The basics of bitcoin and blockchain in under 6 minutes
- The inner workings of bitcoins blockchain
Part of the bitcoin software involves building bitcoins blockchain, which can be thought of as a digital ledger that keeps track of user balances via debits and credits. Bitcoin blockchain is a database that records the flow of its native currency, bitcoin. Bitcoins blockchain is a distributed cryptographic and immutable database that uses proof-of-work to keep the ecosystem in sync.
- What is cryptography, and why is it important?
Cryptography is the science of secure communication. It involves taking information and rearranging it so that only the intended recipient can understand and use that information for its intended purpose. The process of scrambling the message is encryption, and unscrambling it is decription, performed through complex mathematical techniques.
Cryptography has become a vital part of our lives. Every time we type in a password, pay with a credit card, or use WhatsApp, we enjoy cryptography benefits. Cryptography allows the computers building bitcoins blockchain to collaborate in an automated system of mathematical trust.
- What is immutable
The combination of globally distributed computers that can cryptographically verify transactions and the building of bitcoins blockchain leads to an immutable database, meaning the computers building bitcoins blockchain can only do so in an append-only fashion.
Append only means that information can only be added to bitcoins blockchain over time but cannot be deleted. Immutability is a rare feature in a digital world where things can easily be erased, and it will likely become an increasingly valuable attribute for bitcoin over time.
Proof of work is a consensus mechanism used to confirm that network participant, called miners, calculate valid alphanumeric codes called hashes to verify Bitcoin transactions and add the following block to the blockchain. It does so by having other participants in the network to verify that the required amount of computing power was used by the miners is credited with calculating the valid hash. Proof-of-work is all about creating a positive incentive for people to invest in the resources it takes to add valid blocks to a cryptocurrency’s blockchain.
- Private vs. public blockchains
Public blockchain ( permissionless): Public blockchains are open networks that allow anyone to participate in the network. Public blockchains are permissionless, meaning anyone can join the network and read, write, or participate within the blockchain. A public blockchain is decentralized and does not have a single entity that controls the network.
- Full transparency of transactions
- No central authority ( fully decentralized across unknown parties )
- Censorship resistant
- Slower and challenging to scale, as high volume can strain to network-wide transaction verifications
Private blockchain ( permissioned ): A private blockchain is managed by a network administrator, and participants need consent to join the network; a private blockchain is a permissioned blockchain. There are one or more entities that control the network, and this leads to reliance on third parties to transact. In this type of blockchain, only the entity participating in the transaction has knowledge about the transaction performed, whereas others will not be able to access it.
- Private with limited decentralization
- Less transparent
- Controlled transparency, based on organizations goals
- Faster and more scalable since fewer nodes manage transaction verification and consensus
- risk of override
Chris Burniske-crypto Assets: The Innovative Investor’s …. https://idoc.pub/documents/chris-burniske-crypto-assets-the-innovative-investors-guide-to-bitcoin-and-beyond-pnxkypj3o94v
Proof of Work: Definition, How It Works — OTCPM24. https://www.otcpm24.com/2021/12/17/proof-of-work-definition-how-it-works/
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