(
SoChain) The prevalent idea of modern day cryptographic currencies originated
when Bitcoin launched in 2009. With
Bitcoin, for the first time in
history, the world had access to a completely decentralized medium of
exchange. This medium of exchange reliably transfers value from one
entity to another in a
hostile,
trust-less environment
by solving a problem that previously necessitated centralized entities,
such as financial banks, to arbiter value exchanges.
The main role of the centralized entity was to assure the recipient
that the money has been taken from the sender, and given to the
recipient, and the sender could no longer spend the same money (i.e., double spend it). The problem of double spending can be modeled under an abstract Byzantine Generals’ Problem that focuses on achieving majority consensus in a decentralized network.
The Byzantine Generals’ Problem is a topic that deserves its own blog
post. For now, let’s just remember that the problem of double spending
was thought impossible to solve in a decentralized manner before Bitcoin
solved it. This solution was implemented in what is now called the Blockchain.
What is the Blockchain?
In simple terms, the Blockchain is a
book of accounts that is divided into batches of transactions, or
blocks, which are naturally a collection of
transactions. Bitcoin uses a number of technologies that came before it, including decentralized file sharing (see:
BitTorrent),
Public Key Cryptography, and Proof of Work Hashing (see:
Hashcash).
Bitcoin introduced a new technology: the Blockchain. Most subsequent
cryptographic currencies, such as
Dogecoin, use the same technology with
minor changes (e.g., a different Proof of Work hashing algorithm).
The Blockchain facilitates reliable transfer of units of account (later on referred to as values) between certain cryptographically valid entities.
In Bitcoin, the total units of account that will ever exist is 2.1
Quadrillion Satoshis, or 21 Million Bitcoin. In Dogecoin, this is 100
Billion Dogecoin until March 2015, and 5 Billion additional Dogecoin
annually after that. Dogecoin and Bitcoin consist of two separate
networks of peer-to-peer nodes. Each Bitcoin or Dogecoin node tries to
keep its local copy of the book of accounts up-to-date.
In order to make use of the power of the Blockchain and its fast,
decentralized, low-fee transactions, one must understand what
constitutes a transaction:
A
transaction is simply a cryptographically
verifiable instruction from the sender to transfer value the sender owns
to one or more valid recipients. The sender(s), and receiver(s), have
cryptographically verifiable identities, known as
addresses (see:
Public Key Cryptography).
In the Blockchain, here’s what a (simplified) transaction looks like:
{
"txid": <a unique transaction identifier>
"inputs": <an array of inputs>
"outputs": <an array of outputs>
"tx_hex": <transaction content as a hexcode string>
"blockhash": <a unique block identifier this transaction belongs to>
"time": <the time this transaction's block was processed>
"confirmations": <number of blocks that confirmed this transaction>
}
The very basic parts to understand in the above snippet are: a transaction has inputs, and outputs.
The inputs are specifications of which values to transfer from the
sender’s address(es), and the outputs are specifications of how much of
the total input value each recipient’s address(es) receives. Inputs in
this transaction were outputs in a previous transaction, with the
exception of when the network generates new coins.
New coins are generated by the Dogecoin network as rewards for
miners for
solving a block (
example), i.e.,
miners work hard to find the correct
hash for a batch of transactions, also known as a
block (see: Hashcash, Proof of Work). If the total input values are
higher than the total output values, the difference is paid to
miners of the block as a
transaction fee. Total input value is
never less than the total output value in a single transaction.
When a miner finds a new block, they
confirm all the
transactions contained within it as valid. However, a block does not
exist on its own — it is linked to blocks previously solved in a chain
of blocks all the way to the
Genesis Block. The Genesis Block was created when Bitcoin or Dogecoin networks were created (see:
Dogecoin Genesis Block). Therefore, where a block is solved, and appended to a
chain of previously found blocks, it confirms the transactions within it,
as well as the transactions in all the previous blocks in its chain. Hence the name:
Blockchain.
So, what is the Blockchain? In very concise terms, it is a chain of blocks!
Open your free digital wallet here to store your cryptocurrencies in a safe place.
.png)
