Referring to the rights of participants and design of the ledger blockchains can be centralized or decentralized. In a decentralized network, anyone can participate and transact on the ledger. However, it is important, that decentralized should not be confused with distributed. While a blockchain is inherently distributed (meaning that many parties hold copies of the ledger), it is not inherently decentralized.
On the other hand, a centralized network is conformed of parties with known identities . Thus, the system is valid because only credible and reputable participants can post to the ledger. Because participants’ identities are known, their transactions can therefore be audited.
As a result, mechanisms must exist in order to combat the vulnerabilities that arise from this design and to ensure that transactions are correct. Bitcoin, for example, is a decentralized blockchain that uses consensus mechanisms such as mining and proof-of-work to maintain the integrity of the ledger and to prevent people from corrupting the system.
Proof of Work
This mechanism allows nodes to generate a new block and write information inside them by solving a Proof Of Work (POW) puzzle. These POW puzzles are Non Deterministic Polynomial Accepted Problems (NP Hard Problems). These means that they need to be solved in a specific amount of time.
Nodes that calculate and solve the POW puzzle can often get cryptocurrency as rewards. The difficulty value in the POW is an important reference for miners in mining, and it determines how many hash operations miners need to run to produce a valid block. During the mining process, the difficulty value can be dynamically adjusted according to the computing power in the whole blockchain network. Proof of Stake
In this mechanism validators are selected in proportion to their quantity of holdings in the associated cryptocurrency or token. This is done to avoid the computational cost of proof of work schemes.
Critics have argued that the proof of stake will likely lead cryptocurrency blockchains being more centralized in comparison to proof of work as the system favors users who have a large amount of cryptocurrency (whales)
, which in turn could lead to users who have a large amount of cryptocurrency could have major influence on the management and direction for a crypto blockchain.
Proof of Authority
This algorithm used with blockchains that delivers comparatively fast transactions through a consensus mechanism based on identity as a stake. The most notable platform using PoA is VeChain.Proof of Reputation
Proof-of-Reputation: An Alternative Consensus Mechanism for Blockchain Systems
. Blockchains combine other technologies, such as cryptography, networking, and incentive mechanisms, to enable the creation, validation, and recording of transactions between participating nodes.
The hash algorithm can transform an input value of arbitrary length into a binary value of fixed length. This binary value is called hash value, which can be used to verify the integrity of the data. The famous Proof-of-Work algorithm is the application of the hash algorithm. The hash value of the data is stored in the block of the blockchain. In addition, the signature commonly used in blockchains is also generated by hashing the private key and the data that needs to be signed.Tokenization
A smart contract
is a computer program or a transaction protocol which is intended to automatically execute, control or document legally relevant events and actions according to the terms of a contract or an agreement.
dApps: Decentralized Apps
The objectives of smart contracts are the reduction of need in trusted intermediators, arbitrations and enforcement costs, fraud losses, as well as the reduction of malicious and accidental exceptions.A decentralised application (DApp, dApp, Dapp, or dapp) is an application that can operate autonomously, typically through the use of smart contracts, that runs on a decentralized computingblockchainsystem. Like traditional applications, DApps provide some function or utility to its users. However, unlike traditional applications, DApps operate without human intervention and are not owned by any one entity, rather DApps distribute tokenthat represent ownership.These tokens are distributed according to a programmed algorithm to the users of the system, diluting ownership and control of the DApWithout any one entity controlling the system, the application becomesdcentralised. Decentralised applications have been popularised by distributed ledger technologies (DLT), such as the Ethereum blockchain or, more recently, the Hedera Hashgraph. DApps rely on the inherent security of both decentralisation and cryptography algorithms.The trustless and transparent nature of DApps have led to greater developments in the utilisation of these features within the decentralized finance (DeFi) space.
DApps are divided into 17 categories: exchanges, games, finance, gambling, development, storage, high-risk, wallet, governance, property, identity, media, social, security, energy, insurance, and health.
Zero Knowledge Proof
Proof of Work