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Understanding Blockchains (and Bitcoin) – Part 1: Concepts

Friday, November 3rd, 2017

It is the rare person these days who has not heard of blockchains, if only vaguely and very likely in connection with its implementation in that sensational crypto-currency Bitcoin.  While Bitcoin has been around since 2009, its recent valuations and the speculative market around it have motivated many to try and better understand its inner workings and possibly mimic those to create alternative crypto-currencies. Having missed the Bitcoin boat, entrepreneurs and speculators hope they can get an early start on the next big thing.

The Bitcoin market momentum has led, in recent years, to a great deal of interest in the underlying technology – the distributed ledger called a blockchain, and the eco-system of peer entities that verify, maintain and grow it. Leading companies from different industries as diverse as banking, entertainment, transportation, education, government and many others have started to find in blockchains something that they can use to improve operational efficiency while cutting intermediary costs.

Bitcoin and blockchain

Recent news on the use of blockchains in the medical domain have caught our attention. We suspect many readers of the LuxSci FYI blog have also had their interest similarly piqued. However, such news items are almost always high level and offer very little insight into what is actually being done. To probe further requires understanding something about blockchains through its recent manifestations, particularly the version used in a system called Ethereum. (Ethereum, as we shall see in a later post, is an advance over the Bitcoin ecosystem, borrowing many of its architectural principles while expanding on the usage scenarios.)

To help our readers make sense of such news, particularly those related to the use of blockchain technology in a medical setting, we are providing a multi-part series of blog posts describing the blockchain, using examples of crypto-currencies such as Bitcoin and Ethereum to illustrate how it maintains an immutable record of the states of a system over time, and how new applications can be built on top of such systems.

At the end of this series of posts, having exposed the basic technical foundation, we will describe how blockchains are being used in various industry scenarios, especially medical ones as well as related areas such as identity management, auditable record keeping and data sharing. We hope that after reading these posts, our readers will be able to make better sense of news articles of the sort we referred to earlier.

This first post will describe the concepts behind a blockchain, using Bitcoin as the example. We will explain at a conceptual level, avoiding detailed technical descriptions in this post unless absolutely essential. The next post will fill in all the technical details.

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