The Bitcoin Blockchain can be simply explained as a distributed ledger for recording, storing, and transferring information.
The blockchain will revolutionize business and redefine companies, economies, and even governments. It is now possible for every agreement, every process, every task, and every transaction to have a digital record and signature.
Blockchain technology is proving to be the most significant development since the world wide web began in 1990. Blockchains are being integrated into every industry around the world, but
Until now, banks and governments control every decision made in the current traditional financial system. The blockchain decentralizes the power over financial decision making. Meaning the new financial system will not have any central authority exercising control over it. Banks charge a large fee for each transaction.
Blockchain technology offers a cheaper and faster process with its ability to record information efficiently and in a verifiable permanent way, making it a superior financial system over traditional banking.
Any data stored on the blockchain is considered incorruptible due to its mass distribution. In most cases, the blockchain is used to create a permanent, public, transparent ledger system for compiling data. Though, there are three types of blockchain networks.
Public, Permissioned, and Private Blockchains
Bitcoin is the primary example of a Public Blockchain— a large shared network that uses a common token or coin. They are open to anyone to join. They have Open-source code that is supported by the community.
Ripple is an example of a Permissioned Blockchain— these are also large shared systems that use a common token or coin. These blockchains are usually supported by a designated group of developers.
Multichain is one example of a private blockchain— usually running on smaller networks and do not use a token or coin. Their association is closely managed. These sorts of blockchains are usually supported by a team of developers within the organization or company and hold confidential data.
The blockchain is the mechanism which runs Bitcoin, a “peer-to-peer version of electronic cash system” A.K.A cryptocurrency. Bitcoin uses a blockchain as it is distributed ledger, storing every single transaction with the help of computers or “miners.”
Bitcoin began with a “white paper” published by Satoshi Nakamoto labeled “Bitcoin a peer-to-peer version of electronic cash system” which described the first decentralized distributed cryptocurrency to solve the double spending problem that other cryptocurrencies did not do.
Bitcoins open-source code became public in January 2009 and so it is blockchain began shortly afterward when Satoshi Nakamoto “mined” the first Bitcoins. Satoshi Nakamoto disappeared from the public in April 2011 after obtaining 1 million bitcoins, which to this day remain unspent.
Proof of Work (PoW)
Using the Hashcash Proof-of-Work(PoW) algorithm blockchain transactions are verified and secured through a worldwide network of computers, each having a full record of the blockchain. Transactions are recorded by blockchain miners, and each transaction charges a blockchain fee, also called ‘miners’ fee.
The miners’ fees, is charged to the sender when performing a bitcoin transaction, and allows the sender to declare a priority level for the transaction. A lower blockchain fee results in a lower priority in the Bitcoin network, the blockchain prioritizes transactions to decide what is recorded in the next block of the blockchain.
A block is recorded once a miner solves the PoW algorithm, then the miner collects the fee as a reward for finding and recording the block of transaction records. If the miner is mining with a pool, then the reward is shared with other miners who contributed to discovering the block. The proportion of distribution in a pool is decided by the rules of the pool or “node” server.
Every transaction creates multiple hash outputs, which are assigned as a Transaction Identifier (TXID).
As every miner has a real-time copy of the blockchain stored on their local hard drive, transactions are compared to the latest version before being confirmed, any changes made to the blockchain must be accepted by many randomly selected miners, then these changes must be recorded for the entire network to update their local copy as well.
Each block is securely hashed—meaning the confidential data being recorded is coded into a cryptographic hash key.
Miners also use the blockchain to verify that a sender has enough bitcoin to cover the transaction, transactions can be automatically tracked in a verifiable way because of the security of a decentralized consensus blockchain. Hacking the blockchain is considered impossible and impractical.
Every record on the Blockchain is public and can be viewed on your internet browser via a “Blockchain Explorer.” So, anyone can view any transaction, but due to the private nature of Bitcoin, no one is able to see the identity of any account holders.