Figure 9 Hybrid, public and private networks.
A key driver in the distribution of full nodes is economic incentivization. Those blockchains where an individual makes a profit from operating as a miner or processing transactions have more full nodes. Public blockchains offer up their native cryptocurrency as a reward to those who are maintaining the network.
The fair market value of a cryptocurrency will determine how many individuals will compete to maintain the network. The market value is driven by speculation, scarcity and utility. Bitcoin, for example, has fluctuated in price wildly (see figure 10) and so has the number of independent full nodes.
Distribution is a very important consideration when picking a network to work with. The greater the number of full independent nodes, the harder it is to compromise the data that has been written into that blockchain. The greater the number of full nodes, the more difficult it is to censor data from being written into a blockchain.
Figure 10 Price volatility of cryptocurrency.
Public blockchains that do not attract enough nodes are vulnerable to attack. Primarily, the attacker is looking to corrupt the transaction history so that they can spend a token or cryptocurrency twice. This is called a “51% attack“, see figure 11. Given that blockchains have one job, making permanent data, 51% attacks create an existential threat.
Figure 11 51% attack.
Private and hybrid blockchains combat 51% attacks by gating full node access to only known parties. However, they are exposed to just the same problem from within. A few hybrid blockchains have created workarounds where they publish a hash of their network every so often into a highly distributed public blockchain. This hash is called a Merkle tree root and allows a hybrid blockchain to restore itself to its last known valid block in case its network is attacked. See figure 11.
Figure 12 Stabilizing hybrid and private blockchains.
1.2 Summary
You have covered a lot of ground in this chapter. You have learned what a blockchain is and how it is used to secure information. You have discovered the three main types of blockchain networks: public, private and hybrids. You have learned about cryptocurrency and why it is created by public blockchain networks to secure themselves. This chapter has also looked into the differences between cryptocurrency and tokens and how tokens are being used.
This chapter is important as it lays a framework for the rest of the information in this book. After reading it you are prepared for later sections. You are able to talk more confidently about the technology.
1.3 Test your knowledge
1. What is a blockchain?
A. A blockchain is a node time stamper that holds a record of all transactions that have ever occurred on that network.
B. A blockchain is a time-stamp server that holds a record of all transactions that have ever occurred on that network.
C. A blockchain is a peer-to-peer distributed time-stamp server that holds a record of all transactions that have ever occurred on that network.
D. A blockchain is a peer-to-peer distributed time-stamp server that holds some of the records of the blockchain.
2. What is a hash function in the context of a blockchain?
A. A hash function is a mathematical problem that creates an output called a string. These are numbers and letters of any size; for Bitcoin it is 72 bytes.
B. A hash function adds blocks to the blockchain. And it is the output of a mathematical process that creates a string of numbers and letters of a fixed-size; for Hyperledger it is 32 bytes.
C. A hash function is used to open up all the data in a block. A hash is the output of this mathematical process that creates a string of numbers and letters of a fixed-size; for Bitcoin it is 82 bytes.
D. A hash function is used to secure all the data in a block of transactions. A hash is the output of this mathematical process that creates a string of numbers and letters of a fixed-size; for Bitcoin it is 32 bytes.
3. What is a node?
A. A node is a computer that is connected to a blockchain network. It runs the software for the network and keeps the network healthy by transferring information across the network to other nodes.
B. A node is connected to a blockchain network through the internet. It lets you buy bitcoin.
C. Nodes are special computers that build blocks. They keep the network running by storing information.
D. A node transfers information across the network to other nodes.
4. What is the three-phase process for Fabric?
A. One -write a smart contract, two - the endorsed transactions are collected, three - the new block is broadcast back to every peer.
B. One - an update to the ledger is requested, two - the new block is broadcast back to every peer.
C. One - an update to the ledger is requested, two - the endorsed transactions are collected, three - the new block is broadcast back to every peer.
D. One - an update to the ledger is requested, two - the endorsed transactions are collected, three - the node records the transaction in its ledger.
5. What is a public blockchain network?
A. A public blockchain allows some people to participate at any level they want. All have some form of mining and a token.
B. A public blockchain allows anyone to participate if they identify themselves first. All have some form of mining and a native cryptocurrency.
C. A public blockchain allows anyone to participate at any level they want. None of them have mining or a native cryptocurrency.
D. A public blockchain allows anyone to participate at any level they want. All have some form of mining and a native cryptocurrency.
6. What is a permissioned blockchain network?
A. A permissioned blockchain is an open network that utilizes all blockchain technology. Most have mining and no native cryptocurrency.
B. A permissioned blockchain is a private network that utilizes some blockchain technology including mining for cryptocurrency.
C. A permissioned blockchain is a closed network that is run on one server. They utilize some blockchain technology but not all. Most don’t have mining or any native tokens.
D. A permissioned blockchain is a private network that utilizes some blockchain technology but not all. Most don’t have mining or any native cryptocurrency.
7. What is a hybrid blockchain network?
A. A