Mastering blockchain distributed lodger technology, decentralization, and smart contracts explained 2nd edition

The second edition of this book will provide in-depthinsights into decentralization, smart contracts, and various blockchain platforms such asEthereum, Bitcoin, and Hyperledger Fabric..

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About the author

Imran Bashir has an M.Sc in Information Security from Royal Holloway, University of

London, and has a background in software development, solution architecture,

infrastructure management, and IT service management He is also a member of the

Institute of Electrical and Electronics Engineers (IEEE) and the British Computer Society(BCS)

Imran has sixteen years' of experience in the public and financial sectors He worked onlarge scale IT projects in the public sector before moving to the financial services industry.Since then, he has worked in various technical roles for different financial companies inEurope's financial capital, London He is currently working for an investment bank inLondon as Vice President in the Technology department

I would like to thank the talented team at Packt, including Ben Renow-Clarke, Suzanne

Coutinho, Alex Sorrentino, Gary Schwartz, and Bhagyashree Rai, who provided prompt

guidance and valuable feedback throughout this project I am also extremely thankful to the reviewer, Pranav Burnwal, who provided constructive and very useful feedback that helped

me tremendously to improve the material in this book.

I thank my wife and children for putting up with my all-night and weekend-long writing sessions.

Above all, I would like to thank my parents, whose blessings have made everything possible for me.

Pranav Burnwal has a background in Research and Development, and he has been working

with cutting-edge technologies for the past few years The technologies he works on rangefrom blockchain, big data, analytics (log and data), cloud, to message queues, NoSQL, webservers, and so on He has worked across various domains ranging from BFSI, HLS, FMCG,and automobiles to name a few

Pranav is an active community member in multiple communities He is the Regional Headfor Blockchain Education Network (BEN), a registered NGO and a worldwide network ofpeople of blockchain He has also organized multiple meetups and a start-up weekend inIndia

Pranav has also been an active trainer in the blockchain space for an exciting period of threeyears now, for an audience ranging from junior developers to senior VPs This has alsogiven him insights into how people understand a new and complex technology, whichhelped him frame this book in the best interest of the readers

Packt is searching for authors like you

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Blockchain and full ecosystem decentralization 49

Chapter 3: Symmetric Cryptography 60

Working with the OpenSSL command line 60

Keystream generation mode 73 Message authentication mode 73

ECC private and public key pair 99

Collision resistance 104

Design of Secure Hash Algorithms 106

Design of SHA-3 (Keccak) 108 OpenSSL example of hash functions 109 Message Authentication Codes 109 MACs using block ciphers 109

How to generate a digital signature using OpenSSL 117

Chapter 6: Bitcoin Network and Payments 179

The Bitcoin network 179

Third-party mixing protocols 227

Downloading and compiling nheqminer 255

The yellow paper 277

Ethereum – bird's eye view 280

The Ethereum network 284

Components of the Ethereum ecosystem 286

State storage in the Ethereum blockchain 296

The genesis block 321

Funding the account with bitcoin 342

Creating accounts using the parity command line 347

Applications (DApps and DAOs) developed on Ethereum 347

Starting up the private network 358

Block explorer for private net / local Ethereum block explorer 372

Chapter 14: Introducing Web3 409

Checking availability by calling any web3 method 422

The reference architecture 466

Consensus in Hyperledger Fabric 481 The transaction life cycle in Hyperledger Fabric 482

The permissioning service 494

Platforms and frameworks 522

Formal verification and analysis 576

This book has one goal, to introduce theoretical and practical aspects of the blockchaintechnology This book contains all material that is necessary to become a blockchain

technical expert Since the publication of the first edition of this book, a lot has changed andprogressed further with regards to blockchain; therefore, a need to update the book hasarisen

