How To Build A Blockchain (In 5 Simple Steps)

Creating a blockchain from scratch can be daunting, involving deep technical expertise and considerable time investment. However, there are more accessible ways to start your blockchain journey.

Developers often seek rapid blockchain deployment to focus on user interfaces, stakeholder management, and refining blockchain use cases.

In this guide, we'll explore how to build your own blockchain efficiently. We'll share tips for accelerating your project using enterprise blockchain platforms and offer strategies to minimize gas fees, ensuring you don’t need substantial investments in bitcoin or ethereum to reach production.

Creating Your Blockchain

You've likely heard about the transformative power of blockchains but might think building one is too complex. Surprisingly, with the right blockchain provider, it can be straightforward. Here are the five essential steps to get started:

1. Selecting an Appropriate Use Case: Determine the specific problem your blockchain will solve.
2. Choosing Your Protocol: Select a blockchain protocol that fits your needs.
3. Identifying the Best Consensus Algorithm: Decide how your network will agree on transactions.
4. Setting Up Your Network: Establish the infrastructure for your blockchain.
5. Launching Your First Smart Contract: Deploy a smart contract to automate processes.

Although it sounds simple, especially compared to creating a blockchain from scratch, using a blockchain-as-a-service platform simplifies the process significantly. Now, let's dive into each step.

1. Make Sure Blockchain Is Right for Your Use Case

Building on the blockchain isn’t easy. You want to be sure your use case requires blockchain—rather than a simple web application.

To decide if blockchain is right for your use case, ask yourself the following questions:

Are there multiple entities that need to collaborate to do business together?

Blockchain is a great solution when you need to unite parties to do business. Creating a business network, connecting directly with users or fans—any system that requires the sharing of information beyond the borders of a typical office may be right for blockchain. Creating these multi-party systems makes it easier to collect, store, and safely transmit data.

Are there any areas of your business that rely on trust agents or a centralized authority to act as an intermediary?

Take insurance for example. Imagine you want to create a system that allows different insurance companies to securely share data but at the same time keep proprietary information confidential.

A unique business network like this requires a central repository of information, systems to ensure proper identity management, and a shared ledger to record transactions between organizations.

Is there a lack of trust in your processes or transactions?

Again, thinking about the example above, imagine you want to build a business network that connects competitors. Blockchain allows you to build protections into your network to ensure data is transmitted securely and sensitive information is kept private.

Do you need a traceable, auditable, and verifiable tracking mechanism for your assets?

Supply chains make great blockchain use cases, as they present a system that requires real-time tracking, potential for automated processes and transactions, and verifiable assets and certifications.

Are there parts of your business operations that can be automated and placed in a smart contract to be executed without the need for a manual, human touch?

Want to manage royalty payments, track provenance and future transactions, or remove the paperwork from real estate transactions? Blockchain allows you to digitize legacy systems and facilitate business automatically.  

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How blockchain fits in into different industries

Blockchain technology has found applications across various industries due to its inherent characteristics like decentralization, immutability, transparency, and security. Here's a summary of blockchain use cases by industry, understanding this just scratches the surface of the potential:‍

Finance and Banking:

• Payment and remittance systems
• Cross-border transactions and settlements
• Trade finance and supply chain finance
• Smart contracts for automating agreements and transactions
• Identity verification and KYC (Know Your Customer) processes

Supply Chain and Logistics:

• Tracking and tracing products across the supply chain
• Provenance verification to ensure authenticity and quality
• Streamlining documentation and reducing paperwork
• Inventory management and real-time monitoring

Healthcare:

• Secure sharing of medical records among healthcare providers
• Drug traceability to prevent counterfeiting
• Clinical trials management and data integrity
• Patient consent management

Real Estate:

• Property title management and land registry
• Streamlining property transactions and reducing fraud
• Tokenization of real estate assets for fractional ownership
• Smart contracts for rental agreements and escrow services

Supply Chain and Logistics:

• Tracking and tracing products across the supply chain
• Provenance verification to ensure authenticity and quality
• Streamlining documentation and reducing paperwork
• Inventory management and real-time monitoring

Government and Public Sector:

