Revisiting Blockchain Basics Part 2: Differences in Blockchains

The differences between blockchain networks

Blockchain networks have three main distinctive features:

• Architecture
• Ecosystem
• Consensus

Architecture

Blockchain is a code, and all the rules of its maintenance and interaction with the program are written in the code.

Code describes:
The structure of a chain:how the chain remains cohesive. (Hashing is the most widespread but not the only option)
The block size:how many transactions can be stored within one block and what additional data fields it has.
Transaction types: whether transactions are only coin transfers or can store additional data, for example, text.

The rules for regulating various parameters are also described at the code level. For example, information on how often you can add blocks to the chain. In some blockchain networks, this parameter is adjusted so that, on average, a certain amount of time must pass between adding blocks into the chain.

All these attributes may differ depending on each blockchain network. Different blockchains use different architectures.

Ecosystem

At the code level, the blockchain core and tools for expanding its capabilities are defined. The ability to create additional blockchains based on it, implement programs working inside the blockchain, receive data from outside the blockchain, create various applications based on it, interact with other blockchains, and much more depends on the architecture. All applications and services are built on the same blockchain and constitute its ecosystem.

It is the architecture of the blockchain network that determines the possibility of developing an ecosystem based on it. And then, developers and users create their applications based on the blockchain and expand the ecosystem. A separate ecosystem with its products and applications is being created around each blockchain network.

In many ways, it is the presence and development of an ecosystem based on a blockchain network that determines its benefit and value, among others.

Consensus mechanism

We already said that new entries are entered into the blockchain with the community’s consent. Blockchain users determine, according to their rules, what will be entered into the blockchain and what will not.

The mechanism by which users reach an agreement is called consensus. If consensus is not reached, adding new blocks may stop on the network.

There are many different mechanisms of agreement between participants, but at the moment, the two most popular are the Proof-of-Work and Proof-of-Stake.

The general principle of these algorithms is as follows. Whoever adds a new block to the blockchain receives a reward from the network. Therefore, participants compete for the opportunity to add a new block.

The difference between Proof-of-Work and Proof-of-Stake is how the user who adds a block and receives a reward is chosen.

Proof-of-Work (PoW)

In such a consensus algorithm, the competition between the participants is arranged as follows. To add a new block, you need to find a specific hash, which, for example, starts with several zeros. That is, it is necessary to iterate over a unique number added to the block and hash the entire block with different variants of this number.

After each change of this number, the block’s hash will also change. The number that produced the required hash will be included in the block. The miner who finds this number will include a new block in the chain and receive a reward.

This process of hash selection is called mining.

Let's analyze this example to understand how mining protects against malicious intent. Let’s say John-the-scammer wants to single-handedly choose which transactions to include in the new block and which not to include or change their order. That is, to manage the blockchain centrally.

To do this, John-the-scammer must be the first to pick up the hash of all the other transactions included in the block. Since John-the-scammer will compete with all the other miners on the network, they will be unable to pick up the hash faster than they do.

The only way for John the Scammer to carry out his malicious actions is to build a mining farm more powerful than all the other miners combined. The cost of such a farm will be higher than it will be possible to earn on the centralization of the blockchain. In addition, when new miners are included in the network, John-the-scammer will also have to increase his capacity, but by an even larger amount.

Thus, the security of the blockchain with the PoW consensus mechanism is achieved by spending a huge amount of electricity. To avoid these costs, we have developed another algorithm — PoS.

Proof-of-Stake (PoS)

With such a consensus algorithm, participants also compete with each other for a reward. But the winner is determined differently than in PoW.

Instead of selecting the data to get the desired hash, the participants freeze the coins in their accounts. And then, from all the participants who have frozen funds in this way, the winner is randomly selected.

To understand how the PoS algorithm protects against malicious actions, let’s go back to the example with John. Let’s assume that John-the-scammer wants to manage the network again centrally, but now in a different blockchain.

To do this, John will have to redeem most of the coins. Here, several problems appear on his way.

Firstly, very often, most of the coins are already blocked. That is, even if desired, John-the-scammer will not be able to buy most of the coins since they are not on the market.

