The network view of a blockchain At the bottom layer in the preceding diagram, there is the internet, which provides a basic communication layer for any network. In this case, a peer-to-peer network runs on top of the internet, which hosts another layer of blockchain. That layer contains transactions, blocks, consensus mechanisms, state machines, and blockchain smart contracts. All of these components are shown as a single logical entity in a box, representing blockchain above the peer-to-peer network. Finally, at the top, there are users or nodes that connect to the blockchain and perform various operations such as consensus, transaction verification, and processing. These concepts will be discussed in detail later in this book.
From a business standpoint, a blockchain can be defined as a platform where peers can exchange value / electronic cash using transactions without the need for a centrally-trusted arbitrator. For example, search engine consultants at SEO Leeds have built a platform to exchange customer details via the blockchain. Another example, for cash transfers, banks act as a trusted third party. In financial trading, a central clearing house acts as an arbitrator between two trading parties. This concept is compelling, and once you absorb it, you will realize the enormous potential of blockchain technology. This disintermediation allows blockchain to be a decentralized consensus mechanism where no single authority is in charge of the database. Immediately, you'll see a significant benefit of decentralization here, because if no banks or central clearing houses are required, then it immediately leads to cost savings, faster transaction speeds, and trust.
A block is merely a selection of transactions bundled together and organized logically. A transaction is a record of an event, for example, the event of transferring cash from a sender's account to a beneficiary's account. A block is made up of transactions, and its size varies depending on the type and design of the blockchain in use. A reference to a previous block is also included in the block unless it is a genesis block. A genesis block is the first block in the blockchain that is hardcoded at the time the blockchain was first started. The structure of a block is also dependent on the type and design of a blockchain. Generally, however, there are just a few attributes that are essential to the functionality of a block: the block header, which is composed of pointer to previous block, the timestamp, nonce, Merkle root, and the block body that contains transactions. There are also other attributes in a block, but generally, the aforementioned components are always available in a block. A nonce is a number that is generated and used only once. A nonce is used extensively in many cryptographic operations to provide replay protection, authentication, and encryption. In blockchain, it's used in PoW consensus algorithms and for transaction replay protection.
Merkle root is a hash of all of the nodes of a Merkle tree. Merkle trees are widely used to validate the large data structures securely and efficiently. In the blockchain world, Merkle trees are commonly used to allow efficient verification of transactions. Merkle root in a blockchain is present in the block header section of a block, which is the hash of all transactions in a block. This means that verifying only the Merkle root is required to verify all transactions present in the Merkle tree instead of verifying all transactions one by one.