• Voting systems to enhance transparency and security
• Identity management for citizens and residents
• Land registry and property rights management
• Public fund management and transparent budgeting

Retail and E-commerce:

• Loyalty programs and rewards management
• Supply chain transparency to ensure ethical sourcing
• Prevention of counterfeit goods
• Peer-to-peer marketplaces with automated escrow services

Energy and Utilities:

• Peer-to-peer energy trading in microgrids
• Grid management and optimization
• Tracking renewable energy generation and carbon credits
• Management of energy certificates and compliance

Insurance:

• Claims processing and fraud prevention
• Parametric insurance using smart contracts for automatic payouts
• Reinsurance and risk pooling
• Identity verification and KYC processes

Education:

• Secure storage and verification of academic credentials
• Transparent certification processes
• Intellectual property rights management for educational content
• Secure distribution of educational resources and content

These are just some examples, and the potential applications of blockchain technology continue to expand as the technology evolves and more industries recognize its benefits. To learn how blockchain may improve the way you work, visit our solutions hub here.

2. Choose Your Protocol

When setting up your blockchain, you have to choose a protocol. Ethereum, Hyperledger Fabric, R3 Corda, and Polygon Edge are protocol choices.

Each of these protocol choices may also have different implementations to choose from.

There are various protocol options in the Ethereum family, including Geth, Polygon Edge, Quorum, Hyperledger Besu. Each client contains different protocol functionality (e.g. private transaction support) and configurable consensus implementations, allowing for individual networks to be built in accordance with consortia-level performance and privacy requirements.

For Corda, you can choose between OS (open source) and Enterprise. Both versions support 100% of the Corda protocol, so there are no real functional differences between the two. The differences are non-functional, with the Enterprise version offering more deployment flexibility to meet the needs of enterprise security standards, notary clusters and support for Hardware Security Modules (HSM).

In the table below we’ll talk about why you might pick each of these protocols.

Ethereum

Most Ethereum smart contracts are written in a specialized smart contract programming language called Solidity. Then compiled into "bytecode" that is deployed onto the chain, alongside the transactions. Ethereum mainnet has low throughput and high transaction fees, but strong security and global reach. Permissioned Ethereum chains allow you to bypass gas fees and improve throughput.

Hyperledger Fabric

Fabric Chaincode is a program, written in Go or Node.js that implements a prescribed interface. Chaincode runs in a separate process from the peer and initializes and manages the ledger state through transactions submitted by applications. Hyperledger Fabric is intended as a foundation for developing applications with a modular architecture.

Corda

Corda CorDapps are written in a restricted subset of Java or Kotlin, defining the flow, data and business logic of the transaction. Then compiled into Jar files that are signed and distributed to the nodes. Corda's flexible smart contracts, flows, and ledger can be great for tracking and managing digital assets.

3. Identify the Best Consensus Algorithm

The public Ethereum mainnet uses the Proof of Work (PoW) algorithm. Bitcoin also uses PoW. PoW algorithms are computational intensive, meaning they require a lot of energy to operate. They are also slower, as the number of transactions they can complete in a given time period is limited.

Ethereum is in the process of migrating to Proof of Stake (PoS). With proof-of-stake (POS), blocks are validated by individuals with the largest holdings, or stakes.

Private chains use permission-based algorithms that rely on voting rounds and digital signatures for state agreement and protection. These algorithms include clique Proof of Authority (PoA), Istanbul BFT (Byzantine Fault Tolerant), and Raft.

PoA or IBFT allow any node that is designated as a “signer” to participate in voting rounds and append a digital signature to a proposed block as proof of validation. Raft uses a single static leader node to deliver blocks to the rest of the network.

PoA or IBFT also employ round changes between blocks, allowing for equitable participation as a mining/proposing node and the democratic removal of unstable or malicious participants.

In a private chain, nodes that mine and propose blocks receive no ether incentive. Their only job is to package transactions in the pending transactions pool and generate a block for validation. In a public chain these gas fees are incentives used to pay the miner.

For a complete breakdown on your options, read our blog post on consensus algorithms.

4. Deploy Your Network

After you’ve choses your protocol and consensus algorithm, you’re ready to start deploying your network. A good blockchain service provider will help you host your environment in one of three ways: cloud, on prem, or hybrid.

