[Part-3] Blockchain Simplified Notes NPTEL
By: Divya Goyal
Tags: Tutorial, Cryptocurrency, Bitcoin, Blockchain, Technology

Bitcoin Introduction.

Bitcoin is a decentralized digital currency that enables instant payments to anyone, anywhere in the world.

Bitcoin uses peer-to-peer technology to operate with no central authority.

Main Operations:

Transaction Management: Transfer bitcoins from a user to another across the world.

Transfer bitcoins from a user to another across the world. Money Issuance: No central authority regulates monetary base.

Creation of Coins:

Controlled Supply: In this currency is created by the nodes of a peer-to-peer network. The Bitcoin generation algorithm defines, in advance, how currency will be created and at what rate. Any currency that is generated by a malicious user that does not follow the rules will be rejected by the network and thus is worthless.

In this currency is created by the nodes of a peer-to-peer network. The Bitcoin generation algorithm defines, in advance, how currency will be created and at what rate. Any currency that is generated by a malicious user that does not follow the rules will be rejected by the network and thus is worthless. New bitcoins are generated during mining when a user discovers a new block.

when a user discovers a new block. Roughly every 4 years , the number of bitcoins that can be “mined” in a block reduces by 50% . Originally the block reward was 50 bitcoins; it halved in November 2012; it then halved again in July 2016.

, the number of bitcoins that can be “mined” in a block . Originally the block reward was 50 bitcoins; it halved in November 2012; it then halved again in July 2016. In the end, no more than 21 million bitcoins will ever exist.

will ever exist. Miners will get less reward for mining bitcoin as the time progresses. Hence, the transaction fees will increase to encourage the miners to complete transaction quickly.

Transactions:

Bitcoin uses public key cryptography to verify the digital signature.

to verify the digital signature. Every user can have one or more wallet addresses but every address will always have a pair of public and private keys.

Example of transaction: Suppose Alice wants to send some bitcoins to Bob. Then, the following will take place:

Bob sends his address to Alice.

Alice adds Bob’s address and the amount of bitcoins to transfer to a message: a ‘transaction’ message.

Alice signs the transaction with her private key, and announces her public key for signature verification.

Alice broadcasts the transaction on the Bitcoin network for all to see.

The first are done manually by humans. Last are taken care by Bitcoin client software itself.

Handling Double Spending:

When the same money is spent more than once, it is called Double Spending. For example, Alice has 50 bitcoins and she sent 50 bitcoins to Bob and 50 bitcoins to Eve simultaneously. Then, only one of the transaction will be successful because double spending is not allowed in Bitcoin.

Bitcoin prevents double spending by following ways:

Details about the transaction are sent and forwarded to all or as many other computers as possible.

A constantly growing chain of blocks that contains a record of all transactions is collectively maintained by all computers (each has a full copy).

To be accepted in the chain, transaction blocks must be valid and must include proof of work (one block generated by the network every 10 minutes).

Blocks are chained in a way so that, if any one is modified, all following blocks will have to be recomputed.

When multiple valid continuations to this chain appear, only the longest such branch is accepted and it is then extended further.

Anonymity: