Understanding Blockchains (and Bitcoin) – Part 2: Technology
Friday, November 10th, 2017In our previous post in this series, we provided a conceptual view of blockchains, using its implementation in the Bitcoin ecosystem as a way to explain what it means and how it works. In this post, we’ll probe the concepts at a deeper, more technical level again using Bitcoin’s mechanisms as the example. Such details are useful when progressing further, as we shall do in future posts, on the use of blockchains in many other domains that go beyond transacting with crypto-currencies such as bitcoins.
We’ll do this using a layered architecture to help separate the different pieces of the general system, so as to better explain how these vary when moving from one blockchain-based system to another.
Blockchain Architecture
The following picture shows a general architecture of a blockchain based system. It isn’t shown this way in any of the formal blockchain literature, but this author finds it useful to break down and compartmentalize the different aspects when thinking about the differences between various blockchain-based systems.
The top most layer represents Applications that can be built using the underlying Decentralized Ledger maintained on a Peer-to-Peer network. In the case of Bitcoin, such applications are very simple as the entire architecture supports one straightforward function – the exchange of bitcoins for commerce or speculation. An example is a Bitcoin wallet, created to represent a user’s unspent bitcoins. Blockchains such as Ethereum allow for more complex applications, which we shall discuss in our next post.
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