Understanding Bitcoin (4 of 5)

Ledger: Everything is Kept in Record

In the previous article we have described how a simplified transaction looks like. In fact all transactions are done in this way. The ledger we keep mentioning above holds every transaction since its very beginning back to year 2009.

Ledger plays an important role here. But where is the ledger? And why do we trust this ledger?

A Distributed and Reliable Ledger

First, no one owns this ledger, as everyone can own this ledger. This is the result of being decentralized.

The former means that no single institution, not an organization can claim sole ownership on this ledger. We are not relying on a particular institution or organization to run Bitcoin, and do not need to place our trust upon them. The latter means that, if necessary, every person can download the whole ledger, or inspect any particular transaction that happened and recorded inside the ledger. Remember the randomly picked transaction shown in last article? It is a real transaction and ready for inspection.

This is a distributed ledger. In computer world there are various ways to achieve “distributed-ness”. For example, in some distributed systems, data are divided into several parts, each of which is duplicated and stored in various nodes or locations. It is not how Bitcoin works. The ledger of Bitcoin is stored as a whole. It is the whole ledger being kept in all the nodes. If you wish, you can download the whole ledger to your desktop or server, and participating as a node. (When this article is written, the size of the ledger is around 150GB. It takes some time to download it completely.)

There is only one ledger for Bitcoin, a single one agreed by all participants. During the build-up of ledger there might be variation, but the Bitcoin protocol has the mechanism to make all nodes agree on one final version. The technical term for this is “consensus” in a distributed system.

And since every node has a copy of the whole ledger, it is technically difficult to destroy the ledger. The very popular DoS (denial of service) attack can take down one or several servers, but not all nodes at the same time. This increases the robustness of ledger.

Finally, it is extremely difficult (if not completely impossible) to alter or modify the record once kept in the ledger, and the technology behind is what we have heard so much recently: blockchain. Blockchain relies on cryptography, and provides the technology powering the Bitcoin operation since day one.

This is the reason we have confidence on the ledger and hence the overall Bitcoin operation: It is a combination of the distributed implementation, the use of Blockchain the technology, and the way how the blockchain is built (it is on next article).

Before that, I wish to talk about the relation between Bitcoin and Blockchain, as I keep seeing people confusing them.

Relation between Bitcoin and Blockchain

While the cryptography powering blockchain technology has a much longer history, most people agree that Bitcoin is the very first implementation of blockchain in such a large scale. Bitcoin requires a ledger that is robust enough against repudiation, and blockchain is the foundational technology that fulfils this requirement.

We say Bitcoin’s ledger is implemented with blockchain technology. Therefore in the context of Bitcoin, we may use “ledger” and “blockchain” interchangeably, but here the “blockchain” is Bitcoin’s blockchain. Blockchain as a technology is not limited to Bitcoin: there are other blockchain implementations, and Bitcoin is just one of them. The blockchains among various implementations are not directly inter-related.

Blockchain itself is an open technology and has a larger scope. Besides cryptocurrency such as Bitcoin and Ethereum, people are interested its very nature. They already begin investigating how to use blockchain technology on various use cases in business world and even in governments. Many other blockchain frameworks or implementation are being developed. They are more targeting on controlled environment or in consortium base, and do not necessarily come with cryptocurrency. One example is the Hyperledger under Linux Foundation, an umbrella project of several open source blockchain implementations.

Therefore, when we read news of governments or financial institutions on this topic, we can tell which they are talking about. Today most of them are “unfriendly” to Bitcoin and other cryptocurrencies, as they consider they bring significant impact on the financial system. They are thinking how to regulate them if not suppress. On the other side, they are actively working on use cases of blockchain, which can help launching new types of service or enhancing their current operations.

So back to Bitcoin. We more or less grab the idea of a distributed ledger, the Bitcoin’s blockchain, holds all the transaction records. We need to ask the question: Who builds this ledger? And why? We will uncover this in the last article.



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