What is: Blockchain

In 2008 an individual or a group of individuals going by the name Satoshi Nakamoto issued a draft named ‘Bitcoin: a peer-to-peer electronic cash system’. This draft conceptualized a block chain (later written as blockchain), which became a core component when the first release of the cryptocurrency – Bitcoin – was launched a year later.

The Bitcoin blockchain has a wide range of application for both financial and non-financial systems and is referred to as an ‘alternative chain’ when used for other purposes than Bitcoin. It should be noted that alt-chains can either use the Bitcoin blockchain (fork) or use it as reference for their own blockchain. If they chose to do so, they might also use a:

  • Different algorithm for calculating the block hash.
  • Different name conventions for things such as blocks, computer roles and other.
  • Different definition for what transaction is.
  • Different consensus protocol.
  • Different network protocol for their P2P network.

However, the fundamentals of the Bitcoin blockchain architecture still apply. There are various reasons explaining why one may opt to use an alt-chain, but the primary reason is the ability to scale Transactions Per Second (TPS).

Fig.1. TPS comparison

                                                                                                      Source: Ripple

This article focuses on the Bitcoin blockchain (fundamental) architecture:

A blockchain is an immutable chain of validated append only blocks, where each block is linked to the preceding block by its headers cryptographic hash – a blockchain develops from a hard-coded genesis block, and each succeeding block is added chronologically as shown below.

Fig.2. Blockchain

Blocks are data stored on the blockchain. A new block is created by a ‘miner’. Before a block is added to the chain it has to be validated. Some steps have been omitted due to being less relevant to explain the blockchain. The main steps are:

  1. A mathematical problem need to be solved, this process is called Proof of Work (PoW).
  2. The network needs to reach consensus.

Not only is the PoW process time and resource consuming, but it also has a certain level of difficulty. It is an algorithm that calculates the new blocks header hash value. The difficulty lies in the header hash value must be less than the preceding blocks header hash value – and that all miners are competing to be the first with the solution. This is referred to as ‘Bitcoin mining’ due to it is resource consuming and done by a miner. Though the reward for coming up with the solution is Bitcoins, those are not what is actually being ‘mined’.

Next the block needs to be validated. This is done by using a consensus protocol where the nodes in the network validate the PoW. When the nodes reach consensus, based on a majority vote, the block is then added to the chain. A blockchain is only deemed valid if the blocks and data within are valid and originated from the genesis block.

Because of the way each block is processed and connected to the chain altering a blocks contents or deleting a block is nearly impossible. To alter or delete a block will require all succeeding blocks header hash to be recalculated, which would be extremely costly.

A blockchain is stored in a database. The innovation and power of the blockchain lies in the database is distributed over a large number of computers on the internet. Bitcoin and most other alt-chains use a public Distributed Ledger (Technology) database. This means that once data is recorded on the ledger it will remain there forever and since it is public available there will be a certain level of transparency to it as well. Block Explorer offers a real-time view of all current and past Bitcoin transactions. You can see the original genesis block transaction here.

Recommended for you

How Blockchain Technology Will Benefit Traditional Sectors

The original white paper by Satoshi Nakamoto

What is: Bitcoin

Ripple XRP

Live of view of Bitcoin transactions on BlockExplorer