The Bitcoin Blockchain is fundamentally a massive, shared, encrypted register of every address that possesses bitcoin balances. Since this register is shared, it is known as a digital distributed ledger technology (DLT). Each new block is a representation of the most recent update to account balances. A block essentially describes a collection of related bitcoin transactions that are in the same set because they occurred within the same time frame. Fresh blocks are created after additional mining occurs or if a transaction takes place where Bitcoin is exchanged.
Blocks are arranged (stacked) on top of each other in such a manner that a single block is dependent on the previous. This process thus leads to the creation of a chain of blocks; thereby explaining how the term ‘blockchain’ came to be. When the bitcoin network receives the submission of a transaction, the data is transferred across all bitcoin nodes — every computer system connected to other computer systems in the blockchain — simultaneously (via the blockchain).
What is the function of a Blockchain?
Essentially, the blockchain works similarly to a public ledger; it accounts for business transactions and provides a means for the verification of all bitcoin users that have been provided with the same information. Every user is allowed to download a copy of the blockchain and utilize it in tracing the direction of bitcoins from a single bitcoin transaction to another.
It is pertinent to note that while there exists a record of all bitcoin transactions that ever took place, they are all linked to a particular bitcoin address, and not a personally-identifying email or name. This is why Bitcoin is regarded as pseudonymous.
The essence of a blockchain is to ensure that digital data is recorded and distributed to all users, without ever being edited. This permanence is known as immutability, which is an essential characteristic of the blockchain data infrastructure.
Although blockchain can be utilized for the storage of various kinds of data points (deeds to homes, state identifications, product inventories, votes in an election, etc.), Bitcoin simply utilizes blockchain as a way to make transparent records of a ledger of payments.
In a blockchain, every node has a complete record of the information that has been stored on the blockchain right from the very beginning. So far as bitcoin is concerned, this data comprises the whole history of every bitcoin transaction. Thus, even if a node has an error in its data, it can make use of the numerous other nodes as a reference point to correct itself.
Data contained in each block
Blockchains are made up of a set of single blocks, stacked in chronological order according to the order of transactions. There are 2 aspects to the data contained in a block.
The first aspect includes the header elements: data concerning the location and other information related to the transactions contained within that particular block. For instance, a hash within the header refers to the previous block. Since genesis blocks have predecessors, there are no hashes for them. A merkle tree (this is a data structure in computer science used to record transactions) is used for displaying the order of transactions contained inside the block. A different hash inside the block houses timestamp information, the nonce, and the difficulty level. Let us briefly look at what each of these components mean:
- Timestamp information: it shows the date and time that the blockchain was created.
- Nonce: this refers to the number those miners are required to solve.
- Difficulty level: this simply describes the difficulty of the challenge being solved.
The second aspect is the identifier information. It should be noted that this is a cryptographic hash function. This element is generated by hashing the header component two times in a row.
Blockchain vs. Bank statement: Which is more anonymous?
It has been widely alleged that one of the remarkable benefits of Bitcoin is the unique anonymity OT offers. Individuals who transact in bitcoins are to be linked to a particular bitcoin address, instead of a personally-identifying email or name. Nonetheless, there is a kind of compromise with the anonymity, as a result of the blockchain information ledger.
Considering the fact that every transaction is logged publicly, a single breach of ownership identity could result in the revelation of several other participants by just tracing back the transactions. Regardless, the blockchain still offers more anonymity compared to a bank statement, however it should not be seen as an impenetrable line of secrecy, as popularly asserted by some proponents of bitcoin technology.
All forms of transactions can be stored in blocks on a blockchain. However, the most common use thus far has been as a ledger for transactions. Importantly, Blockchains are decentralized, and this guarantees its immutability. Consequently, the inputted data is irreversible. In the case of bitcoin, this denotes those transactions are recorded permanently and can be viewed by literally everyone.