The multitude of benefits envisaged by the implementation of blockchain technology hassparked profound interest among researchers from academia and industry who are

tirelessly researching this technology As a result, many consortia, working groups, projects,and professional bodies have emerged, which are involved in the development and furtheradvancement of this technology The second edition of this book will provide in-depthinsights into decentralization, smart contracts, and various blockchain platforms such asEthereum, Bitcoin, and Hyperledger Fabric After reading this book, readers will be able todevelop a deep understanding of inner workings of the blockchain technology and will beable to develop blockchain applications

This book covers all topics relevant to the blockchain technology, including cryptography,cryptocurrencies, Bitcoin, Ethereum, and various other platforms and tools used for

blockchain development It is recommended that readers have a basic understanding ofcomputer science and basic programming experience to benefit fully from this book

However, if that is not the case then still this book can be read easily, as relevant

background material is provided where necessary

Who this book is for

This book is for anyone who wants to understand blockchain in depth It can also be used as

a reference by developers who are developing applications for blockchain Also, this bookcan be used as a textbook for courses related to blockchain technology and

cryptocurrencies It can also be used as a learning resource for various examinations andcertifications related to cryptocurrency and blockchain technology

What this book covers

Chapter 1, Blockchain 101, introduces the basic concepts of distributed computing on which

blockchain technology is based It also covers history, definitions, features, types, andbenefits of blockchains along with various consensus mechanisms that are at the core of theblockchain technology

Chapter 2, Decentralization, covers the concept of decentralization and its relationship with

blockchain technology Various methods and platforms that can be used to decentralize aprocess or a system have also been introduced

Chapter 3, Symmetric Cryptography, introduces the theoretical foundations of symmetric

cryptography, which is necessary to understand that how various security services such asconfidentiality and integrity are provided

Chapter 4, Public Key Cryptography, introduces concepts such as public and private keys,

digital signatures and hash functions with practical examples Finally, an introduction tofinancial markets is also included as there are many interesting use cases for blockchaintechnology in the financial sector

Chapter 5, Introducing Bitcoin, covers Bitcoin, the first and largest blockchain It introduces

technical concepts related to bitcoin cryptocurrency in detail

Chapter 6, Bitcoin Network and Payments, covers Bitcoin network, relevant protocols and

various Bitcoin wallets Moreover, advanced protocols, Bitcoin trading and payments is alsointroduced

Chapter 7, Bitcoin Clients and APIs, introduces various Bitcoin clients and programming

APIs that can be used to build Bitcoin applications

Chapter 8, Alternative Coins, introduces alternative cryptocurrencies that were introduced

after the invention of Bitcoin It also presents examples of different altcoins, their properties,and how they have been developed and implemented

Chapter 9, Smart Contracts, provides an in-depth discussion on smart contracts Topics such

as history, the definition of smart contracts, Ricardian contracts, Oracles, and the theoreticalaspects of smart contracts are presented in this chapter

Chapter 10, Ethereum 101, introduces the design and architecture of the Ethereum

blockchain in detail It covers various technical concepts related to the Ethereum blockchainthat explains the underlying principles, features, and components of this platform in depth

Chapter 11, Further Ethereum, continues the introduction of Ethereum from pervious

chapter and covers topics related to Ethereum Virtual Machine, mining and supportingprotocols for Ethereum

Chapter 12, Ethereum Development Environment, covers the topics related to setting up

private networks for Ethereum smart contract development and programming

Chapter 13, Development Tools and Frameworks, provides a detailed practical introduction to

the Solidity programming language and different relevant tools and frameworks that areused for Ethereum development

Chapter 14, Introducing Web3, covers development of decentralized applications and smart

contracts using the Ethereum blockchain A detailed introduction to Web3 API is providedalong with multiple practical examples and a final project

Chapter 15, Hyperledger, presents a discussion about the Hyperledger project from the

Linux Foundation, which includes different blockchain projects introduced by its members

Chapter 16, Alternative Blockchains, introduces alternative blockchain solutions and

platforms It provides technical details and features of alternative blockchains and relevantplatforms

