Blockchain Basics Week1 Blockchain Defined

Blockchain Defined

  • Learning Objectives:
    • Explain three fundamental characteristics that define a blockchain
    • Explain the important features of Ethereum blockchain
    • Explain algorithms and techniques that enables a blockchain
    • Outline methods for realizing trust in a blockchain ### Bitcoin & Blockchain

Blockchain enables peer to peer transfer to digital assets without any intermediaries.

A broad range of applications: finance, healthcare, government, manufacturing and distribution…

  • good transfer: supply chain
  • Digital media transfer: sale of art
  • Remote services delivery: travel and tourism
  • Platform for decentralized business logic: moving computing to data sources
  • Distributed intelligence: education credentialing
  • Distributed resources: power generation and distribution
  • Crowd funding: startup fund raising
  • Crowd operations: electronic voting
  • Identity management: one ID for all your life's functions
  • Government public records & open governing

Two major contributions of cryptocurrency Bitcoin:

  • continuously working digital currency system
  • autonomous decentralized application

Blockchain is about enabling peer to peer transaction in a decentralized network.

  • Establishing Trust: Validation, Verification, Consensus, Immutable Recording

Blockchain Structure

Transaction is the basic element of the Bitcoin Blockchain.

  • Validated and broadcast

A fundamental concept of a bitcoin network is an Unspent Transaction Output(UTXO).

  • Defined the state of the Bitcoin Blockchain
  • As inputs/outputs in a transaction
  • The structure of a given UTXO
    • Unique identifier of the transaction that created this UTXO
    • Index or the position of the UTXO in the transaction output list
    • Value
    • Optional: conditions under which output can be spent


  • Reference number of the current transaction
  • Reference(s) to one or more input UTXOs
  • Reference(s) to one or more output UTXOs newly generated by the current transaction
  • Total input amount and output amount

Basic Operations


  • Validation of transactions
  • Gathering transactions for a block
  • Broadcasting valid transactions & blocks
  • Consensus on next block creation
  • Changing blocks

Two major participants:

  • Participants that initiate transfer of value by creating a transaction
  • Additional participants—miners
    • Verify transactions
    • Broadcast transactions
    • Compete to create a block
    • Reach consensus by validating block
    • Broadcast new block
    • Confirm transactions

The process involves validation of more than 20 criteria:

  • Size, syntax, et cetera
  • Referenced Input Unspent Transaction Output
  • UTXOs are valid
  • Reference output UTXOs are correct
  • Reference input amount and output amount matched sufficiently

Transaction 0

  • Index zero of the confirmed block
  • Created by the miner of the block
  • Paying the miner fees
  • Does not have any input UTXO
  • Is called the coinbase transaction

The main operations in a blockchain are transaction validation and block creation with the consensus of the participants.

The algorithm for consensus is called proof-of -work protocol.

Beyond Bitcoin

Three types of blockchains

  • Only Cryptocurrency: Bitcoin
  • Currency + Business Logic: Ethereum
  • Only business Logic: The Linux Foundation's Hyperledger

Blockchain Categories

  • Public
    • Bitcoin
  • Private,
    • Access limited to participants within an organization
    • Simplify the normal operations such as block creation and contingence model
  • Permissioned
    • Consortium blockchain
    • A consortium of collaborating parties to transact
    • A consortium of all automobile companies or healthcare organizations

In summary, significant innovations such as smart contracts have opened up broader applications for blockchain technology.

Private and permissioned blockchain allow for controlled access to the blockchain enabling many diverse business models.


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