Blockchain Technology

Bitcoin & Blockchain

Bitcoin is the very first blockchain in the world. The whitepaper abstract reads: “A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution. Digital signatures provide part of the solution, but the main benefits are lost if a trusted third party is still required to prevent double-spending. We propose a solution to the double-spending problem using a peer-to-peer network. The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work. The longest chain not only serves as proof of the sequence of events witnessed, but proof that it came from the largest pool of CPU power.”

“As long as a majority of CPU power is controlled by nodes that are not cooperating to attack the network, they'll generate the longest chain and outpace attackers. The network itself requires minimal structure. Messages are broadcast on a best effort basis, and nodes can leave and rejoin the network at will, accepting the longest proof-of-work chain as proof of what happened while they were gone.”

In layman terms, bitcoin uses a system where every participant holds a copy of all the data in the network, and every transaction has to be approved by the participants before being accepted as part of the data in the network in the form of a block. Every new block of transactions is linked to the previous block like a chain, which gives rise to the name blockchain.

But in recent years more general naming has been applied to the technology due to differences in implementation, such as distributed ledger technology. Blockchain or distributed ledger technology are all derived from or inspired by the original implementation of bitcoin.

Ethereum & Smart Contracts

Ethereum is the next evolution of the blockchain after Bitcoin. The Ethereum whitepaper states that Ethereum is “a blockchain with a built-in Turing-complete programming language, allowing anyone to write smart contracts and decentralised applications where they can create their own arbitrary rules for ownership, transaction formats and state transition functions.”

To put it simply, Ethereum allows instructions to be uploaded onto the blockchain to be executed. These executions return the same results every time, allowing multiple parties to verify that the code is executed correctly. This allows the blockchain to be used as more than a means to transact money. The use cases for smart contracts are limited only by the imagination.