1. Introduction

Blockchain networks have several key characteristics that distinguish them from traditional systems. These characteristics include immutability and tamper resistance of data stored on the blockchain, transparency, and auditability of transactions in a public blockchain, and distributed consensus that eliminates the need for intermediaries.

Immutability refers to the inability to change or modify data once it has been recorded on the blockchain. Once a block is added to the blockchain, its contents are considered final and permanent. This immutability is achieved through the use of cryptographic hash functions.

A cryptographic hash function is a mathematical algorithm that takes an input (data within the block) and produces a fixed-size output called a hash. The hash is unique to the input data, meaning even a slight change in the input will result in a completely different hash. In the context of a blockchain, the hash of a block is calculated based on the data within that block.

The hash of a block is not only dependent on its own data but also on the hash of the previous block. This creates a chain of blocks, hence the name "blockchain." As a result, if any modification is made to the data in a block, the hash of that block would change. Since the next block in the chain also incorporates the hash of the previous block, its hash would also change, and this cascading effect propagates throughout the blockchain.

To tamper with a block, an attacker would need to recalculate the hash of that block and all subsequent blocks in the chain, which would require an enormous amount of computational power and time. Additionally, blockchain networks often have mechanisms in place to make such modifications even more difficult, such as consensus protocols and distributed network participants validating the integrity of the blockchain.

This immutability and tamper resistance provide a high level of trust and integrity to the information stored on the blockchain. It ensures that once data is recorded, it cannot be easily altered, deleted, or tampered with without detection. This characteristic is particularly valuable in applications where data integrity is crucial, such as financial transactions, supply chain management, and legal contracts.

However, it's important to note that while the data stored on a blockchain may be immutable, the inputs or transactions leading to that data can be altered if consensus rules and network governance allow for it. This distinction is crucial because it means that errors or fraudulent transactions can still occur before the data is recorded on the blockchain. Once the data is included in a block, it becomes extremely difficult to tamper with.

Transparency: In a public blockchain network, all transactions are visible to all participants. When a transaction occurs, it is broadcasted to the network and recorded in a block. This block is then added to the blockchain and becomes visible to every participant in the network. This transparency means that anyone can access and view the details of transactions, including the sender, recipient, amount, and timestamp.

By enabling all participants to have access to the same information, blockchain networks promote transparency and eliminate the need to rely on a central authority for transaction verification. This transparency is particularly valuable in sectors where trust and transparency are essential, such as finance, supply chain management, and public administration.

Auditability: The transparency of blockchain networks goes hand in hand with their auditability. Each transaction in a blockchain network is linked to a unique identifier, typically referred to as a transaction hash. The transaction hash is a cryptographic representation of the transaction data and serves as a digital fingerprint.

The transaction hash allows anyone to trace the history of a specific transaction back to its origin. By examining the blockchain's transaction history, it becomes possible to verify the authenticity, integrity, and legitimacy of transactions. This feature is crucial for auditing purposes, as it enables external parties, regulators, or auditors to independently verify the accuracy of transactions and ensure compliance with relevant rules and regulations.

The combination of transparency and auditability in blockchain networks offers a powerful tool for establishing trust, as all participants can independently verify the accuracy and integrity of transactions. This can have significant implications in various industries, such as supply chain management, where stakeholders can trace the origin and journey of products, ensuring authenticity and ethical sourcing. Similarly, in financial transactions, blockchain networks provide transparency and auditability that can enhance trust and reduce the risk of fraud.

It's worth noting that while public blockchains provide transparency and auditability to all participants, there are also private or permissioned blockchain networks that restrict access to transaction information to a limited set of participants. In these cases, the level of transparency and auditability may vary depending on the network's design and governance model.

Distributed consensus is a critical characteristic of blockchain networks that enables them to operate without a central authority while ensuring the validity and consistency of transactions. Let's explore this concept in more detail.

Traditional systems often rely on a central authority or intermediary, such as a bank, to validate and authenticate transactions. In contrast, blockchain networks achieve consensus among multiple participants in a decentralized manner. This decentralized consensus ensures that all participants in the network agree on the state of the blockchain and the validity of transactions, without the need for a trusted central entity.

Consensus protocols: Blockchain networks employ consensus protocols to achieve agreement among participants. These protocols define the rules and mechanisms for validating transactions and adding them to the blockchain. Two commonly used consensus protocols are Proof of Work (PoW) and Proof of Stake (PoS).

In a PoW consensus, participants, known as miners, compete to solve complex mathematical puzzles to validate transactions and create new blocks. The mining process requires substantial computational power, and the first miner to solve the puzzle is rewarded with new cryptocurrency tokens. The solved puzzle serves as proof that the miner has performed the required work. Once a block is successfully mined, it is added to the blockchain, and the consensus is achieved. PoW consensus, as used in Bitcoin, provides security through the requirement of computational work and has been widely adopted.

PoS consensus operates differently from PoW. Instead of relying on computational power, PoS relies on participants' ownership or "stake" in the network. In a PoS system, participants who hold a certain number of cryptocurrency tokens can be chosen to validate transactions and create new blocks. The selection process is often based on factors like the number of tokens held or the length of time they have been held. PoS consensus, as used in networks like Ethereum 2.0, aims to provide energy efficiency and scalability compared to PoW.

Elimination of intermediaries: By achieving distributed consensus, blockchain networks eliminate the need for intermediaries like banks or clearinghouses. In traditional systems, these intermediaries are responsible for validating and settling transactions, which can introduce delays, costs, and single points of failure. In a blockchain network, the consensus mechanism ensures that transactions are validated and agreed upon by the network's participants directly, eliminating the need for intermediaries. This reduction in intermediaries not only streamlines transaction processes but also reduces costs and enhances the overall security and resilience of the network.

The distributed consensus mechanism provides blockchain networks with several advantages, including increased security, resilience to failures, and the ability to operate in a trustless environment. It allows participants to collaborate and reach an agreement on the state of the blockchain without relying on a central authority, making blockchain networks suitable for applications where trust, transparency, and autonomy are crucial.

Overall, the characteristics of blockchain networks provide a decentralized, secure, and transparent infrastructure for various applications, ranging from cryptocurrencies to supply chain management, voting systems, intellectual property management, and more. By leveraging these characteristics, blockchain networks offer new possibilities for trust, efficiency, and innovation in various industries.