Understanding Chain Reorganization In Blockchain Technology

2022-06-23, 09:02

[TL; DR]

Chain reorganisation is a complex yet vital part of blockchain technology. Understanding this concept entails a fair knowledge of the basics of blockchain technology. Therefore, concepts such as “nodes,” “blocks,” etc., need to be analysed for a more thorough understanding of blockchain technology and, by extension, chain reorganisation. This article dissects this topic to the minimum, aiming to enlighten you on the concept of blockchain technology, the impact of chain reorganisation, and its advantages.

Keywords: Chain reorganisation, blockchain technology, nodes, miner.

The Blockchain Technology

Blockchain technology uses complex processes that are combined to store and distribute data. It’s that simple!

Furthermore, blockchain technology is a transactional-oriented ledger maintained by “nodes,” a network of computers. We will use a simple example to understand what exactly nodes are. Imagine you want to make a transaction on the bitcoin blockchain. Nodes must validate such transactions when you want to complete a blockchain transaction.

After successfully validating the transaction, the status will be “pending” until a specialised node known as a “miner” picks up the transaction. Once the transaction has been approved, the transaction is inputted into the blockchain.

Although, these transactions are not usually confirmed individually. Miners usually confirm them in blocks, after which such a block is distributed across the network of nodes to verify its validity. Once this validation occurs and is successful, the new block is added to the older blocks, creating a chain of blocks.

There you have it. Blockchain. A chain of blocks. Simple.

Chain Reorganisation

Now that you have a clearer insight into how this seemingly complex digital database works, we can delve into the concept of chain reorganisation, more popularly abbreviated as reorg.

A chain reorganisation is when an old block of transactions is removed from the blockchain, with the primary aim of creating room for a newer, longer chain of transactions.

Chain reorganisation occurs when different nodes simultaneously build new blocks. These new blocks then force the other nodes to choose which recent transaction should be added to the blockchain. Chain reorganisation often occurs in bitcoin and Ethereum, arguably the two largest blockchains in our modern world.

Simultaneous Blocks

Simultaneous blocks occur when blocks are mined at the same time. Simultaneous blocks raise the question of which block was mined first because propagation speed differs across networks.

Additionally, miners seek to stay in sync with the blockchain. Therefore, a miner has to choose which side of the fork is the correct chain.

If the miner chooses the wrong side of the chain, the blocks that contain tons of transactions will be lost. Forever. In other words, the blocks will be deactivated and become what is known as “orphan blocks.” They no longer belong to the blockchain’s transaction history and would be reassigned into new blocks.

Nodes use the “Longest Chain Rule” or “LCR.” to solve the conflicts around simultaneous blocks. This rule states that the longest chain is the valid chain. Technically speaking, a chain that has global acceptance has more comprehensive work done on it. Therefore, nodes usually choose to extend a chain that has already been extended the most.

How Are Blockchains Chained Together?

After the first block in a chain has been formed, a “nonce” creates what is known as a cryptographic hash. “Nonce” represents “numbers used only once” and is a four-digit number added to a blockchain’s encrypted or hashed block. Miners are usually solving for this number.

After the nonce creates the hash, a variety of transactions are added to the block, including a header. Then, a hash output of fixed length is generated from the duplicate transactions in the block and added to the block header.

The Impact Of Chain Reorganisation

Chain reorganisation has many effects on the blockchain, both positive and negative effects.

Advantages of Chain Reorganization

One critical advantage of chain reorganisation is that it enhances successful operations on the blockchain. Negating a process of chain reorganisation implies that it would be impossible to operate a unified ledger.
Additionally, chain reorganisation ensures that all nodes on the network have access to the same ledger. Several copies are saved on the ledger, ensuring that all recorded transactions are valid.

Being a straightforward mechanism that is relatively seamless, chain reorganisation provides versatility in the blockchain application. However, it does have some disadvantages.

Disadvantages of Chain Reorganisation

Once common disadvantage borders on the issue of "block conflict” earlier discussed, where users can have their transactions rejected due to the orphan blocks. Nevertheless, this seems feasible only in theory. It rarely happens. However, other disadvantages are present in chain reorganisation. For instance:

Chain reorg diminishes the User Experience (UX) while the cost of nodes increases.
DeFi transactions are vulnerable as the likelihood of attacks rises to 51%.
Chain reorganisation causes additional memory and disc costs due to the necessary updates required to transition.
Delays are also inevitable with chain reorganisation, as users must wait much longer to confirm transactions. Delay is usually not ideal for traders adept at rushing to open or close positions.

Conclusion

Chain reorganisation is a vital aspect of blockchain technology. While it possesses a few disadvantages, it is evident that this complex process cannot be negated. It ensures a seamless blockchain operation.