How Blockchain Nodes Keep Your Money and Data Safe

Don’t lose the farm. Every CEO and their team needs to understand how blockchain nodes work to keep their revenues and respect secure.

Congratulations, Reader. You have just been invited to join the team, as Chief Executive Officer, at ZBlockBuilders Inc., a Web3 technology company looking to extend financial coverage for 1.5 billion financially underserved people across the globe. There are several targets on your mind and, of course, a few concerns about how you’ll accomplish your company’s immediate objective of bringing these into the fold. In other words, you want to democratize the financial system by first educating your potential market. You’ve been offered a fat paycheck and a tall order so you’ve hired me as your adviser to help with this task.

Node is the Codeword

Our first marketing campaign is to introduce the idea of nodes to our target market. I’ve come up with an interesting idea: let’s show them how dangerous the current fintech system could get. Bands of bad actors roam the internet, empowered by sophisticated hacking software, snooping on customers, hijacking entire banking apps, and carting off troves of customer data. We develop an ad that shows how we can prevent this cataclysmic conclusion by sharing that our technology depends on independent decentralized computers (known as nodes), all functioning as “checkers-and-balancers” on each other. No transaction is added to the blockchain unless and until all nodes approve that it is valid: a parliament of protocols if you like. So, if they’re out on a beach in Mexico chilling, half-drunk, with a Piña Colada in hand, they can be sure that no unauthorized transactions are added to the blockchain (or approved) until they give the word. This strikes you as really important because you recall that when you were CFO at LibertyWonk Inc., a Web-2 based fintech, some sleazy fellow with passable tech credentials capered away with $ 30 million through a Business Email Compromise scheme, ruining lives and LibertyWonk Inc. itself. You laugh, telling me about a certain Hushpuppi, who commandeered atleast $24 million from his mastery of BEC and other cybercrimes.

Copy That!

Now, you’re ensconced in your aubergine-colored leather armchair grinning at me. You’re starting to like this. “Tell me more,” you say. I go on sharing that we’ll introduce a series of social media posts reiterating that each of our nodes stores a copy of the entire node system, allowing anybody to verify the provenance of every transaction. In other words, there’s no hiding behind forged records. I flash a web page from my mobile device in front of you, taking you back on memory lane to remind you of the lessons learned from the investigations of the Bank of Credit and Commerce International (BCCI). Investigations which commenced in 1992 and concluded in 2012, cost $656 million paid to firms of lawyers and accountants and resulted in innumerable heartbreaks in victims of the humongous heist.

Calling all Computers!

Nodes (computers, remember?) are linguistic linkers. In other words, they like to communicate with each other just as humans do. Beneath the humming sounds of their hardware, they are asking each other questions about the state of the blockchain just the same way you, as the CEO, would ring the CFO to make yet another inquiry about the financial health of ZBlockBuilders Inc., on a Friday afternoon as you’re getting set to proceed on vacation. While nodes may not go on holiday, they’re still super concerned about how well records are being kept, and believe me, they’ll ask. Something like “hey, are there any new transactions and blocks on our chain, and what are their details?” They constantly check on each other to see how things are going and this involves a process called the consensus mechanism. This simply means that they use a special mode of confirmation to check the state of the blockchain. I’ll share two types of consensus mechanisms.

How do Consensus Mechanisms Function?

Proof of Work

This is native to the Bitcoin core and what it does is require a block miner to solve some truly complex piece of math to create a new block. Once the enterprising mathematician unlocks a new block, it immediately is broadcast to the entire blockchain (just like when Rafiki proudly held the newborn lion cub for all the jungle to see in The Lion King). It more or less says “A new block is born” but without the drama of lions and other animals involved.

Proof of Stake

Now, this is native to Ethereum and is somewhat different from how things play out in the Bitcoin core. With the proof of stake mechanism, you’re a validator and not a miner (note the distinction). So you’re not actively mining as such. Instead, you’re expected to stake 32 ETH (thirty-two Ethereum) and have a validator software ready and running in the hopes that you’re selected to propose new blocks to be added to the blockchain. If you act right, you’ll get some rewards for it. If you’re considered irresponsible (acting badly or staying offline for too long: slashing) you’re punished by having to lose some of your ETH (Ethereum).

Decentralized and Defended

The overwhelming beauty of nodes in the blockchain is that each node is a separate entity of its own, acting independently by itself but unanimously with its peers. Nodes cannot be compelled to approve transactions or fooled by the witty disguises of questing cybercriminals with suggestive emails, until certain rules are collectively adhered to. There is no central system, as we have in current fintech configurations, that can be manipulated or harassed to relinquish value. Nodes function in a trustless environment. That does not mean that they abhor trust, rather they do not rely on trust or goodwill to function. They are ruthless and reliable executors.

In Conclusion

Essentially, nodes are the librarians, accountants and security guards of the blockchain. They communicate with each other to keep records of the particulars of the blockchain, ensuring that all transactions are properly accounted for and blocking (no pun intended) any unauthorized interactions.

Lunch Break,Chief

I see that we’re getting somewhere with my marketing campaign proposals because you’re handing me a glass of orange juice. I’m getting quite hungry too. So, if you like, I’ll come back to offer some more advice after the break.