The Bitcoin Blockchain API
Blockchains have been around for over a decade, but there are still numerous questions in the minds of millions as to what these decentralized systems really are, how they function and what they are for, apart from “making money out of thin air”. The Bitcoin blockchain is dedicated to financial transactions, but there are also blockchains like Filecoin that are devoted to storing data on the blockchain. In addition, there are blockchains for developing the internet of the future, like the Web 3.0.
In short, a blockchain is a distributed ledger of transactions. The main task and purpose of a blockchain is to provide trust when accounting for asset transactions. An asset is something of value that does not necessarily have to be a currency, but also a real-world asset like a painting, a brand, real estate, and so on. A transaction is the transfer of an asset, or the right to that asset, from one person or organization to another. Transaction accounting is the recording of all transfers and transitions or the right to them.
The concept of distribution, as opposed to decentralization, means that there is no single entity that has more rights than others to conduct a transaction and also, to do something with an asset that is on an impromptu blockchain. The simplest version of our blockchain involves writing down a file, and then transferring the file to other users.
However, there are issues with such a banal approach, as first, anyone can say that one entity gave up assets to them, while that entity may not even be aware of it — essentially fraud. The second issue is that transactions that were added retroactively can be changed and that may be overlooked.
This is where the digital signature comes in as a solution. In order to get a digital signature, users need to generate a private key. The private key can be a maximum of 2*256 — the possible solutions are literally infinite. Using a mathematical operation, it is possible to get a public key from a private key. Each of the members of a blockchain has a secret private key and a public key.
Using a private key and a public key, a signature can be created that can be used to verify the authenticity of a transaction. Any user possessing the private key of an entity can check whether it is true that the transaction has not been altered and the entity signed it.
But it is possible to change old records that have already been added. To prevent such things from happening, the transactions are combined into so-called blocks.
An underlying hash is like a personal imprint. The hash of the previous block is added to each subsequent block. Thus, if the first block was changed, then all subsequent ones will also change. Another issue arises — the verification of transactions.
This is where the consensus algorithm, mining, and other technical concepts arise as solutions. In a simple Proof-of-Stake algorithm, the users with more stakes are more likely to add the next block and receive a reward for it. Thus, we get rid of the probability that several people will add a block, because the network will immediately know who is adding a block.
Bitcoin Transaction Outputs
Generally speaking, the Bitcoin blockchain is a distributed ledger, where assets are transferred to some kind of address. But the blockchain does not know such an entity as an address, the term is simply used for the sake of convenience.
The main entity with which operations take place in Bitcoin is the output. The output is our understanding of a banknote, it means real money, and it has a value. It can only be spent in its entirety and it has a digital number assigned to it. In fact, the Bitcoin blockchain works when all these outputs are transferred from one owner of private keys to another.
Each output has a specific script written in the internal blockchain language, a way of confirmation. Suppose we have a transfer of a proverbial banknote, that is, an output in this transaction is a transfer to some addresses. One of the parties has a Bitcoin, the other has two. In another transaction, the transfer occurs simply from one address to another. When we create a transaction, we can only use the output that was sent to us to our public key. Transactions in Bitcoin can be used simultaneously for input and multiple outputs at once. And users can only use them entirely.
The script is the internal language of the blockchain. Its main task is to set the conditions with which it will be possible to use the output. In fact, it checks that the owner of the private key is where the output was sent from, that it was the user who used the output.
Each input or output is unambiguously recalibrated by the hash of the transactions in which it originated, and the index inside it. It is written in the internal language of the blockchain, a sort of confirmation that the output can be used.
But how is it possible to calculate the unspent balance? There are two ways — the transaction history and the unspent output. When an output is transferred to the system as input, it is considered spent. That is, no one can use it anymore. If we go through all the spent outputs, and find the public key, the balance of which we are looking for, then this will be the balance of the given address and its public key.
The Bitcoin node contains all unspent outputs so that it can quickly check that the output can actually be used. There is a peculiarity in Bitcoin, when checking whether the output belongs to the public key. It is possible to create a transaction whose output cannot be spent at all. The unspent output appears when the block is created, that is, an emission occurs. Input does not arise as such, as there is an output that can be wasted by mining and all emission occurs when a mining block is created.
At core, the blockchain is a distributed ledger of transactions that works for the purpose of ensuring the immutability of records and the verification of transaction authenticity. The underlying technology works as a synchronized mechanism for allowing all members of the network to authenticate the transactions and conduct them in a fully transparent and decentralized manner.
The characteristics of each blockchain determine its use cases. The Bitcoin blockchain is ideal for financial transactions with its consensus algorithm and small block sizes. Other blockchains may be tailored for other purposes, which are determined by their block sizes, the speed of transaction processing, and other technical parameters.
We’ve made it even easier to get the data you need from the Bitcoin blockchain. Now you don’t need to run your own node, all you need is Bitcoin Blockchain API!
Check out our Getting Started Guide with WatchData documentation. We hope this will help you get started with WatchData and begin collecting the data you need to make your business a success. If you have any questions, please don’t hesitate to reach out to us on our WatchData Discord channel. To see what you can build with our API → Check How to guides!
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