The concept of the blockchain lies at the heart of all cryptocurrencies. Blockchain is the decentralised historical record of changes in the ownership of an asset, be it simply spending a bitcoin or executing a complex Smart contract in one of the second-generation cryptocurrencies such as Ethereum. Whenever a cryptocurrency transaction occurs, its details are broadcast throughout the entire cryptocurrency network by the spending party, ensuring that everyone has an up-to-date record of ownership. Periodically, all the recent changes get bundled together into one “block”, and added to the historical record. And so the Blockchain – a linked list of all the previous blocks – serves as the full and complete record of who owns what within the Blockchain network.
Think of Blockchain as an Operating System for interactions.
- Blockchain is a permanent, Cryptographic tool that makes it easier to create cost-efficient networks without requiring a Registration Authority.
- Blockchain is database technology that works on a network such as the Internet. Entities install the application locally and the "nodes" all hold a copy of the database.
- Blockchain No central server holds control over the database. (ie Non Permissioned System)
- Blockchain database is structured as a ledger or a registry of entries into the Blockchain.
- Blockchain entries are aggregated into data structure blocks. The blockchain consists of blocks that hold "time-stamped" batches of valid entries.
- Blocks record and confirm when, and in what sequence, transactions enter and are logged in the Blockchain.
- Each block includes the "hash" of the prior block, which links the blocks together.
- The linked blocks form a chain, with each additional block reinforcing those before it. From this process comes the name Blockchain.
- Blocks are created by users, in Bitcoin known as "miners", who use specialized software or equipment designed specifically to create blocks.
- The specific blockchain protocol defines a valid transaction.
- In Bitcoin, a valid transaction must be digitally signed, spend one or more unspent outputs of previous transactions, and the sum of transaction outputs must not exceed the sum of inputs.
- Other Blockchain Protocols may use a different method of validation, such as third party certification, or none at all.
- Creation of Bitcoin blocks, miners are incentivised to create blocks by two types of rewards: a pre-defined per-block award and fees offered within the transactions themselves, payable to any miner who successfully confirms the transaction.
- Distributed Ledger Technology applications may incentivise block creators differently. If the Blockchain application is run for internal use within a bank or a group of banks these may simply pay third parties or employees to perform this task.
Open Source code provides the blockchain with important transparency, which adds to the trust in the system and its ledger that comes with the Distributed Consensus database structure. All users of Blockchain can verify if the underlying code has any security flaws or contains any back doors to allow tampering.
Bitcoin is an is an Non Permissioned System which implies the information about all transactions on the Blockchain is accessible to all users. This transparency allows all users to check their copy of the Blockchain for consistency with other users’ copies.
In addition, any well-connected node is able to determine, with reasonable certainty, whether a transaction does or does not exist in the Blockchain.
Any node that creates a transaction can, after a confirmation period, determine with a reasonable level of certainty whether the transaction is valid, able to take place and become final (i.e. that no conflicting transactions were confirmed into the Blockchain elsewhere that would invalidate the transaction, such as the same cryptocurrency units "double-spent" somewhere else).pseudonymity for users.
The Bitcoin network strives to preserve the privacy of its users by allowing nodes to access the ledger under a pseudonym. To transfer a Bitcoin the node does not have to reveal the identity of the Natural Person or Organizational Entity operating the node. All that is needed is that the node makes the transaction with a digital Signature with a valid Private Key.
Blockchain transparency may be a challenge for the privacy of its user.
- the Bitcoin address of the sender
- the Bitcoin address of the receiver
- the DateTime
- the Unique Identifier for the Block
- the Bitcoin Blockchain records the Payment Transaction amount in BTC
There are many ways you Digital Identity can be linked to a wallet address.
- Some people share their address publicly. DO NOT DO THIS
- The exchange you bought your bitcoin from has both your Digital Identity and your wallet address.
- Merchants you pay can make the association through:
At least two companies, Elliptic and Chainalysis, Cluster analysis and other techniques of Identity Correlation to bitcoin addresses, and compiling all their insights into commercialized databases that track all bitcoin activity in an effort to De-anonymization Bitcoin.
However, some Organizational Entities are proposing Blockchains as Permissioned Systems which demands a link to a entity’s Digital Identity, and this Personal data will be accessible for all who use the Blockchain. This creates challenges in respect of Regulatory compliance even though some of the people demanding the Permissioned Systems are Government Entities
Beyond Cryptocurrency#Blockchain technology has already grown beyond just Bitcoin, and is now being used, by ShoCard and others, for systems other than currency transactions. If you are technically inclined, you can find the original paper describing Bitcoin and the Blockchain here. For a simpler explanation
More Information#There might be more information for this subject on one of the following:
- Bitcoin Cash
- Bitcoin Diamond
- Bitcoin Faith
- Bitcoin Gold
- Bitcoin block
- Blockchain 2.0
- Blockchain Identity
- Byzantine Fault Tolerance
- Decentralized Autonomous Organization
- Decentralized Public Key Infrastructure
- Digital Asset
- Distributed Ledger Technology
- ID Key
- Merkle Tree
- Nakamoto consensus
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