What Is Blockchain ? / How blockchain works ?

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Now that we know the basics of blockchain, let’s see how it works behind the scenes. This information should help you decide whether blockchain will work for your scenario.

What Is Blockchain ? / How blockchain works ?

How is data distributed ?

In our scenario, there are multiple companies. We could have a centralized database at the dairy processing company. However, no one participant wants to be the central authority. We could use a blockchain distributed ledger.

Using blockchain removes the need for a central authority. Also, each participant with a blockchain node has a copy of the ledger so that they can do their own auditing and integration with their systems. But, there isn’t a requirement for each company to have their own node. Nodes may be shared between partners.

Each node is connected to other nodes using a blockchain network. For example, Dalia Pelayo farms, the ice cream factory, and the ice cream shops each have a node they manage. Contoso West and Contoso East are separate partners that share the same parent company. Contoso has one node. There doesn’t need to be a one to one relationship of nodes to companies.

Changing state

Data in a blockchain represents state. That’s why digital tokens like cryptocurrency are a good fit for blockchain. If we think about the ownership of physical currency, a coin can only be in one person’s pocket at a time. If the coin is in your pocket, the state of ownership is yours.

If you give the coin to your friend, the state changes to your friend owning the coin. In our scenario, shipments move through the supply chain. Responsibility for the product must be transferred. The data we’re interested in is the responsible party, temperature, and if the product is in compliance.

Blockchain uses transactions to change the state of the data from one value to another. For example, we need to know if the ice cream is stored below freezing. In a shipment of ice cream, a temperature sensor reports the temperature periodically. The reported temperature is a transaction that is sent to a blockchain transaction node.

Example transaction from an IoT temperature sensor. The transaction sets the temperature to -2° celsius in the ledger.

In the ice cream scenario, when a shipment is sent through the supply chain, a transaction is sent each time the status changes. For example, the illustration shows transactions for a typical shipment to the ice cream factory. Each transaction changes either the responsible party or the temperature. The current state of the ledger is the transactions applied in order.

List of transactions in order that change the responsible party and temperature. The combination of transactions result in a ledger state based on the order of transaction changes.

When sending a transaction, you send it to a blockchain transaction node. Let’s suppose Dalia Pelayo Farms sends a shipment of milk using Contoso West Shipping. Dalia Pelayo Farms shipment system sends a transaction to their blockchain node. The transaction updates the shipment responsibility from the farmer to Contoso West Shipping.

A transaction from the farmer being sent to the farmer's blockchain node.

Blockchain sends the transaction throughout the blockchain network. Each node gets a copy of the transaction.

A transaction being copied to all participant blockchain node peers.

Each node processes the transaction but it still requires validation using a consensus mechanism. Consensus enables consistency and trust for the distributed ledger.

What is a block ?

A block is a cluster of data within the blockchain that stores transaction information. The number of transactions in a block is usually time-based. For example, the illustration shows a block containing transactions that occurred in the past 10 minutes.

Example of several transactions representing a block. The order of transactions result in a given state.

Through consensus, validated blocks are added to the blockchain at each node. Because all nodes have the same blocks in the chain, the ledger is consistent across the network. As a result, all the nodes contain the same validated data in an agreed upon order.

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