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Blockchain Technology: Back To Basics
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Blockchain Technology: Back To Basics

Whether you are a tokenized business or investor in tokens, knowing the basics of technology helps you make better decisions and be less dependent on advisors.

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Asymmetric Encryption

When we think about encryption, the first thing that comes to mind is protecting data. This is basically the main purpose of Asymmetric Encryption, or Public-Key Cryptography. In Blockchain, such safety is achieved with a pair of cryptographic keys: public and private.

Here’s how it works. Public keys represent account addresses, and the private key is used as a digital signature of the user. For instance, if you want to confirm the identity of the account during the consensus, you send a message encrypted with the user’s public key that only the owner of the account could decrypt.

Private key cryptography is a basis of safety for wallets with security tokens on them.

Distributed Ledger TechnologyA distributed ledger is a digital database that allows recording information at multiple places simultaneously. This leads to enhanced data security, preventing the information from being stolen, erased, or altered. Each of the participants of the network (aka nodes) has access to the records and helps to verify them.

Blockchain is only one of the technologies among multiple distributed ledgers. Although it is, as a matter of course, a sequence of blocks, other ledgers do not require such a chain. Besides, other distributed ledgers may, in theory, offer much better scaling options.

The synchronization of a single database between multiple parties is a key to many benefits of the Blockchain. It helps a lot of industries (e.g. financial sector or supply chain) be more efficient since they care about data synchronization between multiple parties.

Decentralization allows to conduct security token offering outside expensive licensed platforms.

Cryptographic Consensus

A cryptographic consensus is a fault-tolerant mechanism that is used to achieve particular agreements or make well-coordinated decisions by a group of people. In Blockchain, such agreements are required all the time due to its decentralized nature and the possibility of bugs and errors.

As any node may fail or a malicious node may emerge, the consensus helps to deal with them by means of its main feature – Byzantine Fault Tolerance (BFT). As long as two-thirds of the network participants act honestly and execute the same action, any unreliable activity will be spotted and neutralized.

Since there are several ways to build a BFT system, there are multiple types of Blockchain consensus. The most popular ones are Proof of Work (PoW) and Proof of Stake (PoS). The difference between these two is that while PoW rewards a user depending on the amount of work they have done for verifying transactions, in PoS, the creator of a new block is chosen according to their stake.

Consensus mechanism insures the immutability of transactions records, and, therefore, investor protection.

Smart contracts

A smart contract is a self-executing contract written in the code of a specific blockchain. It can be triggered and automatically executed in its entirety or partially as soon as a particular event happens. Such triggers are all indicated in the conditions of the contract that are publicly available on the ledger. This way, any participant of the network may check smart contract conditions but cannot edit them freely.

Smart contracts can be useful in various industries, such as financial market, real estate, insurance, healthcare, supply chains, trading, etc. They are autonomous, trustless, and always accurate.

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Learn more about how asset tokenization transforms transactions with securities.

Conclusion

However complicated Blockchain seems, it is much simpler when you understand its components. Start small and make sure to check out our next articles to learn even more about Blockchain technology, its benefits, and utility vs security tokens difference!

Check Stobox digital assets consulting to find out how to apply tokenization to your business.

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