than the difficulty target, the miner successfully found a qualifying block and broadcast it to the entire network.

5. Other nodes will verify the new block and update their own blockchain. If multiple miners find a qualifying block at the same time, competition will occur, and only the miner who finds it first will be rewarded with Bitcoin.

In addition to Bitcoin, proof of work is also widely used in other blockchain projects, such as Ethereum, Litecoin, etc. Different blockchain projects will use different hashing algorithms and difficulty targets to accommodate different network sizes and security needs.

Although proof of work is a widely used consensus mechanism, it also has some shortcomings. First of all, the calculation process of proof of work is very energy-consuming, and a large amount of electricity is consumed in the calculation of mining machines, which will lead to environmental pollution and energy waste. Secondly, workload proof has increasingly higher requirements for computing power, leading to a trend of centralization. Only a few large miners have sufficient computing power, which will affect the decentralization and security of the network.

1.2 Proof of Stake

Proof of Stake (PoS) is different from proof of work. Proof of Stake does not require miners to complete computing tasks, but relies on holding a certain number of tokens or currencies as equity to verify transactions and add new blocks. Therefore, proof of equity can greatly reduce energy consumption and computing power requirements, and improve the efficiency and reliability of the blockchain.

The working principle of Proof of Stake is that each node needs to own a certain number of tokens or currencies, and use these tokens as collateral (Stake) to participate in the consensus process of the blockchain. Whenever a node wants to add a new block to the blockchain, it needs to use its own equity to purchase some random numbers on the blockchain. These random numbers are called tickets. Nodes can obtain a corresponding number of tickets based on the amount of equity they own, thereby increasing their probability of being selected.

Each node selects a random seed value (Seed) from the selected tickets and uses this seed value to generate a random number. This random number will then be compared with the random number in the ticket. If the match is successful, the node will be selected as a validator and gain the right to add new blocks. Validators need to verify the validity of transaction records, generate a new block, and then broadcast it to the network.

Compared with proof of work, the core difference between proof of stake and proof of work is the amount of node equity, not the amount of computing resources. Therefore, the proof-of-stake mechanism can reduce reliance on computing power and can also prevent problems such as 51% attacks and double payments. In addition, proof of stake can also provide more benefits to token holders, such as participating in network governance and sharing benefits.

The following takes Ethereum as an example to explain in detail the working principle and process of proof of equity:

1. In Ethereum, nodes need to own a certain amount of Ether and mortgage it as equity. This process is called staking.

2. After staking, nodes can participate in generating random numbers and tickets. The number of tickets each node receives is proportional to the amount of ether it has pledged.

3. Each node selects a random seed value from the selected tickets and uses this seed value to generate a random number.

4. The random number is compared with the random number in the ticket. If the match is successful, the node is selected as a validator and gets the right to add new blocks. The selected validator needs to verify the validity of the transaction record and generate a new block. Verifiers need to show their calculation proof (Proof) to other nodes to prove that they have completed the block calculation task.

5. Other nodes will verify the new block and update their own blockchain. If multiple nodes find a qualifying block at the same time, competition will occur, and only the first validator to find it will be rewarded with Ether coins.

Compared with proof of work, proof of stake has lower energy consumption and higher efficiency, but it also has some disadvantages. First, proof-of-stake can lead to concentration of wealth, as nodes with more tokens can more easily gain the right to add new blocks and thus receive greater rewards. Secondly, proof of stake may not be as good as proof of work for ensuring the security and decentralization of the blockchain.

1.3 Equity consensus

Delegated Proof of Stake and Proof of Stake (PoS) have certain similarities, but there are also some differences. Unlike Proof of Stake, Stake Consensus relies on the node’s stake history rather than the current number of tokens held.

The working principle of equity consensus is that when participating in the consensus process of the blockchain, each node needs to own a certain number of tokens or currencies, and use these tokens as collateral (Stake) to participate in verifying transactions and adding new blocks. A node's stake history affects its influence and rewards in the consensus process.

A node’s stake history can be determined by the following three factors:

1. Number of tokens: The more tokens a node has, the better its staking history.

2. Length of staking time: The longer a node has staked tokens, the better its staking history will be.

3. Node activity: The more active a node is on the blockchain, the better its stake history. Nodes can increase their activity by validating transactions and adding new blocks.

In equity consensus, each node is called a validator, and their task is to verify the validity of transaction records and add new blocks to the blockchain. The probability of a validator being selected is directly proportional to their staking history. Therefore, equity consensus can prevent problems such as 51% attacks and double payments, and improve the efficiency and reliability of the blockchain.

The following is the workflow of the equity consensus mechanism in Ethereum 2.0:

1. Each validator needs to mortgage a certain amount of ETH as equity. These ETH will be locked in the contract and cannot be used by others.

2. In Ethereum 2.0, the length of each cycle (Epoch) is 6.4 minutes. At the beginning of each cycle, a set of validators are selected to validate transactions and add new blocks. The process of selecting validators is random, but each validator's probability of being selected is proportional to their staking history.

3. In each cycle, validators need to verify the validity of transaction records and generate a new block. Verifiers need to complete these tasks within a certain period of time and submit the calculation proof (Proof) to the blockchain.

