Readers of our previous posts in this series (part 1, part 2) should by now have a reasonable understanding of what a blockchain is – its rationale, and how it is created and maintained. For continuity, it is important to reiterate that a blockchain is a decentralized ledger (a record of any sort of information) where every node in a peer-to-peer network maintains a copy of that ledger. Even though nodes may go out of synch with their peers from time to time, the ledger is eventually made consistent so that there is a common agreement on its contents.
Blockchains differ from each other on the types of entries made to the ledger and how such entries are made, validated and confirmed by all the participants in the system to achieve the common and tamper-proof record. For public blockchains, the mechanisms should ensure that these properties hold even when the participants are not always available, known to each other and, perhaps most important, who may not trust each other.
We explained these points using Bitcoin as an example of a successfully deployed public blockchain that records transactions of that eponymous currency. In part 2 of our series, we also used the following architecture picture to separate out and describe the different components that make the entire Bitcoin system tick.
The Bitcoin blockchain is an example of a ledger that records transactions – the transfer of ownership of some token (e.g., bitcoins) from one participant (represented in Bitcoin by an address) to another. This is sufficient for Bitcoin as its purpose is quite limited – the need to create a record of pseudonymous ownership of the crypto-currency that is decentralized, validated and immutable. However, as can be imagined, many have come to see this as quite a limited use of the very powerful tool it created to effect this, and the infrastructure that has grown to support it.
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