Blockchain has the potential to completely change how people do business, and innovative startups are taking notice.

A well-known use of blockchain technology is a cryptocurrency, and people often use the terms interchangeably. However, blockchain and cryptocurrency are not the same. Blockchain is the technology that enables cryptocurrency, and it has other uses as well. Cryptocurrencies use a distributed ledger, but they are based on a digital store of value and exist primarily as a source of electronic currency. Alternatively, businesses using the blockchain maintain internal records, allowing for transparency of transactions through a distributed ledger while keeping personal data secure with the encryption of the blocks.

Blockchain has the potential to completely change how people do business, and innovative startups are taking notice. In a recent TechRepublic research study, 64 per cent of the professionals said they expect blockchain to impact their industry in some way, and most expect the impact to be positive.

Organisations are using blockchain for other purposes, such as digital verification systems that ensure creators are paid fairly for their work.  Efficient data transfer systems are used to create faster and safer digital identities.  As more organisations seek to leverage the benefits that blockchain offers and create other blockchain-based services, one must consider the computing and infrastructure needs of these potentially world-changing businesses.

Understanding the Basics of Blockchain

At its core, blockchain enables record keeping in a secure, immutable manner. Anything can be tracked using blockchain technology, from tangible resources to intangible information. In a blockchain, data is encrypted within a block. Each block contains the data itself, a hash that is unique to the block and a hash of the previous block. New blocks are created by generating a new hash. These new hashes are then validated through a consensus mechanism, often called a proof-of-concept. When valid blocks are accepted in the network, the blocks are added to the blockchain.

If someone tampers with the data in a block, the hash changes, making all hashes in subsequent blocks invalid. To make changes to data within a blockchain, one must create a new hash and pass it to the network’s Proof of Stake mechanism for each subsequent block in the chain. Since the verification mechanisms are distributed across multiple computers and owned by different individuals, it is almost impossible to tamper with the data in the blockchain.

Selecting a Consensus Mechanism

Consensus mechanisms allow distributed networks to remain secure by requiring a general agreement for proposed changes or additions to the system. Consensus is created in a few different ways to allow a block to be added to the network. The most common types of proof are Proof of Work and Proof of Stake. Each consensus mechanism has pros and cons, depending on the goals of the network and the resources available.

Proof of Work

Proof of Work requires individuals to solve cryptographic puzzles to create blocks. Creating new blocks (often called mining) requires powerful hardware capable of solving the complex math problems needed to create a new hash for the block. Computers are used to find the answer to the puzzle. Due to the complexity required to create each block, proof of work verification methods is exceptionally secure. Proof of Work is extremely energy-intensive and a primary source of concern about the environmental impact of cryptocurrencies.

Proof of Stake

With a Proof of Stake mechanism, validators are required to “stake” a token or tokens from the blockchain network into a staking pool, locking them in for a period of time. The coins or tokens at stake never leave your wallet, but they cannot be traded until the stake is withdrawn. The exchange will never ask you to withdraw tokens for placing bets. After the coins or tokens are staked, the network uses a random process to choose a validator to produce the next block. Proof of Stake to secure blockchain uses very little energy and is much faster than proof of work.

When choosing a consensus mechanism for a blockchain, you must consider the goals of your network. The consensus mechanism should be flexible, high-performing, and efficient.

Choosing nodes for blockchain applications

Blockchain requires coordinated activity from multiple computers. Any computer connected to a blockchain network is called a node. Nodes are the framework of a blockchain, which stores, spreads, and protects data in a chain. Nodes should be able to easily follow the rules and participate as needed. There are different types of nodes, each with a different job in the verification process and each requiring unique computing power. The two most common types of nodes are full nodes and mild nodes.

Full nodes fully validate transactions and download the entire data of a specific blockchain. They download the entire history for the rules to be followed and enforced. Since they contain the entirety of transaction and data history, full nodes also provide increased security to the network, as each one can run on the same network. Full nodes require a significant amount of computing power. Since they are performing both verification and consensus functions, they are extremely latency-sensitive in terms of both disk and network.

Lightweight or Light nodes do not fully download the data to the blockchain. Light nodes rely on full nodes for full chain integrity and must be connected to full nodes to be able to participate in the verification process. Lite nodes download and validate the most recent transactions, making them faster than full nodes and able to run with less computing power, which means that the data history needs to be fully accessed. For that, they need full nodes. Light nodes have lighter hardware requirements and lower time requirements and provide significant resource savings.

Choosing a Cloud Provider

Blockchain is an extremely complex area of ​​technology that is constantly evolving and changing. There’s no reason to add any more complexity with your cloud provider. When researching a cloud provider for your blockchain business, consider the following factors:

CPU Considerations

The blockchain requires large amounts of ingress, and data out to the rest of the network due to on-chain downloads and updates. Take a closer look at potential providers’ bandwidth models, benefits and pricing.

Uptime Considerations

Blockchain networks must run well, regardless of the provider they are on. Decentralised applications can run anywhere, but that doesn’t mean they’ll run optimally anywhere. Research the cloud agnosticism of potential providers. Find out if there is a lock-in with longer contracts or how well they support cloud-native computing. Blockchain requires extremely reliable services, so it is important to find out about the reliability of whichever provider you are considering.

Scalability Considerations

Chains also grow naturally over time. Destroying and creating servers to complete chain growth would be significantly disruptive. Choose a cloud provider that enables you to resize your servers. For example, DigitalOcean allows developers to spin droplets up and down with the click of a button. Since blockchain services often need to expand in response to demand, consider choosing a cloud partner that provides a transparent pricing model, helping you understand what the costs are for different levels of demand.

Ease of use Considerations

Find a cloud provider that enables you to move quickly and efficiently. A cloud provider that is as complex as the blockchain can pose hurdles in administration and development. For example, setting up and running an environment on a hyperscaler usually takes a long time due to configuration accounts, IAM, and more. To move faster, consider a cloud platform that provides simple, easy-to-use solutions and robust documentation and support. Providers that enable automation through APIs and third-party tools like Terraform make it much easier to manage workloads.

Blockchain technology is attractive in many ways, as it can actually improve in many areas. Much is still unknown about it to the founders, but we believe it can change our world for the better. All that’s left is to put it into practice by creating amazing blockchain applications.

Author:

Raman Sharma, Vice President – Product Marketing at DigitalOcean

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