4. If the verifier successfully completes the verification and calculation tasks and submits the correct calculation proof, they will receive corresponding rewards. If validators fail to complete their tasks or submit incorrect computational proofs, they can be fined or lose their stake.

5. In Ethereum 2.0, the equity consensus mechanism also introduces a mechanism called the "block limiter", which can limit the number of blocks generated by each validator in a cycle. This prevents validators from trying to generate too many blocks to get more rewards.

Compared with proof of work and proof of stake, stake consensus has lower energy consumption and higher efficiency, but it also has some disadvantages. For example, staking consensus can lead to concentration of wealth because nodes with more tokens can more easily gain the right to add new blocks and thus receive more rewards. Additionally, staking consensus can also be affected by attackers taking control of the network by purchasing large amounts of tokens.

Therefore, equity consensus is also an active research field, and many new consensus mechanisms are being proposed, such as the fault-tolerant Byzantine consensus algorithm of the blockchain, which can ensure the reliability and security of the blockchain in the presence of malicious nodes.

1.4 Byzantine Fault Tolerance Consensus

Byzantine Fault Tolerance (BFT) is a consensus algorithm that achieves fault tolerance in distributed systems. It can ensure the reliability and security of the system in the presence of faulty nodes and malicious attackers.

The Byzantine Question originated during the Byzantine Empire, when the generals of the Byzantine Empire needed to jointly decide whether to attack the enemy. Since communications between various generals are unreliable, there is a possibility that information may be tampered with or forged. If any general surrenders or betrays, the attack will fail. Therefore, how to reach consensus in the presence of faulty nodes and malicious attackers has become an important issue.

In the Byzantine consensus algorithm, each node can be an ordinary node or a leader node. Ordinary nodes are only responsible for receiving and delivering messages, while leader nodes are responsible for decision-making and organizing communication between nodes.

Byzantine consensus algorithms usually have two phases: broadcast and decision-making.

In the broadcast phase, the leader node will send a proposal to all nodes and require the nodes to confirm or reject the proposal. A proposal can be a transaction or a block.

During the decision phase, if the leader node receives more than half of the confirmation messages, it will decide that the proposal has been accepted, otherwise it will consider the proposal to be rejected. If a node does not receive enough acknowledgments, it waits for responses from other nodes or resends the proposal.

The key issue in the Byzantine consensus algorithm is how to deal with the existence of malicious nodes and faulty nodes. In order to deal with these problems, the Byzantine consensus algorithm introduces some mechanisms, such as:

1. Majority Confirmation Mechanism: In the Byzantine consensus algorithm, a proposal will only be accepted if more than half of the nodes confirm it. This mechanism prevents the impact of malicious nodes and faulty nodes.

2. Signature Mechanism: The Byzantine consensus algorithm uses digital signatures to verify the identity of nodes and the authenticity of messages. By using digital signatures, nodes can ensure that only real leader nodes can send proposals, and only real nodes can confirm proposals.

3. Timeout Mechanism: If a node does not receive enough confirmation messages, it will consider the proposal to be rejected and wait for the arrival of the next proposal. This mechanism can prevent nodes from falling into an infinite waiting state.

Here is an example of the Byzantine consensus algorithm in action:

Hyperledger Fabric is a distributed ledger platform based on blockchain technology. It uses a consensus algorithm called "Byzantine Fault Tolerance" to ensure the reliability and security of the network.

In Hyperledger Fabric, each node can be a leader node or a backup node (Backup). The leader node is responsible for proposing transactions and blocks and sending confirmation requests to backup nodes. When the leader node receives more than half of the confirmation messages, it generates a new block and broadcasts it to the entire network.

In Hyperledger Fabric's Byzantine Fault Tolerance algorithm, there is a module called "Consensus Service", which is composed of a group of nodes that coordinate the interaction between nodes through a consensus algorithm. The consensus service uses a majority confirmation mechanism to decide whether a proposal is accepted, and a signature mechanism to ensure the identity of nodes and the authenticity of messages.

In Hyperledger Fabric, the Byzantine fault-tolerant algorithm also includes a mechanism called "endorsement". In the endorsement mechanism, the leader node will request endorsement from other nodes in the network to verify the validity and correctness of the transaction. When the leader node receives sufficient endorsements, it can add the transaction to the block.

The Byzantine consensus algorithm is a very important consensus algorithm that can achieve fault tolerance in a distributed system and ensure the reliability and security of the system. Although the Byzantine consensus algorithm has some disadvantages, such as higher network latency and complexity, it remains an active research area, attracting more and more researchers and developers to explore its wider applications.

In short, blockchain technology is a distributed, decentralized database technology that achieves data security and credibility through consensus mechanisms and cryptography technology. The emergence of blockchain has greatly promoted the development of digital economy, financial technology and other fields, and has also aroused people's attention and thinking on digital rights, data security, personal privacy and other issues.

2. Characteristics of blockchain:

1. Decentralization
   Blockchain is a decentralized database system with no centralized server or management organization. Each node can record, verify and disseminate data. The nodes are independent of each other and verify each other, forming a distributed network.

