Generic elements of a blockchain

Now, let's walk through the generic elements of a blockchain. You can use this as a handy reference section if you ever need a reminder about the different parts of a blockchain. More precise elements will be discussed in the context of their respective blockchains in later chapters, for example, the Ethereum blockchain. The structure of a generic blockchain can be visualized with the help of the following diagram:

Elements of a generic blockchain are described here one by one. These are the elements that you will come across in relation to blockchain:

• Address: Addresses are unique identifiers used in a blockchain transaction to denote senders and recipients. An address is usually a public key or derived from a public key. While addresses can be reused by the same user, addresses themselves are unique. In practice, however, a single user may not use the same address again and generate a new one for each transaction. This newly-created address will be unique. Bitcoin is, in fact, a pseudonymous system. End users are usually not directly identifiable, but some research in removing the anonymity of Bitcoin users has shown that they can be identified successfully. A good practice is for users to generate a new address for each transaction in order to avoid linking transactions to the common owner, thus preventing identification.
• Transaction: A transaction is the fundamental unit of a blockchain. A transaction represents a transfer of value from one address to another.
• Block: A block is composed of multiple transactions and other elements, such as the previous block hash (hash pointer), timestamp, and nonce.
• Peer-to-peer network: As the name implies, a peer-to-peer network is a network topology wherein all peers can communicate with each other and send and receive messages.
• Scripting or programming language: Scripts or programs perform various operations on a transaction in order to facilitate various functions. For example, in Bitcoin, transaction scripts are predefined in a language called Script, which consist of sets of commands that allow nodes to transfer tokens from one address to another. Script is a limited language, however, in the sense that it only allows essential operations that are necessary for executing transactions, but it does not allow for arbitrary program development. Think of it as a calculator that only supports standard preprogrammed arithmetic operations. As such, Bitcoin script language cannot be called Turing complete. In simple words, Turing complete language means that it can perform any computation. It is named after Alan Turing who developed the idea of Turing machine that can run any algorithm however complex. Turing complete languages need loops and branching capability to perform complex computations. Therefore, Bitcoin's scripting language is not Turing complete, whereas Ethereum's Solidity language is.

To facilitate arbitrary program development on a blockchain, Turing complete programming language is needed, and it is now a very desirable feature of blockchains. Think of this as a computer that allows development of any program using programming languages. Nevertheless, the security of such languages is a crucial question and an essential and ongoing research area. We will discuss this in greater detail in Chapter 8, Introducing Bitcoin, Chapter 4, Smart Contracts, and Chapter 11, Development Tools and Frameworks, later in this book.

• Virtual machine: This is an extension of the transaction script introduced earlier. A virtual machine allows Turing complete code to be run on a blockchain (as smart contracts); whereas a transaction script is limited in its operation. However, virtual machines are not available on all blockchains. Various blockchains use virtual machines to run programs such as Ethereum Virtual Machine (EVM) and Chain Virtual Machine (CVM). EVM is used in Ethereum blockchain, while CVM is a virtual machine developed for and used in an enterprise-grade blockchain called Chain Core.
• State machine: A blockchain can be viewed as a state transition mechanism whereby a state is modified from its initial form to the next one and eventually to a final form by nodes on the blockchain network as a result of a transaction execution, validation, and finalization process.
• Node: A node in a blockchain network performs various functions depending on the role that it takes on. A node can propose and validate transactions and perform mining to facilitate consensus and secure the blockchain. This goal is achieved by following a consensus protocol (most commonly PoW). Nodes can also perform other functions such as simple payment verification (lightweight nodes), validation, and many other functions depending on the type of the blockchain used and the role assigned to the node. Nodes also perform a transaction signing function. Transactions are first created by nodes and then also digitally signed by nodes using private keys as proof that they are the legitimate owner of the asset that they wish to transfer to someone else on the blockchain network. This asset is usually a token or virtual currency, such as Bitcoin, but it can also be any real-world asset represented on the blockchain by using tokens.

• Smart contract: These programs run on top of the blockchain and encapsulate the business logic to be executed when certain conditions are met. These programs are enforceable and automatically executable. The smart contract feature is not available on all blockchain platforms, but it is now becoming a very desirable feature due to the flexibility and power that it provides to the blockchain applications. Smart contracts have many use cases, including but not limited to identity management, capital markets, trade finance, record management, insurance, and e-governance. Smart contracts will be discussed in more detail in Chapter 4, Smart Contracts.