Chapter 17, Blockchain – Outside of Currencies, provides a practical and detailed introduction

to applications of blockchain technology in fields others than cryptocurrencies, includingInternet of Things, government, media, and finance

Chapter 18, Scalability and Other Challenges, is dedicated to a discussion of the challenges

faced by blockchain technology and how to address them

Chapter 19, Current Landscape and What's Next, is aimed at providing information about the

current landscape, projects, and research efforts related to blockchain technology Also,some predictions based on the current state of blockchain technology have also been made

To get the most out of this book

All examples in this book have been developed on Ubuntu 16.04.1 LTS (Xenial)and macOS version 10.13.2 As such, it is recommended to use Ubuntu or anyother Unix like system However, any appropriate operating system, eitherWindows or Linux, can be used, but examples, especially those related toinstallation, may need to be changed accordingly

Examples related to cryptography have been developed using the OpenSSL1.0.2g 1 Mar 2016 command-line tool

Ethereum Solidity examples have been developed using Remix IDE, availableonline at https:/​/​remix.​ethereum.​org

Ethereum Byzantine release is used to develop Ethereum-related examples Atthe time of writing, this is the latest version available and can be downloadedfrom https:/​/​www.​ethereum.​org/​

Examples related to IoT have been developed using a Raspberry Pi kit by Vilros,but any aapropriate latest model or kit can be used Specifically, Raspberry Pi 3Model B V 1.2 has been used to build the hardware example of IoT Node.jsV8.9.3 and npm V5.5.1 have been used to download related packages and runNode js server for IoT examples

The Truffle framework has been used in some examples of smart contractdeployment, and is available at http://truffleframework.com/ Any latestversion available via npm should be appropriate

Download the example code files

You can download the example code files for this book from your account at

www.packtpub.com If you purchased this book elsewhere, you can visit

www.packtpub.com/support and register to have the files emailed directly to you

You can download the code files by following these steps:

Log in or register at www.packtpub.com

Once the file is downloaded, please make sure that you unzip or extract the folder using thelatest version of:

WinRAR/7-Zip for Windows

Zipeg/iZip/UnRarX for Mac

7-Zip/PeaZip for Linux

The code bundle for the book is also hosted on GitHub at https:/​/​github.​com/

PacktPublishing/​Mastering-​Blockchain-​Second-​Edition In case there's an update to thecode, it will be updated on the existing GitHub repository

We also have other code bundles from our rich catalog of books and videos available

at https:/​/​github.​com/​PacktPublishing/​ Check them out!

Download the color images

We also provide a PDF file that has color images of the screenshots/diagrams used in thisbook You can download it here: http:/​/​www.​packtpub.​com/​sites/​default/​files/

downloads/​MasteringBlockchainSecondEdition_​ColorImages.​pdf

Conventions used

There are a number of text conventions used throughout this book

CodeInText: Indicates code words in text, database table names, folder names, filenames,file extensions, pathnames, dummy URLs, user input, and Twitter handles Here is anexample: "After executing the command, a file named privatekey.pem is produced, whichcontains the generated private key as follows."

A block of code is set as follows:

Trade tStruct = Trade({tradeid:123, quantity:1, price:1,

trader:"equinox"});

}

When we wish to draw your attention to a particular part of a code block, the relevant lines

or items are set in bold:

//This struct can be initialized and used as below

Trade tStruct = Trade({tradeid:123, quantity:1, price:1,

trader:"equinox"});

}

Any command-line input or output is written as follows:

$ sudo apt-get install solc

Bold: Indicates a new term, an important word, or words that you see onscreen For

example, words in menus or dialog boxes appear in the text like this Here is an example:

"Enter the password and click on SEND TRANSACTION to deploy the contract."

