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Key Components of Blockchain and Bitcoin
In this tutorial, we are going to learn about the key components of blockchain and bitcoin.
Submitted by Vaishnavi Srivastava, on January 23, 2022
The study of Blockchain Technology and Bitcoin revolves around a list of important components and aspects that help you understand and exercise the concept of Blockchain Technology and Bitcoin. The following have been mentioned before.
1) Blockchain
A blockchain is a decentralized database that is shared among computer network nodes. Businesses require data and information to operate and expand, and the data must be reliable and delivered quickly. This data can pertain to transactions, records, and assets, both tangible and intangible. Blockchain is the ideal answer for the coordinated supply of data since it provides rapid, shareable, and trustworthy data that is recorded on a secure and strong ledger that cannot be tampered with. A blockchain acts as a database, storing information in a digital format. Blockchains are well known for their critical role in keeping a secure and decentralized record of transactions in cryptocurrency systems like Bitcoin.
2) Cryptography
In its most literal meaning, cryptography refers to secrets. As a result, cryptography technology aims to provide total or pseudo-anonymity. It is a method that employs strategies and protocols to secure data from unauthorized access. It means that during the communication process, no third party can access private messages. To summarise, cryptography is the process of creating protocols that prevent third parties from reading personal information. Math, computer science, physics, engineering, and other disciplines are all used in modern cryptography.
3) Bitcoin
Bitcoin is the world's first and most well-known cryptocurrency. It uses a decentralized protocol, cryptography, and a mechanism to obtain global consensus on the status of a periodically updated public transaction ledger termed a "blockchain" to enable the peer-to-peer exchange of value in the digital environment.
Bitcoin can be seen as a political, philosophical, and economic system on a deeper level.
In sum, Bitcoin is a digital currency that
- Exists independently of any government, state, or financial institution.
- Can be exchanged globally without the use of a centralized middleman.
- Has a well-defined monetary policy that is arguably unchangeable.
4) Consensus Mechanisms
A central administrator has the authority to maintain and update any centralized system, such as a database containing critical information regarding a country's driving permits. Any updates—such as adding, deleting, or amending the names of those who qualify for various licenses—are handled by a central authority, which remains solely responsible for maintaining accurate data. A consensus method is a fault-tolerant mechanism used in computer and blockchain systems to obtain the necessary agreement among distributed processes or multi-agent systems, such as cryptocurrencies, on a single data value or a single network state. PoW, PoS, PoB, etc are some common types of consensus mechanisms in Blockchain with PoW being the most popular.
5) Mining
The decentralized blockchain, which is used to validate new transactions, is powered by mining. It entails the creation of new currencies and refers to adding huge transactions to the massive distributed public ledger of current transactions. Mining entails solving mathematical puzzles, authorizing other users' transactions, and creating new blocks. Mining ensures the blockchain network's decentralization and protects blockchains from block fraud and hacker attacks.
6) Miners
Miners are self-contained and networked nodes that use their processing power to authenticate transactions and subsequently add them to the blockchain, a public ledger. By joining a network that conducts transactions, one can become a blockchain miner.
7) Wallets
A blockchain wallet is a digital wallet that stores and manages Bitcoin, Ether, and other cryptocurrencies. The wallet service supplied by Blockchain is also known as Blockchain Wallet. A blockchain wallet lets users send and receive cryptocurrencies, as well as convert them back into their home currency. In simple words, Bitcoins are kept in a "digital wallet," which can be found on the cloud or the computer of the user. The wallet is a type of virtual bank account that allows users to send and receive bitcoins, make purchases, and store money.
8) Keys
Blockchain is a hybrid of three cutting-edge technologies:
- Keys used in cryptography
- A peer-to-peer network with a distributed ledger.
- A computer system for storing network transactions and records.
Two keys are used in cryptography: a private key and a public key. These keys aid in the effective completion of transactions between two parties. These two keys are unique to each person and are used to create a secure digital identity reference.
9) Hashes and Hash Functions
A hash is a mathematical function that turns an arbitrary-length input into a fixed-length encrypted output. As a result, its unique hash will always be the same size, regardless of the original quantity of data or file size involved. A hash function, on the other hand, converts a random input of data (keys) into a string of bytes with a predetermined length and structure (hash value). Cryptographic hash functions are used to construct a fixed-length character string from data records of any length, and they are the foundation of crypto security.
10) Hashing
When discussing blockchain technology, the word hashing or (hash) is commonly used. Hashing is the process of transforming and generating any length of input data into a fixed-length string using a specific algorithm. The Bitcoin hash algorithm is SHA-256, which stands for Secure Hashing Algorithm 256 bits. Because the original data cannot be decrypted, this approach is a one-way cryptographic function.