Introduction To Blockchain

The Problem Blockchains Address

Whenever people exchange value or information, someone must keep the record of who owns what. Traditionally a trusted party does this job: a bank keeps account balances, a land registry keeps property titles, a platform keeps your purchases.

That arrangement works, and it also means everyone depends on one organization to record honestly, stay online, and treat users fairly. A digital file is also easy to copy, so a digital coin needs a way to ensure that the same coin is spent only once. This is called the double-spending problem.

A blockchain offers another approach. Instead of one party holding the ledger, a network of computers holds identical copies and follows shared rules to agree on every new entry.

Consider a simple example. A group of ten friends wants a shared list of who owes whom. One option is to appoint a treasurer. Another is for everyone to keep a copy and to update all copies together by agreement. The second option resembles a blockchain: no single copy matters most, and the group's rules decide which entries count.

A Ledger Made Of Linked Blocks

A ledger is a list of records. In a blockchain, records called transactions are grouped into blocks. Each block contains a batch of transactions, a timestamp, and a reference to the block before it. Blocks form a chain, from the first block, called the genesis block, to the newest.

The reference to the previous block is what makes the structure tamper-evident. If someone alters an old transaction, that block changes, which breaks the reference stored in the next block, and the break shows up all the way down the chain. To hide a change, an attacker would need to redo the work for every later block while the rest of the network keeps adding new ones.

The data is also append-only in practice: new blocks are added at the end, and history stays visible to anyone who joins the network.

Block size and timing vary by network. Bitcoin produces a new block roughly every ten minutes, and each block holds a few thousand transactions. Ethereum produces blocks much more often. Once several newer blocks sit on top of a transaction, it is considered final with very high confidence.

Hashes And Digital Signatures

Two tools from cryptography, the science of secure communication, make blockchains work.

A hash function takes any input and produces a short fixed-length fingerprint. The same input always gives the same fingerprint. A tiny change to the input produces a completely different fingerprint, and it is practically impossible to work backward from the fingerprint to the input. Each block stores the hash of the previous block, which is how the chain links together. Bitcoin uses a hash function called SHA-256.

A digital signature proves that a message came from the owner of a particular secret key. Each user has a key pair: a private key, kept secret, and a public key, shared openly. The public key, or an address derived from it, acts like an account number. The private key acts like the pen that signs. Anyone can verify a signature using the public key, and only the holder of the private key can create it.

This is why control of a private key means control of the assets at its address. It is also why losing the key usually means losing access for good.

Nodes And Consensus: How The Network Agrees

The computers running a blockchain are called nodes. Each node keeps a copy of the ledger and checks every new transaction and block against the rules. Because there is no central referee, the network needs a method to agree on which block comes next. The method is called a consensus mechanism.

Two widely used mechanisms are:

• Proof of work: participants called miners compete to solve a computational puzzle, and the winner adds the next block. Solving the puzzle takes real computing effort, which makes rewriting history expensive. Bitcoin uses this approach.
• Proof of stake: participants called validators lock up (stake) coins as a deposit, and the protocol selects them to propose and confirm blocks. Dishonest behavior can cost them part of their stake. Ethereum moved to this approach in 2022.

Bitcoin: The First Blockchain

In October 2008, a person or group using the name Satoshi Nakamoto published a paper titled "Bitcoin: A Peer-to-Peer Electronic Cash System". The Bitcoin network started running in January 2009. Bitcoin lets people send digital money directly to each other without a bank in the middle.

Bitcoin has a fixed upper limit of 21 million coins, set in its rules. New coins are issued to miners as a reward for adding blocks, and the reward is cut in half at regular intervals, an event known as the halving.

Bitcoin shows the whole idea in its simplest form: a public ledger, signatures that prove ownership, and a consensus process that keeps everyone's copy identical.

Bitcoin's design also shows how incentives work. Miners spend money on equipment and electricity, and they earn new coins and transaction fees only when they follow the rules. Breaking the rules would waste their investment, because other nodes would reject their blocks.

Ethereum And Smart Contracts

Ethereum, proposed by Vitalik Buterin in 2013 and launched in 2015, extended the idea. Besides recording payments, it can run small programs stored on the blockchain called smart contracts.

A smart contract is code that lives at an address on the blockchain and runs exactly as written when someone sends it a transaction. For example, a contract could hold funds and release them to a seller once a buyer confirms delivery. Every node runs the same code and reaches the same result, so no single party controls the outcome.

Users pay a fee, called gas, to cover the computing cost of running a transaction. Smart contracts enabled tokens (digital assets defined by code), decentralized finance (lending, trading, and saving without a traditional intermediary), digital collectibles, and organizations governed by member votes. Because contract code is public and often permanent, careful testing and auditing matter a great deal.

Developers write smart contracts in languages such as Solidity, and they test them on networks that use coins with no monetary value before deploying them for real use. Public audits by independent reviewers help find mistakes before users put funds at risk.

Uses, Limits, And Sensible Expectations

Blockchains fit situations where several parties who do not fully trust each other need a shared, tamper-evident record. Current uses include digital payments, transfers across borders, tokenized assets, public registries, and supply chain tracking.

A blockchain also carries trade-offs. Public networks process fewer transactions per second than centralized payment systems, though newer designs called layer 2 networks raise capacity. Proof of work consumes significant electricity. Transactions are generally irreversible, so mistakes and scams carry real cost. The data on a public chain is visible to everyone, which affects privacy. Laws and regulations continue to develop around the world.

A useful test before choosing a blockchain for a project: does the project need multiple parties to write to a shared record without one trusted owner? If a single organization can reasonably manage the data, an ordinary database is usually simpler and cheaper.

Learners should also keep two ideas separate. The technology (a way to keep a shared ledger) and the price of any cryptocurrency (a market that rises and falls) are different subjects. This course focuses on the technology.

Private or permissioned blockchains restrict who can join, and companies sometimes use them for internal record keeping among known partners. They give up some openness in exchange for control and speed, and they suit cases where participants are identified and a legal agreement already binds them.

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Each course runs twelve weeks with study notes and slides.