5 Basic Components of A Blockchain Network

Appearing on the 4.0 technology market in the past few years, Blockchain technology is
emerging with great developments in daily activities in many areas of socio-economic
life and gradually becoming a new trend in the global technology and investment
market. This technology has the potential to bring efficiency not only in terms of
information but also to help improve operating systems in many
organizations/enterprises. Vietnam is no exception to this trend. Therefore, it is very
necessary to learn about Blockchain, especially the young generation in Vietnam.

Normally, a Blockchain platform are formed by 5 components,

including:
 1. Distributed Ledger
 2. Peer-to-peer network – P2P
 3. Consensus Mechanism
 4. Cryptography
 5. Virtual Machine
 1. Distributed Ledger

Definition
An electronic ledger is essentially a database containing all transactions that are
constantly updated. It is composed of multiple blocks (each containing at least one
transaction) and these blocks are linked together into a chain using cryptography. In
other words, the following block will contain the cryptographic identifiers of the previous
block. So, if any block in the past has a problem, it will affect all the blocks at the back of
the chain.

Highlights

 A Ledger eliminate the central authority to process and validate transactions

 Data records are only stored in the ledger when the stakeholders reach a consensus
 All participants will be shared 1 copy of the ledger including all updated records
 A ledger provides a verifiable and trackable history of all information chronologically stored on a
particular data set.

2. Peer-to-peer network – P2P

Definition
A Peer-to-peer network (P2P) is a decentralized model to communicate between many
participants also known as peer nodes without any central servers or dependence on
any other nodes. A P2P network allows each party to act as both a client and a server.
This means that after the network is formed, all participants own a copy of the ledger.
From there it can be used to share and store files without the help of an Intermediary.

Highlights

 On a Blockchain network, each node flexibly participates in the role of a client and a server of
other nodes to jointly provide and control data
 Decentralizing database and management rights eliminates the intermediary in traditional
models, which allows members to directly exchange information with each other
 All records of data are copied by all nodes to ensure the continuity of the system operation and
limit single point failures (SPOF) and denial of service (DoS)
 Improving availability for both data and methods of validating helps the system to avoid
information loss or inability to verify.

Classification

 Unstructured P2P Network

 Structured P2P Network
 Hybrid P2P Network

3. Consensus Mechanism
 Definition
The consensus mechanism prescribes sets of rules so that nodes participating in the
peer-to-peer network can work in sync and agree on which transactions are legitimate
and able to be added to the blockchain. The consensus mechanism is used to
determine the actual state of the blockchain.

Highlights

 Ensure the entire system is fault tolerant to achieve the desired agreement of a single data
value or a single network status
 Create a way for all participants to maintain the safety and security of the Blockchain network.
 Prevent double-spending on the Blockchain for cryptocurrency transactions on the Blockchain
platform.

Classification
Each type of Blockchain will have a different consensus mechanism. Currently, there
are two types of consensus mechanisms most commonly used

 Proof-of-work (PoW): The PoW algorithm is operated by miners (nodes) working together to
solve a cryptographic problem to generate the next block. The first miner to find the solution will
reach consensus, be allowed to choose the block to be added to the Blockchain network, and
receive the corresponding award. However, these problems are often complex and require
miners to have high computing power.
 Proof-of-stake (PoS): To simplify the mining process, the term of PoS is used when multiple
tokens need to be verified. The PoS rule requires miners to prove their ownership of % shares in
order to perform the corresponding % of mining activity. This saves more energy (electronics)
and operating costs.

4. Cryptography

Definition
This component ensures the security, integrity and verification of the information in the
ledger or the information transmitted between the nodes. By building on a foundation of
mathematics (especially probability theory) along with knowledge of game theory,
cryptography has come up with encryption methods that are impossible to break.

Classification
There are two main types of encryption methods:

 Symmetric Encryption: is a form of encryption to secure data, in which the encryption and
decryption of data use the same key. Since the key is used to decrypt the data, it should be kept
secret. Therefore, when using a symmetric key, the sender and receiver need a mechanism to
exchange keys before exchanging data
 Asymmetric Encryption: is a form of encryption to secure data, in which the encryption and
decryption of data uses two different keys. The key used to encrypt data is called a public key,
which can be shared widely and seen as a person’s identity. The key used to decrypt data is
called a private key, which is necessary for security to protect the rights of the receiver.

Relevant Techniques

 Blockchain address: is represented as a long string of alphanumeric characters, which is

publicly shared so other users can send transactions. Each Blockchain address will be
generated from a public key. This public key is generated from a private key that serves as a
mechanism to prove ownership of the public key (or in other words, the Blockchain address).
When performing an interactive transaction with the Blockchain network, the user will use the
private key to sign a digital signature, proving that the user is the owner of the valid Blockchain
address in the transaction.
 Digital Signature: is an encrypted string of characters sent with the original data of the
transaction on the Blockchain platform. To create a digital signature, the user will use a private
key to encrypt (called digital signature) the data contained in the transaction sent to the
recipient. Remeber that the secret key used for this encryption is the secret key that generates
 the sender’s Blockchain address. The digital signature will change if the transaction data used
for encryption changes, or in the case of the same data, but using a different user’s private key.
 Hash function: is the process of converting an unlimited amount of input data and creating a
fixed length of output data. Hash functions are often used to protect the integrity of data. Users
can verify the validity of a transaction by comparing the hash value of the transaction on the
application with the hash value of the transaction on the block explorer.

5. Virtual Machine

Definition
A virtual machine is a program that simulates a computer system. It has a CPU,
memory and virtual storage. Basically, a virtual machine works like a physical computer,
it can be used to store data, run application programs, and exist to jointly operate a
Blockchain network with other virtual machines.

Ethereum Virtual Machine (EVM)

The Ethereum virtual machine is used to ensure that transactions processed on
completely different environments and computer configurations will always create the
same results on the Ethereum platform. Essentially, an EVM is a machine that
processes smart contracts running on the Ethereum.

Nodes participating in the Ethereum system process transactions received through the
EVM. Any transaction that wants to change the status of network must go through the
process of the EVM. EVM is just a virtual machine but many copies are made. Each
node participating in the execution of the same transactions owns a copy of the EVM to
ensure the consistency of the computation.

Extension
It can be seen that the knowledge of Blockchain technology is extremely vast.
Therefore, to be able to effectively implement the necessary Blockchain
applications/solutions, organizations/enterprises in Vietnam need to have a deep
understanding of Blockchain technology and application potential to be able to catch up
with the most developing trends of the world technology market, get closer to
Blockchain technology projects and researches in Vietnam.