Components of Blockchain: Explained
















Staking Basics


Components of B...


Components of Blockchain: Explained

10 mins read / updated on Tue Nov 21 2023


What is Blockchain?

Envision a transformative digital ledger that's driving popular digital currencies like Bitcoin and Ethereum; this is blockchain. Essentially, a blockchain is an ever-expanding record of transactions, which is open for all to inspect and authenticate.

If you were to delve into the Bitcoin blockchain, you'd see a detailed history of Bitcoin transactions since its inception. The revolutionary essence of blockchain is its capacity to facilitate digital value exchanges without a central entity like banks or credit card processors.

Also Read: Ethereum Merge

Imagine a world where virtually any financial service you rely on today can be replaced by a transparent, decentralized system that only requires a smartphone and internet connectivity.

A plethora of cryptocurrencies, such as Bitcoin, Ethereum, Bitcoin Cash, and Litecoin, lean on blockchain networks for their security, a mechanism ensured by an immense computational verification process.

What makes blockchain a cornerstone for many digital currencies is its inherent trustworthiness. People who may be total strangers can confidently transact without needing a trusted intermediary, such as a bank, making transactions not only secure but also straightforward.

Moreover, the intrigue of blockchain doesn't stop at digital currencies. This versatile technology is being leveraged for advancing medical research, enhancing the precision of healthcare databases, refining logistics operations, and a host of other applications.

Also Read: Ethereum Virtual Machine

What are the Key Components of the Blockchain Network?

Firstly, the rules that define the blockchain's workings and interactions are known as protocols. These protocols establish the acceptable practices within the blockchain and dictate how participants converse.


A mesh of computers, termed nodes, form the backbone of the blockchain. These computers are perpetually in communication, updating each other about the latest transactions and blocks. A full node houses a replica of the entire blockchain, whereas a light node does not.

Think of the light node as a mobile phone that needs to link up to a cell tower (the full node) to engage with the broader network. Just as cell towers constitute the vital infrastructure of mobile communication, full nodes are essential to the blockchain network. They operate ceaselessly, ensuring the reliability and security of the network.

Now, when dealing with a wallet on your device, you're likely interacting through a light node. Before any transaction on the blockchain, this light node needs to establish a connection with a full node. Those who wish to strengthen the network's stability can run a full node, though it's not mandatory for cryptocurrency use.

Also Read: What is Cryptocurrency


Miners, a subset of nodes, hold a special place within the network. Apart from supporting the network like other nodes, miners have the added responsibility of generating new blocks.

To grasp the miners' role, visualize each block as a consensus on transactional history over a short duration. This consensus is crucial to establish the sequence of transactions. For example, while Bitcoin takes about 10 minutes to achieve this consensus, Horizen does it in roughly 2.5 minutes.

Each miner operates on a unique block, thanks to transactional lags across the network. The challenge for miners is to crack a cryptographic riddle to authenticate a block. The moment one block gets confirmed, miners immediately start deciphering the next. The first miner to decode the puzzle can add the subsequent block, thus determining the transaction history for that period. Upon this, the entire node network, whether mining or not, validates the solution, and if accurate, incorporates the new block into their blockchain copy. This cyclic process is the foundation of achieving consensus on the network.

Furthermore, the time needed to solve these puzzles isn't fixed; it's dynamic, influenced by factors like the number of miners and puzzle complexity.

Also Read: How to become a node operator on eth

Hash Functions

The crux of decentralized networks is data validation. It's crucial to segregate genuine data from potentially harmful ones. Here, hash functions come into play. These mathematical functions validate data at several junctures within the blockchain, playing a pivotal role in its architecture.

Characteristically, hash functions accept varied inputs but always produce a fixed-length output, often referred to as the hash. They are unidirectional, seemingly random, consistent, and seldom produce the same output for different inputs.

One prominent hash function is the SHA256, indicating its output size of 256 bits. A hash can effectively act as data's unique identifier, and by comparing hash values, one can detect changes and ensure data accuracy.

Also Read: What is a validator

Public-Key Cryptography

To claim ownership, there needs to be a distinct identity. Public-key cryptography, or asymmetric cryptography, addresses this by facilitating confidential communication. In simple terms, you receive funds through your public key and spend them using your private key.

This mechanism is akin to traditional postal systems. Your public key can be compared to your residential address, which you share for correspondence. Conversely, your private key is like the key to your mailbox, granting exclusive access to its contents. This key, due to its power over funds, should be fiercely guarded.

In the realm of blockchain, sending or receiving funds equates to broadcasting a message to all network nodes. This message, encrypted with your private key, is referred to as signing a transaction.

Also Read: What is a Private Key

A Peer-to-Peer Network

Public blockchains can be likened to digital commons, accessible by anyone with internet access, without centralized ownership. Instead, they rely on a global network of independent nodes or peers.

You might be familiar with the Peer-to-Peer (P2P) network term, often associated with decentralized file-sharing platforms like BitTorrent. Unlike centralized networks, users in P2P systems directly connect to numerous peers, mutually offering services.

