Basic Blockchain Operations

Operations in a decentralized network are the responsibility of the peer participants and their respective computational nodes. These are specific for each type of blockchain.

In particular, these operations include:

  • Gathering Transactions: Imagine people on the network submitting requests to buy, sell, or transfer something valuable (like money or data). These requests are collected into a group.

  • Validating Transactions: Just like a cashier checks your ID before a purchase, the network needs to make sure these requests are legitimate. This might involve checking account balances or verifying digital signatures.

  • Agreement on the Next Block: Once the transactions are confirmed, they are bundled together into a "block." Different computers on the network compete to solve a complex puzzle to be the one who gets to add this block to the chain.

  • Chaining the Blocks: The winner of the puzzle gets to add their block to the existing chain of blocks. Each block contains a unique code referencing the block before it, creating a chronological chain that's almost impossible to tamper with.

Bitcoin Blockchain Operations

There are two major participants in the Bitcoin network. The first participants are people who initiate transfers of value (Bitcoin) on the network. They create transactions specifying the amount and recipient. The second group of participants are called miners, These are the workhorses of the Bitcoin network. They provide the computational resources needed to:

  • Verify Transactions: Miners check if the transactions are valid (enough funds, proper signatures).

  • Broadcast Transactions: Once verified, they share these transactions with the entire network.

  • Compete for Block Creation: Miners compete to solve a complex puzzle. The winner gets to add a new block containing the verified transactions to the blockchain.

  • Reach Consensus: By solving the puzzle, the winning miner proves they invested computational power, and other miners on the network accept the new block as valid. This is how consensus is achieved.

  • Broadcast the New Block: The winning miner broadcasts the new block to the entire network.

  • Confirm Transactions: Once the new block is added to the chain, the transactions within it are considered confirmed.

For these computational resources provided by miners, they are incentivized and rewarded with newly minted bitcoin, which is currently set at 3.125 BTC. The algorithm that miners use to reach consensus is called the proof-of-work protocol, which requires the miner to provide the computational work required to solve a puzzle and claim the right to add a new block to the chain. To summarize, the main operations in a blockchain include transaction validation and block creation with a consensus of the participants.

Beyond the Bitcoin Blockchain

Bitcoin blockchain is entirely open source and available on GitHub. In addition to the Bitcoin cryptocurrency, the Bitcoin blockchain supports an optional feature called scripts for the conditional transfer of values. The Ethereum blockchain extended this scripting feature into a complete execution framework called smart contracts.

A smart contract provides the powerful capability of code execution that embeds business logic into the blockchain.

Based on these capabilities, three major types of blockchains have emerged:

  • Only Cryptocurrency: These focus on transferring digital currency, like Bitcoin. They don't support complex logic or applications beyond basic transactions.

  • Cryptocurrency + Business Logic: These blockchains, like Ethereum, allow for the creation of smart contracts. Smart contracts are essentially programs that run on the blockchain and can automate agreements or processes. This adds a powerful layer of functionality for building applications on top of the blockchain.

  • Only Business Logic: This type, like Hyperledger Fabric, focuses solely on running business logic through smart contracts. There's no built-in cryptocurrency involved.

With the addition of business logic and code execution comes the consideration of who has access to the blockchain.

There are three main categories of blockchain access:

  • Public: Anyone can join and participate in the network, like with Bitcoin. This provides transparency and decentralization.

  • Private: Access is restricted to specific organizations or pre-approved participants. This offers more control and potentially faster transaction processing.

  • Permissioned (Consortium): A group of organizations come together to form a consortium and use a shared blockchain. This allows for collaboration while maintaining some control over who can participate.

In summary, smart contracts have taken the innovation of the Bitcoin blockchain to another level by opening up broader applications of the technology.


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