Did you know that transactions on the blockchain take place through blockchain addresses? Yes, for example, they allow payments to be sent to unique entities. So, are Blockchain addresses merely secure identification tools?
Let’s review that and all those components which make a blockchain a blockchain. From addresses to transactions, the fees involved to the keys used, and more.
Before getting into the technical or simple definition, let’s understand why we need a Blockchain address. A peep into its history.
When bitcoin was first created, payments were made using IP address 126.96.36.199. This was done specifically to make it easier for users so they don’t have to deal with public keys and addresses.
While convenient, this method was insecure, as it can be compromised by a man-in-the-middle attack. Therefore, it was discarded, and a new approach was adopted that has proved to be more secure over time. Yes, the Blockchain address.
Blockchain addresses are unique sequences of numbers and letters. They operate similar to email addresses. It is an address on the Blockchain where cryptocurrency can be sent, albeit valid only once.
The goal is to assign a unique address for each individual every time they receive crypto. In a nutshell, it is similar to a bank account for digital assets. For instance, a Bitcoin address begins with numbers like ‘1’, ‘3’, or an alphanumeric value like ‘bc1’ and is 26–35 characters in length.
A private key is a cryptographic code that generates this alphanumeric address. It helps transfer assets assigned to a specific address from another address (or addresses).
They serve as secret passwords that enable users to sign cryptocurrency transactions and transfer funds to other cryptocurrency addresses.
But how are these addresses derived? Generally, an address originates from a public key in a blockchain. One can create an address in three steps:
Private keys, public keys, so what are these in a blockchain address?
In Blockchain, users can receive cryptocurrencies via public keys (cryptographic codes) in their accounts. The first time a user initiates a transaction, a private key, and a public key are issued to them.
A Private Key is restricted to its owner and allows them to conduct a transaction using that key. Public keys are used for verifying digital signatures proving ownership of private keys.
Well, that seems a little confusing, isn’t it? Cryptocurrencies like Bitcoin and Ethereum are based on a public-key cryptographic system, which uses pairs of keys.
Public keys, which are widely known, are vital to identifying individuals, and private keys are kept confidential and used for encryption and authentication.
How are the transactions taking place within a Blockchain address using public and private keys?
A transaction does not always imply a value transfer. Transactions on a Blockchain are simply events. It can be anything, a message, an event, or a piece of data.
But in blockchains with Bitcoins, transactions actually refer to cryptocurrencies as a form of value transfer. These transfers are made between addresses.
Typically, a blockchain transaction includes an encapsulated hash of all transaction data along with a value, message, sender, receiver, block number, and time stamp.
The transactions are then bundled into blocks. DLT technology or hashgraphs are the only exceptions to the sequential hashing of transactions and not storing them in blocks.
For such transactions to take place, it needs an effort. Then how is such effort incentivized? By transaction fees. What’s that?
To include transactions in a blockchain, validating nodes, also called miners, must carry out some tasks. Incentives such as transaction fees would encourage them to do this work.
Transaction fees are independent of the transaction amount and value in a blockchain. They purely depend on transaction size.
Transactions are chosen from a transaction memory pool by the miners based on the ones paying the highest fees. The user must thus pay a higher fee if they want their transaction to be picked first by the miner.
Transaction fees are also essential in the Blockchain to prevent spamming or DoS attacks. Using a flood of fake transactions, this type of attack exhausts blockchain resources and clogs the entire network.
Due to the high fees, DoS attacks rarely occur on blockchains like Bitcoin. But even then, the question arises about cybersecurity which calls for cryptographic hashing algorithms. What are they? Scroll down.
In the realm of cybersecurity, cryptographic hashing has played a significant role. The technology, for instance, is widely used by Bitcoin and other cryptocurrencies.
Hashes are used in cryptography to create unique strings of text from data. A very effective algorithm is used to hash the data in just a few seconds. Also, hashing doesn’t care what kind of data you have or how big it is — it works on them all.
Then why does hashing appeal to so many people? Because you can’t reverse it! The function is one-way (cryptographic hash function) and is designed exclusively to work in that way. Once the data is put into a one-way function, it produces a unique string.
However, putting the unique string back to the hashing function cannot reveal the original data. A cryptographic hashing solution of this sort is so valuable for securing information and data.
Hashing can be performed using a wide range of algorithms. Some of them are the following.
Message Direct (MD5)
Secure Hash Function (SHA-256)
Secure Hash Function (SHA1)
However, there is no 100% secure hashing function. It is not recommended to use SHA1 for practical purposes as it is easy to crack. MD5 and SHA-256 are two of the most commonly used hashing functions.
So, how do these hash functions or cryptographic algorithms practically work with a Blockchain address in various cryptocurrencies? Addressing that next.
They all have a similar address format. Nevertheless, Dash, Dogecoin, and Litecoin all rely on the same cryptographic algorithms, which generate the hashes mentioned above, namely SHA 256, ECDSA, MD5, and RIPEMD 160.
Bitcoin begins with a 1, Altcoins like Litecoin start with L, Dogecoin starts with a D, Dash starts with an X, respectively.
The Ethereum address differs from the bitcoin address. Quite a few people were confused about the address format at first. Ethereum is uniquely identified by a hexadecimal string starting with “0x”.
An Ethereum address contains a 64-byte public key derived from a private key using ECDSA, resembling a bitcoin address from a technical standpoint. But the difference between Ethereum and other cryptocurrencies is that it has no checksum.
Ethereum can create its address from any hexadecimal 40-character string, which is why Ethereum developers recommend that you avoid typing in your address but use your wallet’s copy function.
The username associated with STEEM is always the wallet address. This cryptocurrency is based on Bit Shares and has a good track record.
Steemit from STEEM is an integrated coin that lets users earn money by sharing content. If you haven’t heard of it, it is a social media platform with an integrated coin that users can use to make money.
In the whole concept of Blockchain as a technology, the future of Blockchain address is very hopeful. With the applications of Blockchain technology across industries like finance, real estate, insurance, money transfers, and so on, the Blockchain address plays a prominent role. Unique, tamper-proof, and trustless features of Blockchain address make it secure, transparent, and risk-free technology.
Finally, that’s about it — a journey starting from the Blockchain wallet address to how it functions across cryptocurrencies. We hope you have a clearer insight on all things that come together to make a Blockchain a Blockchain. Seems interesting? bitsCrunch is your one-stop place for all such interesting information. Come join our community of geeks. Subscribe to bitsCrunch today!
Okay, so have you just mastered all the components of Blockchain?