Chapter 1: The
blockchain
This will explain how blocks are used to unlock the blockchain’s full
potential by the time you’ve reached the end, you will have absorbed the
key concepts of the blockchain and will understand how it functions within
Bitcoin.
Blockchain – What Is It?
The blockchain is simply a public ledger that offers complete transparency
to the Bitcoin system. It contains every Bitcoin transaction in its entirety
since Bitcoin first began in 2009. All additional transactions are logged on
the blockchain as they occur. The
technology behind Bitcoin is easily capable of that much.
First, let’s talk about what we mean by a block. If the blockchain were an
accountant’s ledger, it would be appropriate to view the original block as
the ledger’s first page.
Each new block on the network consists of a hash. A hash is a shorter,
random mix of characters based on the earlier block. Ever since the first
block appeared on the network, a continuous chain of transactions has
occurred, a block at a time. You can trace each transaction that occurs all
the way back to the genesis of the initial block. Because each new page
contains a summary of the prior pages, it makes sense that the ledger size
will increase, extending the length of the blockchain as more data appear.
The Bitcoin blockchain consists of an open ledger. This ledger records each
transaction as it occurs. Basically, the blockchain is a bookkeeping tool that
provides complete transparency, with all transactions visible to the financial
world. This total transparency is what traditional financial institutions fear.
They don’t want to layout their numbers as openly as the blockchain.
Each node is a computer that runs the Bitcoin software. The software
detects and validates new transactions. It also retains a copy of each
transaction on the system. As transactions are added to the existing
blockchain, the nodes retain a complete timeline of how Bitcoin has
evolved financially.
Each new block is created in chronological order, containing the preceding
block’s hash. If there’s an inconsistency between a block and its
predecessor, the network will reject the transaction as incorrect.
Blockchain Analytics
In 2014 a new trend emerged in Bitcoin’s blockchain technology.
Blockchain analysis arrived, adding a whole new market to the Bitcoin
system. This analysis is only possible because of Bitcoin’s transparency.
Whether it is advantageous or harmful remains to be seen.
One thing that has assisted Bitcoin in its growth as a mainstream payment
method is being able to see how people are spending their bitcoin, not only
by looking at the products and services bought and sold but also by seeing
how long they are holding the bitcoin they receive in their wallets. You can
pay out bitcoin in the same way you spend your cash. You can make a
bitcoin payment at any time, any place. Now that we can analyze how long
people hold onto their coins, we can target our marketing to stimulate the
rest of the population to use their bitcoin.
Blockchain analysis adds to the legitimacy of the whole platform. Because
Bitcoin is so young, we are facing plenty of unknowns. Blockchain analysis
helps us get a handle on some of those unknowns, making investment less
of a leap in the dark. It provides valuable information to industry experts
that will help Blockchain mature and continue to flourish.
Thanks to blockchain analysis, we can start to discern how bitcoin hoarding
impacts the entire market. We can track trends that will tell us how people
are spending their bitcoin and where most new wallets are coming from.
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