Bitcoin Wallets

Introduction

The need to get rid of centralized financial systems and bureaucracy and reduce fraud and forgery in commercial transactions and others was the reason behind the appearance of the basic idea of Blockchain technology. Blockchain has been around since the 1990s. In 1991, Blockchain was originally described by a group of researchers. The application of this technology was originally intended to timestamp digital documents so that it is not possible to backdate them or to tamper with them, like a digital notary . In 2008 a study was published under the title Bitcoin: A Peer-to-Peer Electronic Cash System, under the pseudonym Satoshi Nakamoto, in which Blockchain‘s technology was applied to electronic currency, and then in 2009 the Bitcoin cryptocurrency blockchain network was created . Bitcoin supersedes fiat currency in multiple dimensions because it can be transferred internationally without any limits, transactions have either no fees or a very low fee, currently, it does not need any personal information, is transparent as every user has a copy of the public ledger, and secure as the underlying cryptographic algorithm provides security .

Blockchain and Bitcoin

Blockchain

Blockchain is a data structure that makes it possible to create a digital ledger of transactions and share it among a distributed network of computers, continuously updated simultaneously and secure with encryption. Anyone can access and get the same information. How does Blockchain work? Each block contains some data, the hash of the block and the hash of the previous block. The data that is stored inside a block depends on the type of blockchain. The Bitcoin blockchain for example stores the details about a transaction such as the sender, receiver, and amount of coins. A block also has hash, you can compare a hash to a fingerprint. It identifies a block and all of its contents, and it is always unique, just as a fingerprint. Once a block is created, its hash is being calculated. Changing something inside the block will cause the hash to change.

So, in other words, hashes are very useful when you want to detect changes to blocks.If the fingerprint of the block changes, it no longer is the same block.

The third element inside each block is the hash of the previous block. This effectively creates a chain of blocks, and it is this technique that makes a blockchain so secure. The first block is special; it cannot point to previous blocks because it is the first one, it is called “Genesis Block”. Changing a single block will make all following blocks invalid. But using hashes is not enough to prevent tampering. Computers these days are very fast and can calculate hundreds of thousands of hashes per second, so to mitigate this, blockchain have something called proof-of-work, which is a mechanism that allows down the creation of new blocks. In other words when new chain was created the proof-of-work on blockchain concept is the consensus mechanism on so-called miners. In Bitcoin case, it takes about 10 minutes to calculate the required proof-of-work and add a new block to the chain. This mechanism makes it very hard to tamper with the blocks, because if you tamper with one block, you’ll need to recalculate the proof-of-work for all the following blocks. So, the security of a blockchain comes from its creative use of hashing and the proof-of-work mechanism. But there is one more way that blockchain secure themselves and that is by being distributed. Instead of using a central entity to manage the chain, blockchain uses a peer-to-peer network and anyone is allowed to join. When someone joins this network, he/she gets the full copy of the blockchain . The node can use this to verify that everything is still in order. What happens when someone creates a new block? The new block is sent to everyone on the network. Each node then verifies the block to make sure that is has not been tempered with. If everything checks, each node adds this block to their own blockchain. All the nodes in this network create consensus. They agree about what blocks are valid and which are not. Blocks that are tampered with will be rejected by other nodes in the network. So, to successfully tamper with a blockchain you will need to tamper with all blocks on the chain, redo the proof-of-work for each block and take control of more than 50% of the proof-of-work network. Only then will your tampered block become accepted by everyone else. This is almost impossible to do. The blockchain has complete information about different user addresses and their balances right from the genesis block to the most recently completed block. The blockchain was designed so these transactions are immutable, meaning they cannot be deleted. The blocks are added through cryptography, ensuring that they remain meddle-proof: The data can be distributed, but not copied. Type of blockchains:

There are basically three types of blockchains. The use case will determine which type of blockchain is needed.
1. Public Blockchains
In a public blockchain, a user can become a member of the blockchain network. This means they can store, send and receive data after downloading the required software on their device. Allowing anyone to read and write the data stored on the blockchain as it is accessible to everyone in the world. A public blockchain is completely decentralized. The permissions to read and write data onto the blockchain are shared equally by all connected users, who come to a consensus before any data is stored on the database. The most popular example of a public blockchain is Bitcoin. The digital currency allows users to use a platform for making transactions directly between them.
2. Private Blockchains
In a private blockchain, permission to write, send and receive data is controlled by one organization. Private blockchains are typically used within an organization with only a few specific users allowed to access it and carry out transactions. The organization in control has the power to change the rules of a private blockchain and may also decline transactions based on their established rules and regulations. An example of this is a blockchain deployed by a corporation to collaborate with other divisions or a few permissioned participants.
3. Consortium Blockchains
A consortium blockchain, also called permissioned blockchain can be considered as a hybrid model between the low trust offered by public blockchains and the single highly trusted entity model of private blockchains. Instead of allowing any user to participate in the verification of the transaction process or on the other side just allowing one single company to have full control, in a consortium blockchain a few selected parties are predetermined. It only allows a limited number of users the permission to participate in the consensus process. For example, imagine a group or network of ten banks, each of which is connected to the blockchain network. In this example, we could imagine that for a block to be valid, seven of the ten banks have to agree. Some of the use cases of blockchain technology currently being explored across the world:

References