BLOCKCHAIN
- Blockchain is about enabling peer to peer transaction in a decentralized network
- Establishing trust among unknown peers
- Recording the transaction in an immutable distributed ledger
Functions of the intermediaries are shifted to the periphery to the peer participant in the blockchain infrastructure.
Establishing trust
- Validation
- Verification
- Consensus
- Immutable Recording
Validation and consensus process are carried out by special peer nodes MINERS
A fundamental concept of a bitcoin network is an UTXO (UNSPENT TRANSACTION OUTPUT)
The set of all UTXO's in a network collectively defined the state of the Bitcoin Blockchain
- UTXO's are referenced as inputs in a transaction UTXO's are also the outputs generated by a trasaction
Participants can validate the transaction contents
Does the UTXO's reference input exist in the network state
COINBASE TRANSACTION
The first transaction in each block is known as Coinbase Transaction
. These transactions create new units of cryptocurrency.
- It serves as an incentive for miners to process and validate transactions
- It doesn't have any input UTXO
DEFINITION
An unspent transaction output (UTXO) refers to a transaction output that can be used as input in a new transaction.
Anytime a transaction is made, a user takes one or more UTXOs to serve as the input(s). Next, the user provides their digital signature to confirm ownership over the inputs, which finally result in outputs. The UTXOs consumed are now considered "spent," and can no longer be used. Meanwhile, the outputs from the transaction become new UTXOs – which can be spent in a new transaction later.
Wallets
A wallet is a software application used to view your balance and send or receive bitcoins. Because bitcoin is data inputs and data outputs, they are scattered all over the blockchain in pieces because they have been used in previous transactions. Your wallet application finds them all, totals the amount and displays it
Types
Non custodial
Custodial
Where the user himself takes the responsibility of storing the keys
Where a trusted entity holds the keys for you
BITCOIN
It supports an optional and special feature called SCRIPTS for conditional transfer of values
ETHEREUM
It extended the scripting feature into a full-blown code execution framework called Smart Contract
A smart contract provide the very powerful capability of code execution for embedding BUSINESS LOGIC on the blockchain
Types of Blockchain
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Public
Private
Permissioned
Anybody can join and leave as they wish
Transaction blocks and the blockchain are publicly observable even though participants are anonymous
Open Source
Access limited to participants within an organization
CONSORTIUM BLOCKCHAIN meant for a consortium of collaborating parties to transact on a blockchain for ease of governance, provenance and accountability