Due to the rapid price increase of some cryptocurrencies, blockchain technology has seen immense interest both from the mainstream media and individual investors in the past several months. Investors and business owners worldwide are now seeing the bigger potential of blockchain to revolutionise various sectors of the world economy.

The problem, however, is that businesses tend to focus more on the transactional aspect that they overlook the critical components of the blockchain ecosystem. To gain an in-depth understanding of the blockchain technology, this article identifies and explains in detail the four logical components that make up the blockchain ecosystem.

4 Critical Components of Blockchain

Here are the main logical components of the blockchain and their roles in the business’s overall structure:

  • Node Application
    Any Internet-connected computer that wants to participate in a blockchain ecosystem must have a computer application specific to the ecosystem they wish to partake in. For cryptocurrencies, each computer must run on a wallet application particular to each cryptocurrency.
    In the case of Bitcoin, everyone is allowed to participate in the ecosystem by merely downloading and installing the node application. For some blockchain applications, however, participation is restricted.
  • Common and Shared Ledger
    The distributed ledger is a data structure managed within a node application. Once the node application is running, the blockchain contents of the ecosystem become available to the user. Many node applications can be utilized in each blockchain system. Regardless of how many ecosystems you participate in, there is only one shared ledger for the ecosystem.
  • Consensus Algorithm
    The consensus algorithm is implemented as a bigger part of the node application, providing the rules of how the ecosystem arrives at one view of the ledger. Various ecosystems have different ways of reaching this consensus, and participation in the consensus building can be determined using three methods:

    • Proof-of-work
    • Proof-of-stake
    • Proof-of-elapsed-time

    Each procedure ensures the transparency of each of the nodes before the consensus building process. This characteristic helps in keeping up the Bitcoin’s popularity, even in the face of trading setbacks highlighted in cryptocurrency news.

  • Virtual Machine.A virtual machine is created by a computer program wherein instructions are embodied in a programming language. To understand the capabilities of virtual machines, it is imperative to take note of how a program runs on a computer. When a physical computer runs an application, the program’s instructions dictate the computer to change its state. These changes are displayed in many ways:
    • Information and graphics
    • Alteration of data in memory
    • Sound on speakers
    • Information on a drive

By dividing the blockchain technology into these four integral components, the latest developments in the market and the emergence of new ecosystems can be better understood.

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