2.3 What are they Key Components of Blockchain Technology

What are the key components of blockchain technology?

Blockchain architecture has the following main components:

1. A distributed ledger
2. Smart contracts

Public key cryptography

What are the key components of blockchain technology?

1. A distributed ledger
   A distributed ledger is the shared database in the blockchain network that stores the transactions, such as a shared file that everyone in the team can edit. In most shared text editors, anyone with editing rights can delete the entire file. However, distributed ledger technologies have strict rules about who can edit and how to edit. You cannot delete entries once they have been recorded.
2. Smart contracts
   Companies use smart contracts to self-manage business contracts without the need for an assisting third party. They are programs stored on the blockchain system that run automatically when predetermined conditions are met. They run if-then checks so that transactions can be completed confidently. For example, a logistics company can have a smart contract that automatically makes payment once goods have arrived at the port.
3. Public key cryptography
   Public key cryptography is a security feature to uniquely identify participants in the blockchain network. This mechanism generates two sets of keys for network members. One key is a public key that is common to everyone in the network. The other is a private key that is unique to every member. The private and public keys work together to unlock the data in the ledger. 
   For example, John and Jill are two members of the network. John records a transaction that is encrypted with his private key. Jill can decrypt it with her public key. This way, Jill is confident that John made the transaction. Jill's public key wouldn't have worked if John's private key had been tampered with.

What are the benefits of blockchain technology?

Blockchain technology brings many benefits to asset transaction management. We list a few of them in the following subsections:

1. Advanced security
2. Improved efficiency
3. Faster auditing

1. Advanced security
   Blockchain systems provide the high level of security and trust that modern digital transactions require. There is always a fear that someone will manipulate underlying software to generate fake money for themselves. But blockchain uses the three principles of cryptography, decentralization, and consensus to create a highly secure underlying software system that is nearly impossible to tamper with. There is no single point of failure, and a single user cannot change the transaction records.
2. Improved efficiency
   Business-to-business transactions can take a lot of time and create operational bottlenecks, especially when compliance and third-party regulatory bodies are involved. Transparency and smart contracts in blockchain make such business transactions faster and more efficient.