Before starting today’s session of Understanding Bitcoins, we take a peek into the topics of the last session. In the last session we took a peek into the most popular Cryptocurrency in today’s world, Bitcoins. We also covered a basic understanding of the same and are looking to delve a little deeper into the workings of the Bitcoins.
Topics to be covered
Understanding Bitcoins – Bitcoin Transactions
A simple statement put across by a pseudonymous Satoshi Nakamoto, published in October 2008 goes, “A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.”
One of the major factor that governs the process to bypass any financial institution in the transactions, is the Digital Signature. Hashing techniques help in timestamping transactions over a distributed network. by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work.
The longest chain not only serves as proof of the sequence of events witnessed, but proof that it came from the largest pool of CPU power. As long as a majority of CPU power is controlled by nodes that are not cooperating to attack the network, they’ll generate the longest chain and outpace attackers.
The network itself requires minimal structure. Messages are broadcast on a best effort basis, and nodes can leave and rejoin the network at will, accepting the longest proof-of-work chain as proof of what happened while they were gone.
Working of Bitcoins
Taking to the 2nd part of Understanding Bitcoins, we look into the several components that contribute to the features and actions of Bitcoin transactions. The running of the Bitcoin Blockchain is managed by a software which is equipped to work in a distributed environment. The most common software application used for Bitcoins is, “Bitcoin Core” which is an open-source software published in GitHub.
The Bitcoin Core helps in managing several functionalities like, connecting to Bitcoin Blocks, Storage, transaction processes apart from listening and validating new blocks.
Designing Ledger in Bitcoins – Creating the Model
Probably the most crucial part of the session for Understanding Bitcoins is the creation of the software model that will help in executing seamless transactions across a distributed network. Since the digital ledgers are the ones which happens to maintain the transaction details of each and every operation performed, a robust architecture does help in achieving the same.
The Classic Centralized model can be a useful tool in the process of Understanding Bitcoins, as it first creates a centralized ledger and decentralizes it eventually.
Considering a case where a ledger maintains the Account Number and the balance under each of those accounts, the administrator assigns account numbers to customers, and customers make payments by instructing the administrator. There is an authentication process where the customer proves that they are the account holder before the administrator will carry out the payment instruction. So each customer is named and, for security, has a password linked to their account.
In the next session of Understanding Bitcoins, we continue further with the challenges that is faced using the model and the steps taken to overcome them.
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