Blockchain technology is the backbone of cryptocurrencies, and it has applications in finance, government, media, and many other industries. With a legacy of providing technologists with executable insights, the third edition of Mastering Blockchain is thoroughly revised and updated with the latest blockchain research, including four new chapters on consensus algorithms, Serenity (Ethereum 2.0), tokenization, and enterprise blockchains.

Apart from covering the basics, including blockchain's technical underpinnings, cryptography, and consensus protocols, this book provides you with expert knowledge on decentralization, decentralized application development on Ethereum, Bitcoin, alternative coins, smart contracts, alternative blockchains, and Hyperledger.

Furthermore, you will explore how to implement blockchain solutions beyond cryptocurrencies, such as the Internet of Things with blockchain, blockchain scalability, enterprise blockchains, and tokenization using blockchain, and the future scope of this fascinating and disruptive technology.

Blockchain is a platform where peers can exchange value/e-cash using transactions without the need for a centrally trusted arbitrator. For example, for cash transfers, banks act as a trusted third party. In financial trading, a central clearing house acts as a trusted third party between two or more trading parties. This concept is compelling, and, once you absorb it, you will realize the enormous potential of blockchain technology. This disintermediation allows blockchain to be a decentralized consensus mechanism where no single authority is in charge of the database. Immediately, you'll see a significant benefit of decentralization here, because if no banks or central clearing houses are required, then it immediately leads to cost savings, faster transaction speeds, and more trust.

To understand blockchain we need to understand key concepts like:

The first concept is peer-to-peer, or P2P This means that there is no central controller in the network, and all participants (nodes) talk to each other directly. This property allows for transactions to be conducted directly among the peers without third-party involvement, such as by a bank.

Dissecting the technical definition further reveals that blockchain is a "distributed ledger," which means that a ledger is spread across the network among all peers in the network, and each peer holds a copy of the complete ledger.

Next, we see that this ledger is "cryptographically secure," which means that cryptography has been used to provide security services that make this ledger secure against tampering and misuse. These services include non-repudiation, data integrity, and data origin authentication. You will see how this is achieved later in Chapter 4, Public Key Cryptography, which introduces the fascinating world of cryptography.

Another property that we encounter is that blockchain is "append-only," which means that data can only be added to the blockchain in time-sequential order. This property implies that once data is added to the blockchain, it is almost impossible to change that data and it can be considered practically immutable. In other words, blocks added to the blockchain cannot be changed, which allows blockchain to become an immutable and tamper-proof ledger of transactions.

However, remember that it can be changed in rare scenarios wherein collusion against the blockchain network by bad actors succeeds in gaining more than 51 percent of the power. Otherwise, the blockchain is practically immutable.

The most critical attribute of a blockchain is that it is updateable only via consensus. This is what gives it the power of decentralization. In this scenario, no central authority is in control of updating the ledger. Instead, any update made to the blockchain is validated against strict criteria defined by the blockchain protocol and added to the blockchain only after a consensus has been reached among all participating peers/nodes on the network. To achieve consensus, there are various consensus facilitation algorithms that ensure all parties agree on the final state of the data on the blockchain network and resolutely agree upon it to be true.

• In the preceding diagram, the lowest layer is the Network, which is usually the internet and provides a base communication layer for any blockchain.
• A peer-to-peer network runs on top of the Network layer, which consists of information propagation protocols such as gossip or flooding protocols.
• After this comes the Cryptography layer, which contains crucial cryptographic protocols that ensure the security of the blockchain. These cryptographic protocols play a vital role in the integrity of blockchain processes, secure information dissemination, and blockchain consensus mechanisms. This layer consists of public key cryptography and relevant components such as digital signatures and cryptographic hash functions. Sometimes, this layer is abstracted away, but it has been included in the diagram because it plays a fundamental role in blockchain operations.
• Next comes the Consensus layer, which is concerned with the usage of various consensus mechanisms to ensure agreement among different participants of the blockchain. This is another crucial part of the blockchain architecture, which consists of various techniques such as SMR, proof-based consensus mechanisms, or traditional (from traditional distributed systems research) Byzantine fault-tolerant consensus protocols.
• Further to this, we have the Execution layer, which can consist of virtual machines, blocks, transaction, and smart contracts. This layer, as the name suggests, provides executions services on the blockchain and performs operations such as value transfer, smart contract execution, and block generation. Virtual machines such as Ethereum Virtual Machine (EVM) provide an execution environment for smart contracts to execute.
• Finally, we have the Applications layer, which is composed of smart contracts, decentralized applications, DAOs, and autonomous agents. This layer can effectively contain all sorts of various user level agents and programs that operate on the blockchain. Users interact with the blockchain via decentralized applications.