Let’s start at the beginning, the transaction, the distributed ledger entry. Think about the content of the transaction as the payload. Next think of the payload as land deed, cryptocurrency value, record of ownership, journal entry, smart contract … marriage contract. Either two or more people seek to exchange and record. Another way to think about all of this is as a block of data, code or other digital representation of something duplicated in every participant’s copy of the current ledger. No matter what happens, a secure system must be established for a smooth cryptocurrency transaction to take place. Maybe look for the best vpn for crypto trading? Could be an option, but only in the later stages when the initial nitty-gritty of the process is established.
A governance model is required
What is essential, before anyone can do anything.
The parties seeking to exploit a distributed ledger must define how it will work.
It is what the community or parties seek to represent and manage, using distributed ledger technology, agree.
The whole process of defining the payload begins when the community agrees to and sets off to publish the processes, procedures, rules, functions, and purpose of their application. It is this act of governance we use to define how and what will be conveyed in the payload to be stored and recorded on a blockchain. Which blockchain, protocol, and cryptographic processes; obviously it is a decision of the community.
We need to be clear before we can do anything with the payload. Ourselves and ultimately others will have initially and subsequently defined the mechanics and processes designed to assure the integrity of the blockchain itself.
A Transaction is appended to the chain
There are two parties to each event recorded within these transactions. The agreed events, transactions and smart contracts are ultimately included in a block and properly extended onto the chain for everyone to see and read. More about Confidentiality in another post.
Once governance is established
People can now interact
Each party has an address and then addresses unique to each asset e.g. coin. The address, in most cases, is simply an asymmetric cryptographic public key.
- The individual, as is always the case with cryptography, has their own private key(s); they must retain, never lose and keep secret.
When the two parties decide to record an event; the sale or transfer of the title to a car.
- A formal record of a property, a transaction, ledger entry is created.
- The basic data.
- The seller’s public key
- the buyers public key
- the payload
- a hash
- the signature created by the seller using their private key.
The transactions are broadcast to the network, buying and selling included. These transactions can take place through various methods; for instance, digital currencies could be purchased online, whereas to sell, you may have to use Bitcoin ATM and other ideas, which you can learn on Coin Cloud or similar company blogs.
The nodes or miners continuously work to assemble a defined number of transactions and create the next block.
The chain’s role is to record the providence of an asset and the immutability of all the associated transactions.
- Each active node or miner is attempting to create the next block.
- The mathematics involved and the use of hashes to bind this new block to the existing blocks in the chain is beyond the scope of this blog.
- Let us simply assume the mathematicians and cryptographers define as part of the original design of each chain an infallible solution to the issues of economics, security, integrity, and immutability.
- These specifications will define the hash game and how one adds the next block to the chain retaining the immutability of the present and the past
By being the first to calculate the cryptographic nonce
The winner receives a reward.
- Hopefully proportional to the cost of work or other discernable and agreed method of reward.
- The other active nodes then test to see if they agree the first got it right.
- If consensus is reached the new block is appended to the chain.
- This all assumes 51% or more of the miners or nodes reach consensus on the winner’s answer. And no one can control 51% or anything closer than 33%.
Around and around the game continues, as transactions are added and immutably recorded on the chain.
This whole process fundamentally assures history cannot be altered.
Chains split and fun things happen
If the process is not elegantly managed in full sight of all the participants.