Bitcoin Blockchain Basics

This page describes the basics of Bitcoin Blockchain. It discusses the Blockchain technology that underlies Bitcoin.

What is Blockchain?

• A record repository of an ordered collection of blocks is known as a Blockchain.
• Here, a “block” refers to a list of validated transactions defined around the time frame when the block was created.
• It’s a reward-driven system for achieving consensus based on “Proofs of Work,” helping to secure the network.
• A “transaction” refers to inputs from network participants that describe changes in asset control or the insertion of contracts and/or related legal documents. In other words, a transaction is an asset transfer between two or more participants. For example, John gives a car to Anthony. A participant is a member of a business network, e.g., a Customer, Supplier, Government, Regulator, etc.

Blockchain records the history of asset control and state changes, as well as the creation of contracts and legal documents. Blockchains are an emerging technology pattern that can radically improve banking, supply-chain, and other transaction networks, giving them new opportunities for innovation and growth while reducing cost and risk.

Figure-1 depicts Centralized and Shared repositories.

There are two types of repository used in Blockchain technology viz. Centralized and Shared. Figure-1 depicts the same.

Blockchain technology offers a way for market participants to access dematerialized assets directly without always going through other participants needlessly.

• In a Centralized Repository, most participants are disconnected from their asset depository. Settling a transaction would require participants to collaborate in a flow that is slow, inefficient, and expensive.
• In a Shared Repository, all participants can interact with the depository directly without involving third parties, potentially making post-trade operations cheaper and faster.

Financial industry and banking applications are suitable for Blockchain technology. Trading, clearing, and settlement functions can all be automated on a Blockchain network using smart contracts and oracles.

The Blockchain is radically changing the future of transaction-based industries. Figure-2 depicts the potential applications and disruption of Blockchain.

What is Bitcoin?

• A protocol that supports a decentralized, pseudo-anonymous, and peer-to-peer digital currency.
• Bitcoin is a publicly disclosed linked ledger of transactions stored in a Blockchain.
• There are different versions of Bitcoin technology, viz. Bitcoin 1.5, Bitcoin 2.0.