2. Non-tamperability:
   The blockchain uses hash function and digital signature technology to ensure the integrity and non-tamperability of data. Each block contains the hash value of the previous block. If the data of any block is tampered with, it will affect the hash value of subsequent blocks, thereby invalidating the entire chain.

3. Safe and Trustworthy
   Blockchain uses cryptography technologies, such as public key encryption, digital signatures, hash functions, etc., to ensure the security and credibility of data. Transaction records on the blockchain cannot be tampered with, and the transaction process is open and transparent, ensuring the security and fairness of the transaction.

3. Development History of Blockchain

3.1 The development history of blockchain:

1. Bitcoin: Bitcoin is the originator of blockchain technology. Satoshi Nakamoto proposed the concept of Bitcoin in 2008, and it was officially launched in 2009. The Bitcoin blockchain is a decentralized electronic cash system that uses blockchain technology to record transactions and ensure the security and non-tamperability of transactions.

2. Ethereum: Ethereum is a second-generation blockchain technology that not only supports digital currency transactions but also smart contracts. The Ethereum blockchain uses Ether as the digital currency and has more flexible smart contract functions and higher scalability, making it one of the most popular blockchain platforms.

3. Hyperledger: Hyperledger is an open source blockchain platform launched by the Linux Foundation. It aims to provide enterprises with safer, more reliable, and more efficient blockchain solutions and promote cross-industry blockchain cooperation and development.

4. EOS: EOS is a decentralized operating system based on Ethereum that offers higher scalability and faster transaction speeds. EOS uses a proof-of-stake mechanism that can support more concurrent transactions and also has higher security and decentralization.

5. Blockchain Alliance: Blockchain Consortium is an alliance organization based on blockchain technology, composed of multiple enterprises or institutions. The Blockchain Alliance aims to promote the development and application of blockchain technology and promote cross-industry and cross-organization collaboration and sharing.

3.2 Cutting-edge blockchain technology:

1. Sharding Technology: Sharding technology is a scalability solution that allows multiple nodes to process blockchain transactions simultaneously, thereby increasing transaction throughput. Sharding technology improves the performance of the entire system by dividing the blockchain into multiple blocks so that each node only needs to process a part of the transactions.

2. Zero-knowledge proof: Zero-knowledge proof is a cryptographic technique that protects user privacy and can prove that certain things are true without revealing any specific information about those things. Zero-knowledge proof can be used in transaction verification, identity verification and other fields on the blockchain to improve privacy protection and data security.

3. Sidechain technology: Sidechain technology allows blockchains to interact and communicate with other blockchains or traditional financial systems, thereby expanding the functionality and application scope of blockchains. Sidechain technology can realize cross-chain transactions between blockchains, and can also build a bridge between blockchains and traditional financial systems to promote the integration of the digital economy and the real economy.

4. Quantum computer security: A quantum computer is a supercomputer that has higher computing power and the ability to break encryption algorithms than a traditional computer. In order to protect the security of the blockchain system, quantum computer-safe encryption algorithms need to be used, such as hash function-based encryption algorithms and lattice-based encryption algorithms.

5. DeFi: DeFi is the abbreviation of Decentralized Finance. It is a financial service and application based on blockchain technology, aiming to provide more secure, transparent and open financial services in a decentralized manner. DeFi applications include decentralized exchanges, lending protocols, stablecoins, prediction markets, etc.

4. Practical applications of blockchain

1. Digital currency
   Blockchain technology provides reliable technical support for the realization of digital currency. Transaction records of digital currencies such as Bitcoin and Ethereum are recorded on the blockchain, realizing decentralized transactions and asset management. The blockchain technology of digital currency can also prevent problems such as repeated payments and counterfeit currency, improving the security and stability of digital currency.

2. Internet of Things
   Blockchain technology can provide secure identity authentication and data exchange for Internet of Things devices. Blockchain technology can record the identity of IoT devices and the process of exchanging data, realizing decentralized data exchange and management, and improving the reliability and security of the IoT.

3. Copyright protection
   Blockchain technology can provide effective technical means for copyright protection. By recording copyright information and transaction records on the blockchain, decentralized management and protection of copyright can be achieved. This method can effectively prevent copyright theft and infringement, and improve the credibility and efficiency of copyright protection.

4. Healthcare
   Blockchain technology can provide secure data exchange and management for healthcare. Blockchain can record medical records, drug information and other data, and realize secure exchange and management of data. This approach can improve the efficiency and reliability of healthcare while protecting patient privacy and data security.

5. Payment and settlement
   Blockchain technology can provide efficient and secure solutions for payment and settlement. Blockchain can record payment transactions, clearing information and other data, and realize decentralized payment and settlement. This method can improve the efficiency and security of payment settlement and reduce payment costs and risks.

Summary: The application scenarios of blockchain technology are constantly expanding and innovating. From digital currency to the Internet of Things, copyright protection, health care, payment and settlement and other fields, blockchain technology provides reliable technical support for decentralized, safe and trustworthy data management and exchange. With the further development and improvement of blockchain technology, we can look forward to more innovative application scenarios.