Want to learn about the components of the blockchain ecosystem in detail? You’ve reached the right place. Let’s dive in to learn about the blockchain ecosystem components.
Blockchain has been responsible for changing the ways we look at information exchange or financial transactions. How a ‘chain’ of ‘blocks’ transformed the perspectives on various legacy systems across different industries is still one of the prominent topics of discussion in the technology landscape. Over the years, blockchain technology has grown from being a mere foundation of cryptocurrencies to serving large ecosystems for diverse industry use cases.
As a result, the interest in learning about blockchain ecosystem components has been growing exponentially in recent times. We have covered an article on the fundamentals of the blockchain ecosystem recently. In addition to our article on blockchain ecosystem fundamentals, here’s a detailed discussion on individual components of the blockchain ecosystem.
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Participants in the Ecosystem
Our previous article on the introduction to blockchain ecosystem reflected only on the participants i.e. key elements of blockchain ecosystem. The participants in the blockchain ecosystem are the individuals who are engaged in the workflow, which is considered for automation. The participants make up the ecosystem and participate collectively in producing goods or services. It is also important to note that every participant in the ecosystem must offer contributions of data and resources with plausible benefits for others.
In addition, blockchain ecosystem components are also evident in users of information without any actual contribution to the production of goods and services in question. For example, a participant could be a user who is only interested in verifying that they have purchased a sustainably manufactured product. On the other hand, remaining participants in the ecosystem could be the parties associated with production or handling, who must updated data regarding the product shipment, compliance, and related payments.
As discussed in our previous article on the blockchain ecosystem, the participants serve as one of the important components in the ecosystem. So, what are the components of blockchain you could find everywhere, irrespective of the industry or use case of blockchain application? The answer to this question will point you towards five distinct participants who are critical in a blockchain ecosystem. Let us dive further into the significance of each participant’s role in the blockchain ecosystem.
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Leaders are the ones who take control of everything happening on a blockchain network. They are generally the organizations that have the vision for the future of the blockchain application network alongside its business value. In most cases, the creator or developer of the project and the primary beneficiaries of the work in the application serve as leaders.
- Core Group
The next important addition among blockchain components refers to the core group. The core group actually refers to a group of active or leading organizations that give shape to the operational activities in the network. Most important of all, core groups take on the responsibilities of managing the ecosystem actively.
- Active Participants or Members
Active participants or members in a blockchain ecosystem point towards a group of primary network participants. Active participants take on the responsibility of contributing productively to workflow, governance and data management.
Blockchain ecosystem components include not only active participants but also users of the blockchain network. Users are an integral aspect of the blockchain ecosystem, although without any significant responsibility in active management of the network. They are only associated with the ecosystem for obtaining desired benefits from the network alongside accessing their own data.
- Third-Party Service Providers
The third-party service providers are also important participants in the blockchain ecosystem. They offer different types of services on the network. When you think of the blockchain network, it is just a chain of blocks or a methodology followed for secure information exchange.
However, you would need additional services for empowering blockchain-based applications for real-world use cases. Third-party service providers could offer the desired services in exchange for a specific fee. The services offered by them could include IT support services or infrastructure and applications services, among others.
Each participant serves a unique role in the blockchain ecosystem, thereby serving as a vital component of the ecosystem. Interestingly, participants could take on multiple roles in the ecosystem for addressing their desired objectives.
Many are confused with the difference of private and public blockchain. Check out our guide on public vs private blockchain comparison with right facts!
Participants are Not the Only Components
Blockchain is actually a distributed ledger technology above everything else and maintains records. The distributed ledger is accessible for every participant in the network, albeit without any scope for modification. However, an understanding of blockchain ecosystem components beyond the identity of participants in the network could drive a better impression of the ecosystem.
This is where you would need to identify the logical components which establish the foundation of the blockchain ecosystem. In order to start discussing the components of the blockchain ecosystem, you need to understand how blockchain works. Here is a brief outline of the working of blockchain.
- The node in a blockchain network would start a specific transaction and obtains the digital signature with a private key for the transaction.
- The transaction information is then transmitted to all peers in the network for validating the transaction. Generally, you would need more than one node for validating the transaction information.
- After validation of the transaction, it has to be added to the block for confirming the transaction. If you want to create and add a new block into the network, you must follow the same process again.
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Logical Components of the Ecosystem
A brief overview of the working of blockchain could help you in understanding the logical components of blockchain ecosystem. You might be wondering about the role of logical components in the ecosystem. After all, you have so many participants taking care of the operations of the ecosystem. As a matter of fact, the logical components serve the basic foundation on which the participants can develop the ecosystem.
The important logical blockchain components are as follows,
- Node Application
- Distributed ledger
- Consensus algorithms
- VM or virtual machine
You could find other components in the blockchain ecosystem, which are interestingly related to these components in some or another way. So, a detailed evaluation of these four components could offer a clear impression of what blockchain ecosystem components are and their functionalities.