Warnings or important notes appear like this

Tips and tricks appear like this

Get in touch

Feedback from our readers is always welcome

General feedback: Email feedback@packtpub.com and mention the book title in the

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1 Blockchain 101

If you are reading this book, it is very likely that you already have heard about blockchainand have some fundamental appreciation of its enormous potential If not, then let me tellyou that this is a technology that has promised to positively alter the existing paradigms ofnearly all industries including, but not limited to IT, finance, government, media, medical,and law

This chapter serves an introduction to blockchain technology, its technical foundations, thetheory behind it, and various techniques that have been combined together to build what isknown today as blockchain

In this chapter, we first describe the theoretical foundations of distributed systems Next,

we address the precursors of Bitcoin by which blockchain technology was introduced to theworld Finally, we introduce you to blockchain technology This approach is a logical way

to understanding blockchain technology, as the roots of blockchain are in distributed

systems We will cover a lot of ground quickly here, but don't worry—we will go over agreat deal of this material in much greater detail as you move through the book

The growth of blockchain technology

With the invention of Bitcoin in 2008, the world was introduced to a new concept, which isnow likely to revolutionize the whole of society It is something that promises to have animpact on every industry, including but not limited to the financial sector, government,media, law, and arts Some describe blockchain as a revolution, whereas another school ofthought believes that it is going to be more evolutionary, and it will take many years beforeany practical benefits of blockchain reach fruition This thinking is correct to some extent,but in my opinion, the revolution has already begun

Many prominent organizations all around the world are already writing proofs of conceptusing blockchain technology, as its disruptive potential has now been fully recognized.However, some organizations are still in the preliminary exploration stage, though they areexpected to progress more quickly as the technology matures It is a technology that has animpact on current technologies too and possesses the ability to change them at a

fundamental level

If we look at the last few years, we notice that in 2013 some ideas started to emerge thatsuggested usage of blockchain in other areas than cryptocurrencies Around that time theprimary usage of blockchain was cryptocurrencies, and many new coins emerged duringthat time The following graph shows a broad-spectrum outline of year wise progression

and adaption trend of blockchain technology Years shown on the x axis indicate the range

of time in which a specific phase of blockchain technology falls Each phase has a name

which represents the action and is shown on the x axis starting from the period of IDEAS &

THOUGHTS to eventually MATURITY & FURTHER STANDARDIZATION The y axis

shows level of activity, involvement and adoption of blockchain technology The graph

shows that eventually, roughly around 2025 blockchain technology is expected to become

mature with a high number of users

Blockchain technology adoption and maturity

The preceding graph shows that in 2013 IDEAS & THOUGHTS emerged related to other

usages of blockchain technology apart from cryptocurrencies Then in 2014 some

RESEARCH & EXPERIMENTATION started which led to PROOF OF CONCEPTS, FURTHER RESEARCH, and full-scale TRIAL PROJECTS between 2015 and 2017 In 2018

we will see REAL WORLD IMPLEMENTATIONS Already many projects are underway and set to replace existing systems, for example, Australian Securities Exchange (ASX) is

soon to become the first organization to replace its legacy clearing and settlement systemwith blockchain technology

More information on this topic can be found at

https://www.asx.com.au/services/chess-replacement.htm

It is expected that during 2019 more research will be carried out along with some interesttowards regulation and standardization of blockchain technology After this, productionready projects and off the shelf products utilizing blockchain technology will be availablefrom 2020 and by 2021 mainstream usage of blockchain technology is expected to start

Progress in blockchain technology almost feels like the internet dot-com boom of the late

1990s More research is expected to continue along with adaption and further maturity ofblockchain technology, and finally, in 2025 it is expected that the technology will be matureenough to be used on day to day basis Please note that the timelines provided in the chartare not strict and can vary as it is quite difficult to predict that when exactly blockchaintechnology will become mature This graph is based on the progress made in the recentyears and the current climate of research, interest and enthusiasm regarding this technologywhich suggests that by 2025 blockchain technology is expected to become mature

