Blockchain 101
Transactions, Blocks, Consensus, Protocols, and Networks
Bitcoin and Ethereum made it to the news in 2021 due to all-time high price records. People know that they somehow are related to “the blockchain”, but very often the knowledge is rather fuzzy. During the onboarding process at my new job at Cashlink, I’ve participated in several learning sessions given by Niklas Baumstark which sharpened my knowledge.
After reading this article, you will know the basic terminology and be able to set the concepts into context.
This article will not go into different use-cases of blockchains. If you’re looking for that, please read:
Transactions
A transaction (short: TX) consists of one or more operations, security features, fees, and time bounds.
The operations can be anything, but a coin/token transfer is the most typical one. In Ethereum, a smart contract call would be another type of operation.
One of the security features is a cryptographic nonce — number used only once. The nonce prevents the same transaction from being executed multiple times. If your transaction is “pay 10 EUR to Kevin” you would not want Kevin to repeatedly execute that transaction. The nonce makes sure it doesn’t happen. This nonce is typically a sequence number, meaning that you just count up the number.
Another security feature is a digital signature. The creator of the transaction signs the complete transaction and adds the signature to it. This way, everybody knows who the author is. This means one can ensure that the operation is permitted, e.g. for a token transfer that the creator of the transfer is the current holder of the token.
Fees are another important part of transactions. Operating the network isn’t for free and the capacity to add transactions is limited. By allowing people to add fees to the transactions, they can be more certain that their transactions will pass.