What is Blockchain? From where the term Blockchain came into picture? Bitcoin Whitepaper Simplified

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3 min read

This article describes the terminologies that came into picture from the study of Bitcoin Whitepaper. And tries to present them in normal user understandable language. The blockchain technology is more beyond bitcoin and cryptocurrency.

Bitcoin

“ Developing a peer to peer cash system without involvement of any third party. To eliminate the double spending problem the system used proof of work as a consensus algorithm” with this aim Satoshi Nakamoto developed the first ever cryptocurrency Bitcoin in 2009. Decentralized, cryptographic, distributed currency.

Block

Block has three basic elements:

  • The data in the block.

  • A 32-bit whole number called a nonce. The nonce is randomly generated when a block is created, which then generates a block header hash.

  • The hash is a 256-bit number wedded to the nonce. It must start with a huge number of zeroes (i.e., be extremely small).

Blockchain

The term Blockchain derived from the Bitcoin whitepaper. The chain of the blocks that keep track of the transactions happening in the network. Adding a block to a blockchain is a process called mining where miners use one of the different consensus algorithms to add new blocks in the chain. Longest chain is considered to be the secured one.

Blockchain is basically an immutable/ irreversible chain which makes it more secure as every present block is dependent on the past block and will take part in computation of future blocks. Changing one block will require changing every block after it.

Consensus (Agreement) Algorithms

Consensus mechanisms (consensus protocols or consensus algorithms) allow distributed systems (networks of computers) to work together and stay secure. There are several consensus algorithms.

Proof of work Originally dated 1993, to prevent Denial of Service ( DoS ) attacks. In 2009 Bitcoin used PoW as a consensus algorithm to validate the block and add it to the blockchain.

How does it work?

Miners are given complex computational problems to solve. The problem/puzzle is hard to solve but easy to verify. Once a miner finds a solution it will broadcast it in the network where other miners will verify the solution and if it is correct the block is added to the blockchain. Which in turn will generate the solution of a specific block(block hash). Each valid block contains a hash that represents work done by the miner; this is why it is called Proof of Work.

Let's take example of bitcoin

The miner should guess a nonce ( number that occurs only once ) which, combined with the block when it passes through the hash function, will generate a hash which matches the given condition, say hash starting with five 0s. The miner which computes the correct answer is rewarded with corresponding currency in our example bitcoin.

Bitcoin is one of use cases of blockchain. Blockchain is a vast field of study which can be used in various sectors to improve security, speed and reliability of systems.