Secondly, even if the coins are on the market, John the scammer will have to spend a lot of money to buy them. His purchases will entail an increase in the price of the coin.

Thirdly, even with half of all coins, they will not be able to manage the blockchain alone since the choice is still conditionally random.

Therefore, the cost of buying coins will exceed the possible benefits obtained from the centralization of the blockchain. The security of the blockchain with the PoS consensus mechanism is achieved with blocked coins.

These differences are not the main criteria for choosing a network. There are higher—level characteristics for this, and architecture, ecosystem, and consensuses are part of them.

Criteria for choosing a blockchain network

The blockchain network is selected by the following criteria:

• Security
• User Activity
• Technical capacity

First of all, our main priority is safety because we are talking about money exchange. The level of blockchain safety can be evaluated by the age of the chain, coin capitalization, and after studying network security protocol.

The longer the blockchain has been functioning, and the more developers work with it, the higher the level of trust in the blockchain. Especially when large companies use the blockchain for their products.

It’s important to choose a network with a developed ecosystem. The more developers and users, the more reliable the project is considered within the ecosystem and the easier to enter the market.

Now you know how blockchain networks differ from each other and by which criteria they are selected. Study the report describing the networks and choose which one is more suitable for building an exchange.

Ethereum

Age. The network was launched in 2015 and functioned on a Proof-of-Work consensus algorithm. Recently, however, the network transitioned to Proof-of-Stake.

User activity. Ethereum has almost the largest capitalization and huge popularity. The network also has a wide ecosystem that includes various decentralized applications. For example, exchanges, wallets, bridges for interaction with other blockchain networks, and many others.

Many developers are working on them, thanks to which the number of users is high, and trading volumes occupy 3rd place.

Technical capabilities. We can say that the Ethereum blockchain network is a decentralized operating system. With the Ethereum Virtual Machine, you can write various programs running inside the blockchain. Ethereum has an extensive development database, which includes various development environments, documentation, and additional materials.

Binance Smart Chain (BSC)

Age. The network, launched in 2020, runs on a modified Proof-of-Stake consensus and implements EVM support. It means that this network supports all the tools implemented by EVM.

User activity. BSC gained popularity among users for its network capacity, which is significantly higher than that of Ethereum. That's why the blockchain coin is among the top ten in the rankings of crypto asset capitalization and trading volumes.

Technical capabilities. Since the development rules on this network are the same as on Ethereum, it's easy to enter into programming here. That is why many developers turned to this network.

Any Solidity developer can start writing programs in this or EVM-supporting networks.

Solana

Age. The Solana network was launched in 2020 and is based on the Proof-of-Stake consensus.

User activity. Solana is still among the top ten in coin capitalization and trading volume rankings. The network has gained widespread popularity, although opinions on the network differ. Solana has a large ecosystem that includes a variety of decentralized applications.

Technical capabilities. Solana implements Rust programming and has a small documentation and development manuals base.

Cosmos

Age. Blockchain was launched in 2019 and is based on a Proof-of-Stake consensus mechanism.

User activity. Cosmos has implemented a modular system that supports any design programming language. It's called TendermintCore. As a result, Cosmos has created a huge ecosystem of blockchains and applications based on them. However, now, the capitalization and trading volumes are only included in the top 30 and 60.

Technical capabilities. The implementation of TendermintCore makes Cosmos very popular among developers. To launch your blockchain, you may use Cosmos as the basis. Then, you may create a parallel blockchain that will use all of its advantages.

Avalanche

Age. The network was launched in 2020 but has already gained widespread popularity among users.

User activity. Avalanche implements connected networks and supports programming within the blockchain. This has created a broad ecosystem that has brought in many developers. Now, Avalanche is among the top twenty in capitalization ranking and the top thirty in trading volumes ranking.

Technical capabilities. The network is based on three compatible blockchains. It also allows you to connect to other networks compatible with EVM and AVM (Avalanche Virtual Machine).

Blockchain networks comparison

Now you get what a blockchain is, how it differs from a centralized network, and know its main pros. And we need to talk about payments with cryptocurrency. We will use the most popular EVM-compliant blockchain wallet, Metamask. I'll tell you all you have to know about it — from creating a wallet to getting information about transactions and addresses.

Stay tuned!