Such decentralized networks are inherently robust, eliminating single points of failure. The resilience and decentralized nature of blockchains empower them with attributes like being permissionless and resistant to censorship.

Also Read: Blockchain Nodes

Transaction Process in the Blockchain Network?

At its core, a blockchain transaction represents the digital handover of an asset from one individual to another. Every transaction is composed of the sum involved, where the funds are headed, and a unique signature that confirms its legitimacy. Typically, this process is initiated through the dashboard of a crypto wallet.

But how does the entire transaction mechanism function from start to finish? Let's dive deep into the process:

Creating a transaction

Inside a crypto wallet, before any transaction takes flight, it first exists as an “intent”. Think of this as a digital handshake agreement, giving you a preview of all transaction details before you give the green light. For instance, if you were dispatching some ETH to a colleague, the preview would include your address (public key), the receiving address, the ETH amount in question, and any related stipulations.

Also Read: What is a blockchain wallet

Signing the Transaction

Post your agreement to the transaction, it's then endorsed using your private key. This validation asserts that the originating account is under your control and the transfer terms are acceptable to you. The endorsed transaction also earmarks the final destination of the assets — a designated public address. Later, this allows the beneficiary to claim the assets with their matching private key.

Distribution To The Nodes

Post your signature, this transaction is relayed across various crypto nodes. At this juncture, the transaction is temporarily housed in the mempool within each node. Think of the mempool as a transaction lobby. But remember, each node has its own unique mempool. Consequently, during this stage, nodes might authenticate transactions in varying sequences. Additionally, some mempools remain inaccessible to the public. The reason? Any individual can be a block maker, allowing them to authenticate their transactions and embed them within a block. Hence, certain block producers opt for a private mempool, only catering to transactions initiated by themselves or close contacts.

Verification in the Mempool

Inside the mempool, a transaction's status is either marked as "queued" or "pending". Queued transactions are awaiting authentication. For approval, nodes utilize your provided public key (included in the transaction) to verify if your account possesses the requisite digital assets. Concurrently, they evaluate the authenticity of your signature. Once all checks are passed, the transaction is deemed valid by the node and is then relayed to its peers, continuing the cycle.

Block Creators

Now, in a decentralized framework, who's responsible for appending the transaction to a block and broadcasting it? Enter: block creators. These are dedicated nodes with the authority to introduce new blocks into the chain. Wondered about gas fees? They offset the cost associated with block creation. In proof-of-work models like Bitcoin, miners are the block creators. They craft blocks by cracking intricate mathematical puzzles using high-end machinery and significant energy. However, in a proof-of-stake model, these block creators are called validators. Their modus operandi isn't about solving puzzles but about staking a defined amount of crypto. The block creator here is either elected via voting or is the one with the highest stake in the system. Thus, every blockchain has its unique protocol for electing block creators who are instrumental in suggesting blocks.

Block proposal

Subsequently, a block creator cherry-picks a transaction from the mempool, proposing its inclusion in the blockchain. This block is stamped with a cryptographic hash encapsulating all transaction details.

Broadcasting and Verification

The next step involves the block creator (be it a miner or validator) broadcasting the proposed block to the entire network. All nodes now receive this block's data, examining its intricacies. For instance, in proof-of-work models, while only the fastest block creator gets to suggest the block, every other node cross-verify the solution. They meticulously assess all transaction specifics, ensuring compliance with the network's foundational rules, aptly termed the consensus mechanism. These regulations, uniformly present across all global nodes, ensure unanimous conclusions for every block.


A consensus emerges when the majority of nodes concur on the validity of a proposed block. Upon agreement, the blockchain copies across all nodes reflect the updated transaction. If you were remitting cryptocurrency, your balance decreases, and your friend's increases. The block creator is then compensated, and all other nodes purge the transaction from their mempools, turning their attention to the subsequent block.

How Do Blockchains Solve Discrepancies in The Chain?

Post-transaction inclusion in a block, it's permanently etched into the blockchain's annals. This permanency arises from the interdependence of blocks' cryptographic hashes. Hence, tampering with a transaction would jeopardize the network's integrity. Nodes can effortlessly pinpoint malicious activities since any error affects subsequent block validations.

Yet, what about unintentional errors? Given the varied speed of nodes in disseminating information, discrepancies might arise. To iron out these mismatches, networks have inherent protocols. Take Bitcoin, for example. It gives precedence to the blockchain version with the most extended, valid transaction history. This ensures all nodes synchronize with the latest chain version.

What is distributed ledger technology (DLT)?

Distributed Ledger Technology (DLT) is often referred to as a "shared ledger" or just distributed ledger. It's a digital infrastructure that permits both users and systems to document asset-related activities. Unlike conventional databases that rely on a central storage space, DLT disperses its data across various locations at any given time.

The absence of a centralized storage spot is what sets DLT apart from traditional databases. Its decentralized nature boosts its security, ensures transparency, and instills confidence among its users.

So, where did DLT come into play?

