What is blockchain?
A blockchain is essentially a database that is shared among computer network nodes. The operation of the blockchain is to store data in a digital form. Blockchain technology provides high reliability in the safe and decentralized storage of information without the need for a trusted third party.
The structure of the data on a blockchain differs from a traditional database. In more detail, a blockchain organizes data into groupings called blocks, each containing a collection of data. Blocks have specific storage capabilities, and when they're full, they're closed and linked to the preceding block, producing a data chain known as the blockchain. All additional information added after that newly added block is compiled into a new block, which is then added to the chain after it is filled.
A database stores data into tables, whereas a blockchain stores data into blocks that are strung together, as the name suggests. This data structure creates an irreversible data timeline when implemented decentralized. Once a block is filled, it becomes permanent and part of the timeline. When each block is added to the chain, it is given a specific timestamp.
History of Blockchain
1991: For the first time, Stuart Haber and W Scott Stornetta described a cryptographically safe chain of blocks.
1998: Nick Szabo, a computer scientist, was working on 'bit gold,' a cryptocurrency.
2000: Stefan Konst presented his cryptographic secured chain theory and implementation suggestions.
The developer with the pseudonym Nakamoto published the blockchain whitepaper in 2008.
2009: Nakamoto created the first blockchain, which serves as the public log for bitcoin transactions.
2014: The potential of blockchain technology for other financial and inter-organizational transactions was investigated after it was divorced from the currency. The term "blockchain 2.0" was coined to refer to applications other than currency.
The Ethereum blockchain architecture incorporates computer programs representing financial assets such as bonds into the blocks. These are referred to as smart contracts.
2015: The Linux Foundation announced Hyperledger in 2015. It has since served as a collaborative development platform for distributed ledgers.
2020: The future of Blockchain technology is bright, due in part to the large investments made by governments and businesses to promote innovation and applications. It is becoming increasingly evident that a public blockchain will be available for anybody to utilize one day.
What is Bitcoin
Bitcoin is a set of concepts and technology that serve as the foundation for a digital currency ecosystem. The Bitcoin network uses bitcoins as a unit of money to store and transmit value. Users of the Bitcoin blockchain connect with one another primarily through the internet. However, alternative transport networks can be utilized as well. The Bitcoin protocol stack, which is open-source software, can be operated on a variety of computer platforms, including laptops and smartphones, making the technology widely available.
Users may use bitcoin to accomplish almost anything that can be done with traditional currencies, including buying and selling items, sending money to people or organizations, and granting credit. It may be purchased, traded, and swapped at specialist currency exchanges for other currencies.
Bitcoin users have keys that they may use to verify the identity of bitcoin on the Bitcoin network. They can sign transactions to unlock the value and spend it by transferring it to a new owner using these keys. Keys are regularly saved in a digital wallet. Users need only these keys to sign transactions on the Bitcoin network.
Bitcoin is a peer-to-peer, distributed system. Users can get bitcoins when doing mining work on the bitcoin network. It is the competitive process of trying to solve a math problem while processing a transaction. Any Bitcoin network participant can function as a miner. A Bitcoin miner can validate the transactions of the previous 10 minutes every 10 minutes on average and is paid with brand new bitcoin.
Mining has a certain difficulty because built-in algorithms in the Bitcoin protocol govern mining functionality throughout the network. The complexity of the processing work that miners must complete is constantly changing such that someone succeeds every 10 minutes on average, regardless of how many miners (or how much processing) are competing at any given time.
Transactions
Transactions provide information regarding the transfer of bitcoins from one owner to another. The sender must sign the transaction for it to be legitimate. A transaction has three main parts.
1. Input: address contains the bitcoins the user wants to send.
2. Output: receiver's address.
3. Amounts: the number of bitcoins the user wants to send.
Each transaction will be signed by the sender using their private key. After that, it is broadcast to all nodes. This will verify that the private key matches the public key. An additional fee called a transaction fee is required for a transaction to be made, which is paid to the miners.
Mining
On the Bitcoin network, the transaction will spread. It is not included in the blockchain until it is confirmed and included in a block through the mining process. Bitcoin's trust mechanism is built on computation. Transactions are packaged together in blocks, requiring a massive amount of computation to prove yet just a tiny amount of computation to check as proven.
Mining nodes do two jobs:
- Mining nodes validate transactions based on consensus rules. Invalid transactions will be rejected.
- Create new bitcoins.
Miners use electronic devices such as computers to perform mining. Miners will receive a reward if they correctly confirm all the transactions according to the consensus rules. The reward includes the new bitcoin and transaction fee.
References
[1] Antonopoulos, Andreas M., Mastering Bitcoin: Programming the Open Blockchain - 2nd Edition, accessed April 13th, 2022.