Key elements of blockchain technology

In addition to the decentralized network of nodes, there are several other important parts that make up a blockchain ledger.

Cryptography:

Today, blockchains are secured through cryptography, a system for encrypting and decrypting information on a public network for private communications.

Cryptography was primarily used by military and intelligence agencies in the early 20th century, especially in times of war, when secret communication systems were essential for sharing information between posts.

Today, cryptography plays a fundamental role in the digital asset industry. These projects use encryption to secure transactions sent over public blockchain networks and allow users to prove who owns which funds.

To learn more about cryptography, check out our article How Cryptocurrencies Use Cryptography?

Distributed Ledgers:

Distributed ledgers are seen as an alternative to trusted databases, designed to give users more oversight over the maintenance of their data while reducing the liability of entities that may currently serve as centralized custodians of this sensitive information.

Given this impact, various industries and organizations are leveraging blockchain to build trusted networks to streamline information sharing and record-keeping processes while improving their performance and security.

Consensus Mechanism:

A consensus mechanism is the part of a blockchain protocol that is used to reach agreement between nodes on the state of the ledger and the validity of transactions.

It ensures that all nodes in the network follow the rules, reach consensus on the current state of the blockchain, and agree on which transactions should be added to the ledger. Essentially, it is a mechanism for achieving decentralized trust in a distributed ledger system, preventing double spending and other forms of fraud.

Over the years, many different types of consensus mechanisms have emerged; each with its own set of methods for incentivizing good behavior between nodes and discouraging malicious activity. The most predominant mechanisms used by most blockchain networks focused on cryptocurrency are Proof of Work and Proof of Stake.