DLT traces its roots back to the peer-to-peer (P2P) network. Within this kind of network, peers interact without the requirement for a central intermediary. Essentially, the foundation of DLT lies in the P2P framework. To facilitate decentralization, a consensus algorithm comes into play.

At present, DLTs are gaining significant attention, revolutionizing various industry landscapes. Blockchain is one notable example of a technology that falls under DLT.

What are consensus mechanisms?

For a blockchain, the consensus mechanism acts as a regulatory system, ensuring that every participant has a uniform transaction history. With every block addition, the participants must concur on a universally accepted transaction history. Achieving consensus within distributed networks can be approached in multiple ways.

Imagine a scenario where a user with one ZEN attempts two simultaneous transactions using the same coin. Some network participants might get the first version of the transaction, while others might get the second. This raises the question: which transaction came first?

This is where the consensus mechanism steps in. It allows a vast number of entities, unfamiliar with each other and inherently distrusting, to settle on a unanimous version of the blockchain.

Consensus Amidst Distributed Networks:

Creating consensus in such systems isn't a cakewalk. The mechanism should be robust enough to counteract malicious participants and should work seamlessly in unreliable communication environments. The terms "liveness" refers to the system's ability to run without hitches, while "safety" signifies the unanimous agreement on new block additions. Nakamoto Consensus shines by introducing a uniquely non-deterministic consensus.

How to Make a Private Blockchain Architecture?

Venturing into private blockchain development rather than using a public one? Here's a stepwise methodology to help you construct it seamlessly:

Step 1: Choose your protocol

Kick-start your private blockchain journey by picking a suitable blockchain framework. Options include:

- Adopting an EVM-compatible protocol for Ethereum synergy.

- Leveraging the substrate platform for efficient blockchain creation with extensive technical backing.

- Choosing Cosmos or Provenance for a scalable environment.

- Alternatively, consider forking a pre-existing protocol.

Step 2: Construct the foundational logic

With the protocol in place, move on to:

- Adjust the pre-existing logic.

- Settle on your consensus mechanism.

- Decide on transaction charges.

- Refresh header details.

- Tweak block dimensions if necessary.

- Develop pallets.

- Opt for the best permission module.

- Determine the optimal storage method for your chain.

Step 3: Logic execution

Post the establishment of your blockchain's intrinsic logic, it's time for the development phase which involves:

- Rolling out a test network.

- Locking down storage options.

- Generating an original genesis key store.

- Pre-determining launch nodes and their locations.

- Facilitating API integration for fluid data exchange.

Step 4: Undergo testing

With the development phase concluded, launch your testing network. If your blockchain boasts a faucet, now's the time to validate its operations. Employ specialized tools for benchmarking and observation during this rigorous examination phase.

Step 5: Deploy the primary network

Once testing concludes with all identified problems rectified, you're prepared to roll out the primary network.

Step 6: Combine with the network

Lastly, synchronize your faucet, digital wallet, block explorer, tools, and SDKs with the mainnet. With that, your personal blockchain network stands established.

Also Read: Blockchain and Web3


Q: How do blockchain components work together?

A: Blockchain components like blocks, nodes, consensus algorithms, and cryptographic hashes work in tandem. Transactions are grouped into blocks, which are chained together using cryptographic hashes. Nodes validate and store these blocks, and consensus algorithms ensure that all nodes agree on the state of the blockchain.

Q: What are some solutions to the scalability problem, such as sharding and sidechains?

A: Sharding divides the network into smaller segments, allowing for parallel processing of transactions. Sidechains are separate blockchains that can interoperate with the main chain, offloading certain transactions. Both methods aim to increase the capacity and speed of transaction processing.

Q: How does blockchain technology contribute to the overall digital economy?

A: Blockchain provides a transparent, immutable, and decentralized ledger, facilitating trustless transactions, reducing fraud, and eliminating intermediaries. It aids in creating secure digital identities, streamlining supply chains, and introducing new business models through tokens and smart contracts.

Q: What are some potential future developments for blockchain components?

A: Future developments include improved consensus algorithms, integration with AI and IoT, inter-blockchain communication, privacy enhancements, and the evolution of decentralized finance (DeFi) platforms and decentralized autonomous organizations (DAOs).

Q: What are some examples of blockchain use cases?

A: Examples include digital currency (e.g., Bitcoin), supply chain management, voting systems, digital identity verification, property title transfers, and smart contracts that autonomously execute predefined agreements.

Q: What is the scalability problem in blockchains?

A: The scalability problem refers to blockchains' current limitations in processing a high volume of transactions quickly, due to block size restrictions and the time taken to achieve consensus, leading to congestion and increased transaction fees.

Q: How is cryptography used in a blockchain context?

A: Cryptography ensures data integrity and security on blockchains. It's used in creating digital signatures for transaction validation, hashing for linking blocks, and encryption to ensure privacy and data protection.


Zainab Saberi

Join Stader’s newsletter

Get the latest updates, new DeFi strategies and exclusive offers right in your email box


You are subscribing to all our networks

Select networks





SD Utility Pool


Community Forum

© Copyright 2023 Stader. All rights reserved.

Terms of service

Privacy policy