Read Part-1 and Part-2 to get the complete picture.
Please note, from Part-1, the special number that Mr. B provided to Mr. A while purchasing Bitland. The special number was –
04ce875702b93398d29b2bf5af7878dd86130cca4f1a53143b82af53c02089e2d56609a16e08a1cd7a68e355a5d893f22f90d30d4ecb25f6d1afeebc0917d3d01e
As you can see in Part-2 this is the Public-Key. We can say Mr. B generated this Public-Key using his Private-Key. Mr A has carved this Public-Key on stone and embedded that on Bitland plot he sold to Mr. B. Once the carving is done, the transaction is complete and Mr. B is the owner of Bitland plot.
Coming to the dilemma of Mr. E. Mr. E has to verify who is the real owner of Bitland plot among Mr. B and Mr. D. Mr. E asks both Mr. B and Mr. D to send their price quote in a note and sign it using their respective Private-Keys.
Quote from Mr. B
Quote – Price is 100 horses and 500 bags of grains
Signature – 3044022035de6642373bbfe0243e9a64432398425e96fa765b58a63fb3bceb7206f9225502201622d1d9aeacf7d51f1605ae5e30a0ca85b7ad43f4900666fa485b3664f1e434
Quote from Mr. D
Quote – Price is 50 horses and 300 bags of grains
Signature – 30440220063f9afa9db6552f8d57f1b5cc746d9ad5a17ae22d3978547813007bd17cc81b02204f0926259018491147af1d8cb3498450d62a590d6e00ac961868411b69db39a4
Having received Quote and Signature from both, Mr. E goes to Bitland plot. On the Bitland plot that is being sold, the owner’s special number (i.e., the Public-Key of the owner) is carved on stone. Mr. E Makes note of it. Using Public-Key, and quote, he verifies the signature (Check Part-2 to understand the mechanism). Obviously, the signature provided by Mr B verifies to true, whereas that provided by Mr. D fails (you can verify this here).
Now Mr. E know for sure that Mr. B is the legitimate owner of the Bitland and Mr.D was an imposter. Thus, to receive the Bitland from Mr. B, Mr. E provides his special number, that is Public-Key created out of his-own Private-Key, to Mr. B. Upon receiving his horses and grains, Mr. B engraves Public-Key of Mr. E on the stone, writes the date and embeds on the land. In Blockchainian tribe, along with Mr. E other designated tribe members also verify and confirm it. Thus, there is consensus among the tribe that the transaction of property is genuine.
This is what in essence happens in the Bitcoin network. A Bitcoin or a part of Bitcoin is transferred to the Public-Key of the recipient (the Public-Key in Bitcoin goes through few more math algorithms of SHA256, RIPEMD160 to look smaller). When the recipient wishes to transfer Bitcoins further, he does the same thing – signs the transaction details with his Private-Key and provides Signature for the verification.
Of-course, in Bitcoin Blockchain, there is no physical land where Public-Key engraved stones can be embedded. These transactions of Bitcoin transfer are verified by participating nodes in the network. Transaction failing verification are thrown out by network. Valid ones are maintained in the pool of transaction. A miner who mines the next block (the one who hits golden Nonce) will add a definite number of transactions to the block, and the block is appended to the chain. Once the Block is accepted, every other node in the network verifies the Block and copies the Block on to their node (Computer/s).
The Blockchain networks are called Trustless network. Essentially, you do not depend on any trusted authority, such as Govt or Central Bank. In fact, you do not trust anybody. Every transaction is verified, and you trust the Cryptographic algorithms and majority consensus in the network. Thus, Cryptography and Decentralized Network Consensus makes the network trustworthy.
Thus, public blockchain networks such as Ethereum, Bitcoin are known as trustless networks.
Takeaway –
- Bitcoins are not transferred from account to account. They are only assigned a new owner by attaching the Public-Key of the recipient. This Public-Key is known as Bitcoin address.
- Only the person who has Private-Key associated with Bitcoin Address can transfer the Bitcoin to others.
- Foolproof cryptographic algorithms and network consensus make Bitcoin(or likes of them) network trustworthy.
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