Blockchain Definition

A block chain or blockchain is a permissionless distributed database based on the bitcoin protocol that maintains a continuously growing list of transactional data records hardened against tampering and revision, even by operators of the data store's nodes. The initial and most widely known application of the blockchain technology is the public ledger of transactions for bitcoin and the inspiration of similar distributed ledgers known as altchains. Each blockchain record is enforced cryptographically and hosted on machines working as data store nodes.

The core advantages of the block chain architecture include the following:

  • The ability for a significant number of nodes to converge on a single consensus of the most up-to-date version of a large data set such as a ledger, even when the nodes are run anonymously, have poor connectivity with one another, and have operators who may be dishonest or malicious.
  • The ability for any node that is well-connected to other nodes to determine, with a reasonable level of certainty, whether a transaction does or does not exist in the confirmed data set.
  • The ability for any node that creates a transaction to, after a certain period of confirmation time, determine with a reasonable level of certainty whether the transaction is valid, able to take place, and become final (i.e. that there were no conflicting transactions confirmed into the block chain elsewhere that would make the transaction invalid, such as the same currency units "double-spent" somewhere else).
  • A prohibitively high cost to attempt to rewrite or alter any transaction history.
  • An automated form of resolution that ensures that conflicting transactions (such as two or more attempts to spend the same balance in different places) never become part of the confirmed data set.

A block chain implementation consists of two kinds of records: transactions and blocks. Transactions are the actual data to be stored in the block chain, and blocks record and confirm when and in what sequence transactions became journaled as a part of the block chain database. Transactions are created by participants using the system in the normal course of business (in the case of cryptocurrencies, a transaction is created anytime someone sends cryptocurrency to another), and blocks are created by users known as "miners" who use specialized software or equipment designed specifically to create blocks.

Users of the system create transactions which are loosely passed around from node to node on a best-effort basis. The definition of what constitutes a valid transaction is based on the system implementing the block chain. In most cryptocurrency applications, a valid transaction is one that is properly digitally signed, spends one or more unspent outputs of previous transactions, and the sum of transaction outputs does not exceed the sum of inputs.

Meanwhile, miners attempt to create blocks that confirm and incorporate those transactions into the blockchain. In a cryptocurrency system such as bitcoin, miners are incentivized to create blocks in order to collect two types of rewards: a pre-defined per-block award, and fees offered within the transactions themselves, payable to any miner who successfully confirms the transaction.

Source: Wikipedia

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