With a cloud solution, a third-party hosts your server and there is no need for on-premise hardware. You can then choose to build a public cloud or private cloud, depending on how you want to handle your data. A blockchain provider like Kaleido can integrate with AWS or Azure.

On-prem solutions allow you to use hardware you own and hybrid solutions let you use your hardware plus the cloud.

There’s no perfect solution here. Different organizations prefer to handle data in different ways. If you know you’re going to need to scale in the near future, go with the cloud. If you already have a data infrastructure in place, maybe hybrid cloud is right for you.

Deploying your blockchain also requires you to set up members and organizations. Decentralized applications require some type of key management and peer to peer communication setup to confirm identities and facilitate business around the chain.

5. Launch Your First Smart Contract

Kaleido provides enterprise-grade smart contract management as a native component on the Kaleido platform, an industry-first capability that generates REST APIs for any smart contract, making it possible for developers to build on web3 with programming patterns they’re already familiar with.

One of the best ways to use your first smart contract is to deploy a token. Kaleido’s token factory allows you to quickly build and deploy your own token smart contract. All you have to do is set up your free account to get started.

With a blockchain built, smart contracts, and the right use case—you're well on your way to creating your first blockchain application.

Common Questions About Building a Blockchain

How does the choice of protocol impact the scalability and security of the network?

The choice of blockchain protocol has a significant impact on both the scalability and security of the network. Different protocols offer various trade-offs between decentralization, security, and scalability—often referred to as the blockchain trilemma.

For instance, protocols like Ethereum prioritize security and decentralization but have faced challenges with scalability, leading to high transaction fees and slower processing times during peak usage.

On the other hand, newer protocols and those using Proof of Stake (PoS) or sharding techniques aim to improve scalability without compromising security.

Enterprises must carefully evaluate their specific needs, including transaction volume, speed requirements, and security concerns, to choose a protocol that best aligns with their objectives. It's also crucial to consider the protocol's development community, maturity, and track record in handling security issues. Building on a protocol like Hyperledger Besu, which has a vibrant support community, can help speed up development and ensure you're building a future-proof solution.

What are the best practices for managing and maintaining a network post-launch?

Managing and maintaining a blockchain network post-launch involves several best practices to ensure its optimal performance and security. Regular monitoring of network activity and performance metrics is essential to detect any anomalies or inefficiencies early. This includes tracking transaction speeds, block sizes, and network participation rates.

Network participants, especially validators or miners in permissionless blockchains, should be vetted continuously to uphold the network's integrity.

For permissioned blockchains, managing participant permissions and roles is crucial to maintaining security.

Regularly updating the blockchain software and smart contracts to patch vulnerabilities and improve functionality is also key.

Enterprises should establish governance frameworks to manage these processes and make decisions regarding network changes democratically among stakeholders.

How can enterprises integrate existing systems and data with a newly built network?

Integrating a newly built blockchain network with existing systems and data infrastructure requires a strategic approach to ensure compatibility and minimize disruptions. This can involve using APIs (Application Programming Interfaces) to facilitate communication between the blockchain network and existing software systems, allowing for data exchange and triggering actions across systems seamlessly. Kaleido offers a rich blockchain API Gateway to help here.

Middleware solutions can also play a critical role, acting as a bridge between the blockchain and enterprise systems to translate and route data effectively. Hyperledger FireFly is an example of a blockchain middleware, an is the best open-source blockchain middleware on the market.

Additionally, data formatting and standardization may be necessary to ensure that information is consistently interpreted across all systems.

Enterprises should also consider the implications of data privacy and security regulations when integrating systems, ensuring that the blockchain solution complies with all relevant laws and standards.

Pilot projects or phased rollouts can help in testing the integration and making necessary adjustments before full-scale deployment.

Get Started Building Today

You can launch a blockchain in five simple steps. It might sound surprising given the complexity involved in setting up a network, but with a solution like Kaleido, it’s possible. Our platform, created by blockchain developers for blockchain developers, includes over 500 pre-built services and APIs designed to help you reach production quickly and avoid early-stage pitfalls.

Ready to create your own blockchain? Click here to get started and stand up your first blockchain in minutes—for free.