Blockchain, the technology behind Bitcoin, seems to be the driving technology behind the next generation
Internet, also referred to the Decentralized Web, or the Web3. The blockchain is a novel solution to the
age-old human problem of trust. It provides an architecture for so-called trustless trust. It allows us to
trust the outputs of the system without trusting any actor within it.
Blockchain is a shared, trusted, public ledger of transactions, that everyone can inspect but which no
single user controls. It is a distributed database that maintains a continuously growing list of transaction
data records, cryptographically secured from tampering and revision.
A Blockchain protocol operates on top of the Internet, on a P2P Network of computers that all run the
protocol and hold an identical copy of the ledger of transactions, enabling P2P value transactions without
a middleman thorugh machine consensus. Blockchain itself a file - a shared and public ledger of
transactions that records all transactions from the genesis block (first block) until today.
The ledger is built using a linked list, or chain of blocks, where each block contains a certain number of
transactions that were validated by the network in a given timespan. The crypto-economic rulesets of the
blockchain protocol (consensus layer) regulate the behavioral rulesets and incentive mechanism of all
stakeholders in the network.
This ledger runs on a Peer-to-Peer (P2P) network of computers. Distributed consensus based on economic
incentive mechanisms (game theory) combined with cryptography allows for secure P2P validation of
transactions, thus bypassing the need for traditional trusted third parties.
It first came to fame in October 2008 as part of a proposal for Bitcoin, with the aim to create P2P money
without banks. All network transactions get stored in the blockchain. Imagine Google Docs. Each person
has the latest version of the document, and everybody can inspect it. In order to change the contents of
the doc, users need to reach a mutual agreement (consensus).
As opposed to Google Docs the file is not centrally stored, but each node of the network keeps a copy of
the blockchain - the distributed ledger recording all transaction history.
Removing the Middleman -
Instead of a single trusted third party validating transactions through their servers with authority (single
vote), a peer to peer network of computers running the blockchain protocol validates transactions by
consensus (majority vote). The blockchain protocol, therefore, formalizes pre-defined consensus rules for
approving transactions on the P2P network, as hard-coded governance rules, managing and auto
enforcing transactions of all participants in the network.
In the case of Bitcoin, instead of a bank validating financial transactions - like sending money from A to B -
checking the digital ledger of who owns what stored on their server, a P2P network of computers running
the bitcoin protocol confirms transactions by majority consensus. The consensus rules of the Bitcoin
network govern how the participants in the network interact with each other. They define:
❏ Under which conditions a transaction - sending money from A to B - is valid.
❏ Transaction costs related to sending money from A to B.
❏ Game theoretic incentive mechanism for validating transactions with a cryptographic token.
❏ Rules of how to change current consensus rules.
Now blockchain has more application besides money transfer like smart contract and many more are coming.
next I shall also analyse the top altcoins and discuss about the cryptoeconomics and many more.
Thanks and waiting for your feedback.
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