Each block in the blockchain is a digital container that permanently stores transaction data for the network. When new transactions occur, they are processed and bundled into a block. Once the network validates these transactions, the block is sealed and linked cryptographically to previous blocks. This creates a chain where each block’s contents can’t be altered without affecting the others.
Key Takeaways
- A block is a secure digital container that stores verified transaction data and links to other blocks in the chain.
- Each block contains an individual identifier (called a hash) created from its contents and the previous block’s hash. This hash records the correct order for the blocks in a chain.
- A network must verify blocks and their information before creating new blocks.
- While blocks are the technology behind cryptocurrency networks, they’re also used in various other applications like supply chain tracking, digital identity management, and smart contracts.
How a Block in the Blockchain Works
Active blockchain networks are continuously processing new transactions. These are grouped into blocks, which serve as the foundational units of the blockchain network. Each block is designed to store information while remaining secure.
We’ll use the image of a page in a digital ledger to help illustrate what they are and how they work. Each one has two main parts:
- A header (like the top of the page) that contains important information
- A body (the main part of the page) that lists all the transactions
There are two main ways blocks get approved and added to the chain:
- Proof-of-work (PoW): Requires computational work to solve increasingly difficult cryptographic puzzles (this is what Bitcoin uses)
- Proof-of-stake (PoS): Validators stake cryptocurrency—essentially put a security deposit down—to participate in validating blocks, from which they can earn income (e.g., tokens)
Here’s how the blocks function in these two systems:
Bitcoin and Other PoW Systems
The header is like a summary card that includes the following:
- What version of the system is being used
- A link to the previous page (through a special code called a hash)
- A time-stamp showing when the page was created
- Some technical details about how hard it was to create this page
- A special number called a “nonce” that proves work was done to create the page
The body simply lists all the money transfers (transactions) that happened during this time.
To add a new page to this ledger, someone (called a miner) needs to solve a puzzle. Miners compete, trying different numbers (the nonce) until they find one that works. If they try all possible numbers and still haven’t solved it, they make a small change and start guessing again.
Ethereum and Other PoS Systems
The header includes similar basic information:
- The version being used
- Link to a previous block
- Time stamp
- List of chosen validators
- Their signatures proving they verified the block
To add a new block, validators are chosen based on how much they’ve staked (like putting down a security deposit). No puzzles to solve—the chosen validators check the transactions and approve the block together.
In both systems, once a block is approved, it’s permanently added to the chain, which can never be removed or changed.
Bitcoin and other PoW systems use a massive amount of energy because trying to solve their difficult cryptographic puzzles often involves running massive data centers at full power. Estimates range, but U.S. mining operations aimed at producing new bitcoin consume about as much energy as Poland.
Block and Blockchain Applications
While blockchain technology has generated significant buzz and investment, it faces fundamental technical and economic limitations that hinder its widespread adoption. Understanding these inherent constraints is crucial to evaluate the many claims made for its potential uses.
Before proceeding, it’s helpful to note this common distinction:
- Public blockchain: This is open to all and no permission is needed to access the blocks or their data.
- Private blockchain: Information contained in the blocks is limited to authenticated users, as when a company uses the blockchain for customers’ financial transactions.
From there, experts divide the shifting uses of blockchain into different periods:
- Blockchain 1.0: The first applications for the blockchain are in developing digital currencies like bitcoin.
- Blockchain 2.0: Equated with the appearance of the Ethereum blockchain network, which enable smart contracts and similar uses on its platform.
- Blockchain 3.0: This refers to applying the blockchain much more widely in society, from education and healthcare to governance.
The Scalability Trilemma
Given the need to scale up the blockchain significantly for Blockchain 3.0, it should be noted that a blockchain’s design faces an inherent trade-off among these three elements:
- Decentralization: The distribution of control and decision-making power across a network
- Security: The ability to maintain data integrity and prevent unauthorized access
- Scalability: How many transactions per second (TPS) the network can process and how well it can grow while maintaining it. For comparison, while traditional payment systems like Visa Inc. (V) can handle up to 60,000 TPS, many blockchain networks process far fewer.
Why It’s a Trade-off
The trilemma exists because improving any one of these aspects typically requires compromising at least one of the others. Here’s how these trade-offs work:
Decentralization vs. Scalability
- More decentralization means more nodes need to verify each transaction
- Having many validators makes the network slower because everyone needs to agree
- Faster networks typically achieve speed by using fewer validators, making them more centralized
Security vs. Scalability
- Strong security requires thorough validation systems.
- These careful checks take time, slowing down transaction processing.
- Faster systems often achieve greater speed by doing less rigorous security checks.
Decentralization vs. Security
- While spreading control across many participants can improve security, it also makes it harder to respond quickly to threats.
- A more centralized system can act faster against attacks but gives more control to fewer participants.
This isn’t a temporary technological limitation that can be solved with better hardware or programming genius—it’s a fundamental constraint that blockchain networks have to negotiate on their own, with each choosing a specific balance for its needs.
How Long Does It Take to Create a New Block?
Block creation time varies significantly among the different blockchain networks. Bitcoin averages about 10 minutes per block, while Ethereum creates new blocks every few seconds.
How Do I Identify a Block in a Blockchain?
In some blockchains, blocks have a number called block height. This is the sequential number of the block on a chain, such as Block 1, Block 2, and so on. Others might use a unique number called a block header, ledger header, or other hexadecimal number.
Why Do Different Blockchains Have Different Block Sizes?
Block size limits are a crucial design choice that affects network performance and accessibility. Larger blocks can hold more transactions but require more storage space and bandwidth to process, potentially making it harder for individuals to run nodes. Smaller blocks are easier to process and validate but limit the network’s transaction capacity.
The Bottom Line
Blocks are fundamental to blockchain technology, serving as secure digital containers for transaction data. Through careful cryptographic linking and consensus mechanisms like PoW or PoS, blocks create an immutable record that forms the backbone of blockchain systems. While the technical challenges of the scalability trilemma present ongoing constraints, the basic structure of blocks continues to provide a foundation for potential uses of decentralized record-keeping.