Interest in blockchain technology has risen quite significantly over the last few years Oncedismissed as simply geek money from a cryptocurrency point of view, or as something thatwas just not considered worth pursuing, blockchain is now being researched by the largestcompanies and organizations around the world Millions of dollars are being spent to adaptand experiment with this technology This is evident from recent actions taken by EuropeanUnion where they have announced plans to increase funding for blockchain research toalmost 340 million euros by 2020

Interested readers can read more about this at

https://www.irishtimes.com/business/technology/boost-for-blockch ain-research-as-eu-increases-funding-four-fold-1.3383340

More information regarding this can be found at

https://bitcoinmagazine.com/articles/report-suggests-global-spen ding-blockchain-tech-could-reach-92-billion-2021/

There are various consortiums such as Enterprise Ethereum Alliance (EEA), Hyperledger, and R3, which have been established for research and development of blockchain

technology Moreover, a large number of start-ups are providing blockchain-based

solutions already A simple trend search on Google reveals the immense scale of interest

in blockchain technology over the last few years Especially, since early 2017 the increase in

the search term blockchain is quite significant, as shown in the following graph:

Google trend graph for blockchain

Various benefits of this technology are envisioned, such as decentralized trust, cost savings,transparency, and efficiency However, there are multiple challenges too that are an area ofactive research on blockchain, such as scalability and privacy

In this book, we are going to see how blockchain technology can help bring about thebenefits mentioned earlier You are going to learn about what exactly is blockchain

technology, and how it can reshape businesses, multiple industries, and indeed everydaylife by bringing about a plenitude of benefits such as efficiency, cost saving, transparency,and security We will also explore what is distributed ledger technology, decentralization,and smart contracts and how technology solutions can be developed and implementedusing mainstream blockchain platforms such as Ethereum, and Hyperledger We will alsoinvestigate that what challenges need to be addressed before blockchain can become amainstream technology

Chapter 18, Scalability and Other Challenges, is dedicated to a discussion of the limitations

and challenges of blockchain technology

Distributed systems

Understanding distributed systems is essential to the understanding of blockchain

technology, as blockchain is a distributed system at its core It is a distributed ledger whichcan be centralized or decentralized A blockchain is originally intended to be and is usuallyused as a decentralized platform It can be thought of as a system that has properties of bothdecentralized and distributed paradigms It is a decentralized-distributed system

Distributed systems are a computing paradigm whereby two or more nodes work with

each other in a coordinated fashion to achieve a common outcome It is modeled in such away that end users see it as a single logical platform For example, Google's search engine isbased on a large distributed system, but to a user, it looks like a single, coherent platform

A node can be defined as an individual player in a distributed system All nodes are

capable of sending and receiving messages to and from each other Nodes can be honest,faulty, or malicious, and they have memory and a processor A node that exhibits irrational

behavior is also known as a Byzantine node after the Byzantine Generals Problem.

The Byzantine Generals problem

In 1982, a thought experiment was proposed by Lamport and others in

their research paper, The Byzantine Generals Problem which is available at:

generals-​problem/​ whereby a group of army generals who lead differentparts of the Byzantine army are planning to attack or retreat from a city.The only way of communicating among them is via a messenger They

https:/​/​www.​microsoft.​com/​en-​us/​research/​publication/​byzantine-need to agree to strike at the same time in order to win The issue is thatone or more generals might be traitors who could send a misleading

message Therefore, there is a need for a viable mechanism that allows foragreement among the generals, even in the presence of the treacherousones, so that the attack can still take place at the same time As an analogy

to distributed systems, the generals can be considered nodes, the traitors

as Byzantine (malicious) nodes, and the messenger can be thought of as achannel of communication among the generals

This problem was solved in 1999 by Castro and Liskov who presented the

Practical Byzantine Fault Tolerance (PBFT) algorithm, where consensus is

reached after a certain number of messages are received containing thesame signed content

