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Understanding Blockchains – Part 3: Ethereum, or moving beyond Bitcoin

Monday, November 20th, 2017

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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Understanding Blockchains (and Bitcoin) – Part 2: Technology

Friday, November 10th, 2017

In 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.

Blockchain Architecture

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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