The Blockchain Transaction Process has the following steps:
Cryptography Algorithm
Decentralized Network
Consensus Algorithm
Distributed Ledger
Firstly, the transaction is initiated where the authentication and integrity of the transaction is verified.
Fig: Blockchain Transaction Process
Cryptography Algorithm:
The plain text is encrypted and converted into cipher text (non-readable format) which is then decrypted into plain text which is human readable form. Cryptography is classified into two types:
Asymmetric Cryptography: It uses two types of keys i.e. Public Key and Private Key. The Public key is used for encryption and the Private key is used for decryption.
Symmetric Cryptography: unlike asymmetric cryptography, it uses only one key i.e. Secret Key for both encryption and decryption. It Provides Validation and Authentication.
The Bitcoin Blockchain uses the Asymmetric Cryptography and uses both the keys to create digital signatures for initiating transaction through the network.
Digital Signature:
It provides authentication and validation like normal signatures.
It ensures the security and integrity of data recorded on the blockchain.
It uses asymmetric cryptography in which information can be shared using a Public key.
Primary keys are linked to the users providing digital signatures a quality of non repudiation.
Digital Signature = Public Key + Private Key
Decentralized Network:
It is an important role where miners validate the transaction taking place. The types of network included in transaction broadcast :-
Centralized Network: It is basically a hub or any hardware through which all data pass. For example, the current structure of Internet.
Decentralized Network: Blockchain is built in decentralized network where control is in the hands of individual which makes it fair and secure. It supports peer-to-peer connection between minors.
Consensus Algorithm:
It is an algorithm where miners validate the transaction using mathematical puzzles. The consensus has some protocols. They are:-
It is fault-tolerant (i.e. it can work normally when there is some failure) that is used to achieve the necessary agreement on a single data value or a single state of network.
It is a set of rules that decides on the contribution of various participants of the blockchain.
It ensures that all the transactions are genuine and all the participants agree on the consensus algorithm.
Miners Role:
Miners ensures fairness and keep the network stable and secure. Miners use special software for solving mathematical problems which is called "Proof of Work". The miner who will first solve the puzzle will be rewarded.
Proof of Stake: It is a low cost, low energy consuming algorithm which states that a person can mine and validate transaction based on how many coins he or she holds.
Proof of Elapsed Time: This consensus algorithm prevents high energy consumption and resource utilization following a lottery system.
Practical Byzantine Fault Tolerance(PBFT): improves robustness and performance of transaction by directing peer to peer messages with minimal latency.
Distributed Ledger:
Blockchain stores records of each transaction in the distributed ledger. The distributed ledger stores the copy of transaction and of each person in the network has a copy of the ledger.
For example: Four friends John, Kate, Peter, Susan. John transfers 3BTC to Kate and Kate sends 2BTC to peter and peter sends 1BTC to Susan . Therefore, each transaction will be available to all the four friends which is a great way to prevent frauds and other fault acts.