This type of inconsistent behavior of Byzantine nodes can be intentionally malicious, which

is detrimental to the operation of the network Any unexpected behavior by a node on thenetwork, whether malicious or not, can be categorized as Byzantine

A small-scale example of a distributed system is shown in the following diagram This

distributed system has six nodes out of which one (N4) is a Byzantine node leading to possible data inconsistency L2 is a link that is broken or slow, and this can lead to partition

in the network

Design of a distributed system: N4 is a Byzantine node, L2 is broken or a slow network link

The primary challenge in distributed system design is coordination between nodes andfault tolerance Even if some of the nodes become faulty or network links break, the

distributed system should be able to tolerate this and continue to work to achieve thedesired result This problem has been an active area of distributed system design researchfor many years, and several algorithms and mechanisms have been proposed to overcomethese issues

Distributed systems are so challenging to design that a hypothesis known as the CAP

theorem has been proven, which states that a distributed system cannot have all three of the

much-desired properties simultaneously; that is, consistency, availability, and partitiontolerance We will dive into the CAP theorem in more detail later in this chapter

The history of blockchain and Bitcoin

Blockchain was introduced with the invention of Bitcoin in 2008 Its practical

implementation then occurred in 2009 For the purposes of this chapter, it is sufficient toreview Bitcoin very briefly, as it will be explored in great depth in Chapter 5, Introducing

Bitcoin However, it is essential to refer to Bitcoin because, without it, the history of

blockchain is not complete

Electronic cash

The concept of electronic cash or digital currency is not new Since the 1980s, e-cash

protocols have existed that are based on a model proposed by David Chaum

Just as understanding the concept of distributed systems is necessary to comprehendblockchain technology, the idea of electronic cash is also essential in order to appreciate thefirst and astonishingly successful application of blockchain, Bitcoin, or more broadly

cryptocurrencies in general

Two fundamental e-cash system issues need to be addressed: accountability and

anonymity

Accountability is required to ensure that cash is spendable only once (double-spend

problem) and that it can only be spent by its rightful owner Double spend problem ariseswhen same money can be spent twice As it is quite easy to make copies of digital data, thisbecomes a big issue in digital currencies as you can make many copies of same digital cash

Anonymity is required to protect users' privacy As with physical cash, it is almost

impossible to trace back spending to the individual who actually paid the money

David Chaum solved both of these problems during his work in 1980s by using two

cryptographic operations, namely blind signatures and secret sharing These terminologies

and related concepts will be discussed in detail in Chapter 3, Symmetric Cryptography and

Chapter 4, Public Key Cryptography For the moment, it is sufficient to say that blind

signatures allow for signing a document without actually seeing it, and secret sharing is a

concept that enables the detection of double spending, that is using the same e-cash tokentwice (double spending)

In 2009, the first practical implementation of an electronic cash (e-cash) system namedBitcoin appeared The term cryptocurrency emerged later For the very first time, it solved

the problem of distributed consensus in a trustless network It used public key

cryptography with a Proof of Work (PoW) mechanism to provide a secure, controlled, and

decentralized method of minting digital currency The key innovation was the idea of anordered list of blocks composed of transactions and cryptographically secured by the PoWmechanism This concept will be explained in greater detail in Chapter 5, Introducing

Bitcoin.

Other technologies used in Bitcoin, but which existed before its invention, include Merkletrees, hash functions, and hash chains All these concepts are explained in appropriatedepth in Chapter 4, Public Key Cryptography.

Looking at all the technologies mentioned earlier and their relevant history, it is easy to seehow concepts from electronic cash schemes and distributed systems were combined tocreate Bitcoin and what now is known as blockchain This concept can also be visualizedwith the help of the following diagram:

The various ideas that supported the invention of Bitcoin and blockchain

In 2008, a groundbreaking paper entitled Bitcoin: A Peer-to-Peer Electronic Cash System was written on the topic of peer-to-peer electronic cash under the pseudonym Satoshi Nakamoto.