1. Node Application
The node application is one of the first additions among blockchain ecosystem components. It is a particular application that every internet-connected computer must download for participating in a blockchain ecosystem. After the installation of the node application, a user becomes a participant in the blockchain network. For example, if you consider Bitcoin as a blockchain ecosystem, every computer connected to the internet should run a Bitcoin wallet application for participating in the blockchain network.
Similarly, another example of a blockchain ecosystem, Bankchain, shows how banks only get permission for running the node ecosystem. This presents a stark contrast from the Bitcoin ecosystem, where any individual could ensuring downloading and installation of the node application for participating in the network.
In technical terms, the blockchain ecosystem follows the design and rules of a Service Overlay Network or SON. So, blockchain components like node applications should follow certain conditions. The computer must feature an application that could influence the shared state in the Service Overlay Network. Only then you could have it classified as a node in the concerned network.
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2. Distributed Ledger
The next addition among logical components of blockchain ecosystem would obviously point to the distributed ledger. Before diving into the meaning of distributed ledger, let us focus on the definition of a ledger. A ledger actually refers to any file, generally computer files, which document the data and transactions of each user.
So, the distributed ledger is basically a ledger that you can find distributed across all nodes in the network. It is a shared database that is replicated and synchronized across all peers in the network. However, the most striking feature in this answer to ‘what are the components of blockchain’ refers to decentralization.
Decentralization is capable of serving one of the most crucial advantages for users. Updating the ledger would encourage each node in the network to develop the transaction. Subsequently, they can arrive at an agreement regarding the correctness of the concerned copy of the ledger they have.
Once all the nodes in the network agree on the correctness of the transaction, the nodes would update their existing ledger with the new copy. Interestingly, each record in the distributed ledger comes with a timestamp as well as a unique cryptographic signature. As a result, it can ensure better traceability alongside the safety of the ledger from unauthorized tampering.
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3. Consensus Algorithms
Another dominant addition among key elements of blockchain ecosystem would obviously refer to consensus algorithms. Blockchain technology runs on the claim of completely verified and highly secure transactions. While many would be quick to assume that decentralization helps in offering this advantage, the actual agents responsible for the verification of transactions are consensus algorithms.
Consensus algorithms are basic processes in computer science that can help in achieving agreement regarding certain topics among distributed systems. The role of consensus algorithms in the blockchain ecosystem largely focuses on achieving reliability in a multiple-node blockchain network.
As a result, it can ensure that all incoming blocks in the network have been verified and offer security. Most important of all, you could find various consensus algorithms for defining one of the crucial blockchain components.
Here are the different types of consensus algorithms you may come across in a blockchain ecosystem –
1. Proof of Work
Proof of Work consensus algorithm is probably one of the first implementations of a consensus algorithm. It is an extremely functional tool among blockchain ecosystem components for processing blocks and adding them to the network.
The correctness of a block matter significantly in ensuring its addition to the network. So, the process of developing the correct proofs for adding a block to the ecosystem is referred to as mining. Therefore, the addition of a block to the blockchain requires miners to solve cryptographic puzzles in the Proof of Work algorithm.
2. Proof of Stake
Another notable consensus algorithm that has evolved from Proof of Work refers to the Proof of Stake algorithm. Proof of Stake algorithm is one of the key elements of blockchain ecosystem, especially considering its radically growing popularity. In this algorithm, participants capable of generating blocks are selected in accordance with specific criteria set in the algorithm.
The participants capable of generating blocks are referred to as validators. The criteria for the selection of validators focuses on the economic stake of the validator in the blockchain network. For example, if a participant has a lot of coins, they would get to validate transactions on the blockchain network.
The possibility of selection of a validator depends considerably on their computing power and number of coins. So, users who have held coins for longer periods are more likely to assume the role of validators according to the Proof of Stake algorithm.
Want to find out the detailed comparison between two blockchain Consensus Algorithms Proof of Work & Proof of Stake? Check out our guide on POW vs POS right now!
4. Virtual Machine
The final addition among logical components of blockchain ecosystem points out to the virtual machine. The virtual machine or VM implementation in the blockchain ecosystem happens alongside the node application. It is important to note that the virtual machine is basically a virtual representation of an actual computer with related resources.
One of the notable mentions of virtual machines as components of the blockchain ecosystem is evident in the Ethereum blockchain ecosystem. The Ethereum Virtual Machine or EVM, which resides in the node application, showcases the perfect example of a VM component in blockchain ecosystems.
EVM could showcase how valuable blockchain ecosystem components are for understanding instructions to manage states of digital smart contracts. In addition, the EVM in the node application ensures the enforcement of the terms and conditions of the contract.
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A detailed overview of the participants and logical components in the blockchain ecosystem shows the complexity of blockchain vividly. At the same time, the detailed impression of blockchain ecosystem components with an understanding of their roles helps in navigating the ecosystem easily. Enterprises that are warming up to the concept of blockchain need to accept the blockchain ecosystem and understand its components. Why?
Blockchain applications require efforts from various contributors for achieving the desired success. So, the ecosystem components help in offering the functionalities which organizations want from blockchain while ensuring the inherent blockchain benefits. Explore the blockchain ecosystem in detail and how it delivers value for modern businesses right now!
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