These days a buzzword called Blockchain has been making rounds in the news. There is one more such word called Bitcoin that too is in discussions. What are these two terms? Are they connected with each other? If yes, how exactly? These and similar other queries have been haunting the minds of many. Yet, when it comes to what it means, these terms seem to be eluding even techies, let alone public at large.
To start with, let us mark it clearly, Bitcoin is a virtual currency whereas Blockchain is an underlying technology that supports Bitcoin. This pair was proposed by Satoshi Nakamoto in a path-breaking paper entitled “Bitcoin: A Peer-to-Peer Electronic Cash System” way back in 2008. Later on he went ahead to concretize this concept through the blockchain software he released next year in 2009. This has got tremendous implications spanning across the sphere of technology, economics, finance, politics and social sciences.
Bitcoin, which is discussed in this blog will probably disappear from my subsequent blogs that are aimed solely at Blockchain. Well, this Bitcoin as an innovative currency has many a firsts. It’s a crypto-currency which means it is completely intangible and abstract with no concrete representation in coin or note form. Secondly, it keeps a track of all the transactions of every single bitcoin. Thirdly, it has no sovereign affiliation from any nation. That also means the currency is backed neither by any precious metal like gold, nor by an assurance of any country. The minting and supply of this currency is algorithmically controlled through the software. Interestingly, in spite of these queer factors, Bitcoin is gaining its popularity across several nations.
Blockchain is the underpinning technology that supports the Bitcoin, and several other applications that we will see in the ensuing blogs. This technology enables us to maintain a replicated database of immutable transactions which are validated in a democratic manner by the players (aka miners in Bitcoin application). If that is too much in a single sentence, let us explore these characteristics one-by-one. Firstly, the blockchain is a peer-to-peer network of computers/ nodes, with each node having a copy of the database and also the power to augment a block (comprising several transactions) to a chain; hence the name blockchain. Each block contains the hash of its predecessor making a chain of blocks similar to a linked list ensuring the proper sequence. A block once added to the chain can neither be deleted nor can it be overwritten, thus providing an immutable record of transactions. Secondly, as this database is replicated at each node it can be reckoned under the category of multi-replica databases. Thirdly, when it comes to addition of a new bock, the node operators compete and cooperate with their peers. Competition is by way of a race to meet a challenge of finding a fitting nonce, which yields a value less than target, when hashed along with other elements of the block to be added, like time stamp, has of last block and transactions contained in this block. By the way, degree of difficulty of this challenge is adaptively regulated via a built-in algorithm to ascertain a time interval of ten minutes between any two blocks. Like an issue that merits lateral thinking, this challenge – one-way hard mathematical function like factorization – is hard to construct but easy to confirm. Cooperation is in the form of all the nodes updating their respective version of database by adding the block that is broadcast to them by the winning miner. Obviously, each node validates the new block before putting it on to the chain. Lastly, in a bitcoin-specific scenario, a miner gets certain remuneration with each successful addition of the block on the chain.
Well, isn’t this small articulation as ambitious as explaining a highly intricate concept in a single page; especially when the complexity is comparable with calculus, if not with theory of relativity? May be yes. That’s why we will keep on strengthening it blog by blog and also keep on updating the latest happenings in this nascent area of blockchain.
-Dr. Pramod Damle