Bitcoin and Ethereum protocols
In 2008, a person or a group of people known by the pseudonym Satoshi Nakamoto published whitepaper titled “Bitcoin: A Peer-to-Peer Electronic Cash System”. This was the start of a completely new movement in the financial space, one would even say the start of the new financial revolution. Since then, the Bitcoin had its peaks and valleys, it went from paying 10,000 Bitcoins for two pizzas to almost 20,000$ for a single Bitcoin back in 2017. The above-mentioned whitepaper describes a solution for the problem of double spending in a trustless environment and a way to record transactions using blockchain technology.
A large number of people cannot discern blockchain from distributed ledger technology (DLT), while in fact, a blockchain is a form of the distributed ledger with a very specific technological underpinning.
The blockchain records transactions in an immutable ledger which is shared between all nodes in a network. The network is in charge of maintaining the blockchain, where all records are approved by consensus algorithm. A consensus algorithm is a process in computer science used to achieve agreement on a single data value among distributed processes or systems. A fact that sets blockchain apart from DLT is cryptographic signing and linking groups of records in the ledger, thus forming a chain of blocks.
Using blockchain technology in the Bitcoin system is just one possible use case. The blockchain is to Bitcoin, what the internet is to e-mail. By far, one of the best applications of blockchain technology can be found in the Ethereum protocol. At its simplest, Ethereum enables developers to build and deploy decentralized applications. While the Bitcoin blockchain is used to track ownership of digital currency by tracking all transactions that have ever happened, the Ethereum blockchain focuses on running the programming code of any decentralized application. The Ethereum protocol introduced concepts like Smart Contracts, Ethereum Virtual Machine (EVM), etc. which will be discussed in future posts.
The present-day blockchain systems can be divided into public and private blockchains. The public blockchain is also known as permissionless which means that anyone can join the blockchain network. The majority of the existing blockchain networks like Bitcoin and Ethereum are public. On the other hand, private blockchains are permissioned i.e. there are restrictions on who is allowed to participate in the network. The table below points out the main characteristics of both public and private blockchains.
|Open, anyone can join||Restricted and permissioned|
|Low speed of transaction accomplishment||Fast speed of transaction accomplishment|
|Long transaction approval frequency||Short transaction approval frequency|
|Requires no trust among the members||Members need to trust each other|
In the further post, Bitcoin and Ethereum protocols will be described in detail.