It introduced the term chain of blocks No one knows the actual identity of Satoshi

Nakamoto After introducing Bitcoin in 2009, he remained active in the Bitcoin developercommunity until 2011 He then handed over Bitcoin development to its core developers andsimply disappeared Since then, there has been no communication from him whatsoever,

and his existence and identity are shrouded in mystery The term chain of blocks evolved over the years into the word blockchain.

As stated earlier, blockchain technology incorporates a multitude of applications that can beimplemented in various economic sectors Particularly in the finance sector, significantimprovement in the performance of financial transactions and settlements is seen as

resulting in desirable time and cost reductions Additional light will be shed on theseaspects of blockchain in Chapter 17, Blockchain – Outside of Currencies where practical use

cases will be discussed in detail for various industries For now, it is sufficient to say thatparts of nearly all economic sectors have already realized the potential and promise ofblockchain and have embarked, or will do so soon, on the journey to capitalize on thebenefits of blockchain technology

Blockchain defined

Layman's definition: Blockchain is an ever-growing, secure, shared record

keeping system in which each user of the data holds a copy of the records,which can only be updated if all parties involved in a transaction agree toupdate

Technical definition: Blockchain is a peer-to-peer, distributed ledger that

is cryptographically-secure, append-only, immutable (extremely hard tochange), and updateable only via consensus or agreement among peers.Now let's examine the preceding definitions in more detail We will look at all keywords inthe definitions one by one

Peer-to-peer

The first keyword in the technical definition is peer-to-peer This means that there is no

central controller in the network, and all participants talk to each other directly This

Distributed ledger

Dissecting the technical definition further reveals that blockchain is a distributed ledger,

which simply means that a ledger is spread across the network among all peers in thenetwork, and each peer holds a copy of the complete ledger

Cryptographically-secure

Next, we see that this ledger is cryptographically-secure, which means that cryptography has

been used to provide security services which make this ledger secure against tampering andmisuse These services include non-repudiation, data integrity, and data origin

authentication You will see how this is achieved later in Chapter 3, Symmetric Cryptography

which introduces the fascinating world of cryptography

scenarios wherein collusion against the blockchain network succeeds in gaining more than

51 percent of the power There may be some legitimate reasons to change data in the

blockchain once it has been added, such as the right to be forgotten or right to erasure (also

defined in General Data Protection (GDPR) ruling, https://gdpr-info.eu/art-17-gdpr/).However, those are individual cases that need to be handled separately and that require anelegant technical solution For all practical purposes, blockchain is indeed immutable andcannot be changed

Updateable via consensus

Finally, the most critical attribute of a blockchain is that it is updateable only via consensus.

This is what gives it the power of decentralization In this scenario, no central authority is incontrol of updating the ledger Instead, any update made to the blockchain is validatedagainst strict criteria defined by the blockchain protocol and added to the blockchain onlyafter a consensus has been reached among all participating peers/nodes on the network Toachieve consensus, there are various consensus facilitation algorithms which ensure that allparties are in agreement about the final state of the data on the blockchain network andresolutely agree upon it to be true Consensus algorithms are discussed later in this chapterand throughout the book as appropriate

Blockchain can be thought of as a layer of a distributed peer-to-peer network running ontop of the internet, as can be seen in the following diagram It is analogous to SMTP, HTTP,

or FTP running on top of TCP/IP

The network view of a blockchain

At the bottom layer in the preceding diagram, there is the internet, which provides a basiccommunication layer for any network In this case, a peer-to-peer network runs on top ofthe internet, which hosts another layer of blockchain That layer contains transactions,blocks, consensus mechanisms, state machines, and blockchain smart contracts All of thesecomponents are shown as a single logical entity in a box, representing blockchain above thepeer-to-peer network Finally, at the top, there are users or nodes that connect to the

blockchain and perform various operations such as consensus, transaction verification, andprocessing These concepts will be discussed in detail later in this book