Blockchain: Basics

Abstract

Over the last decade, the principle of blockchains has risen from relative obscurity in what was at the time a comparatively small community of Bitcoin users to worldwide prominence. The recent success of Bitcoin has led to extensive news coverage in mainstream media and widespread interest from the general public. Reports, videos and myths surrounding Bitcoin show how difficult the fundamentals are to understand for non-expert users, not to mention the fact that there is still very little awareness or understanding of systems other than cryptocurrencies that rely on the principle of blockchains. We hope this chapter will help demystify the concept and provide a sound introduction to the underlying technologies and consensus mechanisms of the blockchain. Although the term blockchain is closely linked to Bitcoin (to the point where many laypeople consider them quasi-synonymous), the term was not introduced by Satoshi Nakamoto in the original paper that presented Bitcoin (Nakamoto 2008) as a prototype for a decentralized cryptocurrency. The term emerged in the Bitcoin community to describe the principle of the new cryptocurrency, and is therefore not standardized terminology. Therefore, there are two common spelling variants: blockchain and block chain. Although the latter was used by Satoshi Nakamoto in a comment in the original source code, the former is more frequently used in academic literature, for example, in publications such as Croman et al. (2016) and press reports, and can be regarded as a de facto standard. Therefore, we will use the spelling blockchain.