Blockchain technologies: Consensus, access, and smart contracts

In this step, you’ll unravel the key elements shaping blockchain networks; consensus mechanisms, access control, and the revolutionary domain of smart contracts.

Consensus mechanisms

As you have learned, blockchain networks rely on consensus, and there are mechanisms in place to ensure this. These are a bit like rules that members follow to decide which transactions are valid and secure. There are two main types: proof of work (PoW) and proof of stake (PoS).

Proof of work (PoW)

Earlier in the course, you saw how miners compete to solve a tricky puzzle to generate a nonce to add their block of transactions to the blockchain and get rewards. Miners use computational energy by trying various nonces til they find the right one. This is known as PoW.

The cryptocurrency Bitcoin uses PoW, known for its difficulty in creating proof but easy validation, high energy use, and potential concentration of power among wealthy miners.

Proof of stake (PoS)

In PoS, miners compete based on the cryptocurrency they put up (stake) and how long it stays in the system.

The cryptocurrency Ethereum uses PoS, with voting power linked to the staked coins. It’s more energy-efficient but has its challenges, like potential blockchain forks and a tendency for the rich to get richer.

Access controls

Blockchain systems fall into public (permission-less), private (permissioned), and hybrid types, dictating who can join the network.

Public Blockchain: Anyone can join without prior permission, seen in 
Bitcoin and Ethereum. The trade-off involves factors like performance, resources, and privacy.

Private Blockchain: Restricted access is limited to specific users, as seen in Hyperledger Fabric and R3 Corda. Decisions here consider security, trust, and organisational needs.

Hybrid Blockchain: An adaptable blend of public and private features, as seen in Dragonchain.

Smart contracts

Smart contracts are like computer programs stored in the blockchain. They run when specific conditions are met. Ethereum is a popular platform for these contracts, using languages like Solidity. It’s a way to automate agreements without needing a middleman.