Essay Example on Blockchain: Ledger, Trust, Cryptography & Its Elemental Composition

1.

Blockchain is referred to as; "Ledger - Trust + Cryptography" because of its elemental composition, which has a record of the parties in a transaction, of which there must be a permanent and correct way. Regarding trust, it is not a must that the parties to a transaction have established trust, but they trust the blockchain itself; hence there is no need for trust between them. Lastly, there is the cryptography component of blockchain, where every block in the blockchain contains a hash of cryptography from the preceding block, transaction data and a timestamp. Thus, that explains the "Ledger - Trust + Cryptography" reference given to blockchain, which defines the record of transactions, the fact that there is no need for established trust between parties, and the creation of a digital reference on a user's identity.

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2.

In cryptocurrency, sending coins works by the sender using the wallet software to transfer coins from one known account, a public address, to another. To enable the transfer of funds, the sender needs to know the private key of the required account. Then, the transaction is broadcasted to the public ledge through the mining process, completing the sending process. A send-to address is the identification of the recipient that the sender intends to send currency to, which must be entered into the "wallet address." The security of transactions in cryptocurrency is achieved through digital signatures that provide authenticity. Nodes on the network cannot alter the digital signatures because the information stored on them, on the blockchain is tamper-proof and can never be changed.

3.

The input of a cryptocurrency transaction is the address identifying the sender of the currency. It is the address from which the currency was sent to another account, the receiver. On the other hand, the output is the address of the receiver's address. In cryptocurrency, the nodes keep track of transaction information and use it to validate other transactions by relaying information to other full nodes. To check one's cryptocurrency balance, all it takes is to visit their cryptocurrency site, log in to their account, and check their balances online.

4.

Double spending in cryptocurrency is an occurrence whereby there is a digital flaw, which makes a digital token to be spent more than one time. That occurs as a result of the digital file that a cryptocurrency contains being falsified or duplicated, making it capable of being used twice, as opposed to one time as it is supposed to be (Chohan, 2017). That is a currency flaw that is unique to digital currencies because information stored digitally can be reproduced by individuals that understand the blockchain and have the necessary knowledge that they can use to manipulate it, hence achieving double-spending. However, physical currencies are not susceptible to this issue because they cannot be replicated, as the case of digital currencies.

5.

Blockchain is the definition of the collection of a data structure that contains transaction records and ensures transparency, secrecy, and decentralization of transactions. The singe blockchain authority controls the stored information, which facilitates blockchain transactions (Nofer et at., 2017). On the other hand, a transaction chain is composed of operations which are independent of the blockchain. For a blockchain, there is a linked list, each with 0 and 1(information) of previous and next blocks. However, in a transaction chain, there is more information than in the blocks that a blockchain is composed of. That is the difference between the block and transaction chain, the blocks' main difference.

6.

The duplication of nodes leads to the repetition of transactions, which is one of the significant issues that cryptocurrency is faced with. However, there is a field, which led to the inception of a way to deal with duplicated transactions. That is achieved through blockchain, whereby there is a universal ledge that is maintained. The blockchain keeps a transaction ledge that is chronologically-ordered and timestamped. At short time intervals, a block is added to the ledger. In addition, all the nodes on a cryptocurrency keep a copy of it. In this way, there can be no instance of duplicate transactions because all of the transactions are recorded in the transaction ledger, made possible by blockchain.

7.

The Merkle tree enables the verification of individual records without the necessity of comparing every transaction through its SPV feature. Simplified Payment Verification, SPV, is software that allows an individual to verify a transaction of cryptocurrency that has been added to the blockchain system without necessarily downloading the entire blockchain, which is considerable. The pinpointing of a mismatch in the transaction is enables through hashing, whereby a piece of data is taken as an input to the process, and processes it and produces a hash value (Becker, 2008). Thus, when two different data are processed, they will have different outputs, hence, when a mismatch is noted, and then there will be no transaction verification. On that basis, transactions, through Mackle tree, are paired, and a hash pointer for each block is developed. Hence, an individual is capable of noting a mismatch in transactions without downloading and comparing individual transactions.

8.

The nodes on a network do arrive at a consensus in ordering systems through a well-defined process. It is broken down into three phases, endorsement, ordering, and lastly, validation. The endorsement is a policy that is driven, whereby the participants endorse the transaction. Next is the ordering phase, where the transaction that was earlier endorsed is committed to the ledger. Lastly is validation, where the accuracy of a result is checked. Through this process, all nodes on a network are capable of arriving at a consensus concerning an ordering transaction.

9.

For Alice to defraud Bob, it will need to conceal the wallet transaction input and output, a blockchain feature that bitcoin relies on for transparency. When a sender sends a bitcoin to a receiver, their address becomes the input, and the recipient becomes the output. That process is repeated in all transactions, which makes it easy to trace a transaction so that there can be the minimization of cases where people defraud each other. Thus for bitcoin to prevent parties from engaging in fraud, it attached input and output addresses, which are checked at any time to ensure the credibility of transactions.

10.

Miners in bitcoin play the role of conforming bitcoin transactions and providing security to the entire bitcoin infrastructure. For the service that the miners provide, they are rewarded with transaction fees and new Bitcoins (Kroll & Felten, 2013). Thus, when there is a shutdown that affects 90% of the miners, then it will have the effect of reducing the number of bitcoins created, and the security will also be lower. Thus, there will be a higher value for the bitcoins, as its supply will be small, given the low supply, as the miners will not be creating more.

References

Chohan, U. W. (2017). The double spending problem and cryptocurrencies. Available at SSRN 3090174. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3090174

Becker, G. (2008). Merkle signature schemes, merkle trees and their cryptanalysis. Ruhr-University Bochum, Tech. Rep. https://www.emsec.ruhr-uni-bochum.de/media/crypto/attachments/files/2011/04/becker_1.pdf

Kroll, J. A., Davey, I. C., & Felten, E. W. (2013, June). The economics of Bitcoin mining, or Bitcoin in the presence of adversaries. In Proceedings of WEIS (Vol. 2013, p. 11). https://pdfs.semanticscholar.org/c55a/6c95b869938b817ed3fe3ea482bc65a7206b.pdf

Nofer, M., Gomber, P., Hinz, O., & Schiereck, D. (2017). Blockchain. Business & Information Systems Engineering, 59(3), 183-187. https://scholar.google.com/citations?user=grQDsA0AAAAJ&hl=en&oi=sra