The information in the Blockchain is open to anyone. This means that you can see the transaction history and the way in which it was performed. Information about the size of the transaction is also open. At the same time, the identity of the addressee and addressee is not disclosed. This is the transparency of the blockchain.
Access to Blockchain takes place using special keys that guarantee the reliability of the entire network. He has every user. The key is a set of cryptographic records. It is absolutely unique, which guarantees the impossibility of data substitution and hacker attacks. To do this, hackers need access to all computers on the network.
The mechanisms that ensure the capacity and reliability of the blockchain are the algorithms of Proof of Work or PoW, the work done, and Proof of Stake or PoS, confirmation of a share. Thanks to them, a consensus is reached in the blockchain.
The Proof of Work algorithm is used in the Bitcoin blockchain. The mechanism of his work is similar to reporting in the office. Employees regularly compile reports to verify that they have completed a specific task. Without this, they will not receive a salary, because they did not confirm the fact of the work done.
PoW in the blockchain checks the calculations generated in the process of creating a new unit. The following model is used here: the block is recognized as valid and closed, provided that its hash value is less than the signature required by the miners. That is, a certain cryptographic cipher shows the authenticity of the block. And as “auditors”, checking the authenticity of the block, are the nodes.
Now in the Bitcoin network, a block is created within 10 minutes. At this moment the search for the signature is accomplished. And already the check happens instantly. The algorithm is often criticized due to the fact that its work requires large computational power. And for this reason, when transferring bitcoins between wallets, a commission is charged. So there is a payment for the used computing power.
Against this background, a new algorithm was created – Proof of Stake. One of the associates of PoS is the founder of the cryptocurrency Ethereum Vitalik Buterin. According to him, this algorithm is not as resource-intensive, and overall, cheaper than PoW. Cryptocurrency blockchain Ethereum makes the transition from PoW to PoS.
If computational power comes to the fore in the Proof of Work, then the purse balance plays a role in the Proof of Stake. The implementation and confirmation of transactions will take place without the active participation of computer technology, and thanks to active coins in the wallets. Ideally, all cryptocurrency owners on the blockchain with PoS will act as investors. The mining role will fade into the background. However, the algorithm has significant drawbacks – it is possible to conduct duplicate transactions.
The best option for the blockchain algorithm can be a combination of PoS and PoW. So far this mechanism has not been finalized, although it is used in some altcoins: KATZcoin, Blackcoin, Espers.
This is 2019 and now technology improving day by day Cosmos Validating Services launched for independent blockchain to communicate each other, you should check it out.
At this stage of its development, the blockchain has both advantages and disadvantages. We systematized them into a table.
- Decentralization – network members are equal and can exchange data directly
- Reliability – data substitution and hacker attacks are excluded, since special encrypted keys are used
- Transparency – all blocks are available for public viewing. You can check the path for any transaction.
- Universality – blockchain can be used not only in the financial sector, but also in other areas of life (law, real estate)
- Scalability – if the Bitcoin blockchain had a share of Visa transactions, then its size would reach hundreds of terabytes
- Fraud – blockchain data transfer is irreversible. Because of this, the operation cannot be rolled back, even if it was performed by mistake.
- 51% attack – if in the Bitcoin blockchain 51% of the computing power belongs to one device, the integrity will be broken