Blockchain: The Basics
We’re here to clear things up about Blockchain – the distributed database that allows for secure, transparent, and tamper-proof transactions. It has the potential to revolutionize many industries, including banking, healthcare, and supply chain management.
Blockchain was created in 2008 as the digital framework behind cryptocurrency, Bitcoin. The origins are shrouded in mystery however. Satoshi Nakamoto is the alias of whomever, or whatever, founded bitcoin. Nakamoto wrote the program that allows people to exchange bitcoin with one another using blockchain technology. He was also active in the development of Bitcoin until December of 2010.
The blockchain begins with a genesis block. This block is formed when transactions (i.e., “blocks”) are created and added to the database. The blocks are usually groups of data that indicate cryptocurrency was transferred from one person to another. Each transaction is public. Consequently, anyone with access to the blockchain is allowed to verify that a certain amount of Bitcoin was transferred from one person to another and at what time.
Public access to the blockchain is essential to its existence. This is one of the keys to the technology. Public access allows the blockchain to be decentralized. The blockchain is maintained by tens of thousands of computers working together. Importantly, the collection of computers help to verify that each entry is valid. Once validated, they update the blockchain with the new transaction.
How Blockchain Works
A unique code is given, known as a “hash”, whenever a transaction occurs. That hash allows the transaction to be distinguished from all other transactions occurring on the chain. Interestingly, if someone tries to tamper with any part of the chain, the hash code of that block will change. Hashes are generated according to algorithms. Therefore, their resulting codes can be used to identify any changes made. Importantly, this makes the block secure and prevents fraud. For example, if someone tries to add an illegitimate transaction within the blockchain, every subsequent block in the chain and all of its transactions will also be altered and flagged as illegitimate. Therefore, the blockchain is secure because all transactions are public and verified individually on thousands of computers. Theoretically, in order to alter the blockchain, one person would need to alter over half of the public chains, all at the exact same time.
A Public Ledger
The blockchain is often referred to as a public ledger. The chain verifies and records all Bitcoin transactions that have occurred, or will occur. Specifically, the Bitcoin network creates an output consisting of a unique address for every user who sends Bitcoin from one wallet to another. Each Bitcoin address is designed to be shown only with its corresponding unique private key. This is done to protect the privacy of users. That private key is a secret code connected to the wallet. Specifically, this means users can access their Bitcoin account without having to reveal any of their personal information. This is what makes the technology extremely secure when compared with most other methods of transactions. Because all transactions are public, they can be viewed by anyone who has access.
A bitcoin transaction is confirmed when it is added to a block. This can occur along with other transactions. The block is then added to the blockchain. This process secures the transaction. Every block added thereafter adds to the security of the previous block, providing for greater reassurance.
Many people are unaware of what blockchain actually is. Unfortunately, this makes them open to multiple incorrect assumptions. One misconception is that it’s contained within the cryptocurrency realm. Importantly, the technology can be used for many other purposes besides exchanging cryptocurrencies. For example, it can be used for connecting devices in a smart home network or using decentralized apps on the Ethereum platform.
Another common mistake made with the technology is that its applications are limited to finance. This is not true at all. Realistically, the uses are virtually limitless. Lastly, some people believe that blockchain works similarly to other technologies like cloud storage or public ledgers. Because it’s a decentralized ledger, this isn’t entirely accurate. Specifically, the ledger is not controlled or stored in one “central” location.
Blockchain And Bitcoin Are Not The Same
There has been a rapid rise in popularity of the technology. Because of that, many people started becoming aware of it’s most popular, and valuable, use: cryptocurrency. However, there are still some who use these terms interchangeably. Blockchain is a decentralized ledger that tracks cryptocurrency transactions. Bitcoin is one type of digital currency created using blockchain technology. The two are not interchangeable phrases for one another, nor are they the same thing.
Blockchain is the technology behind Bitcoin and other cryptocurrencies. However, it can be used to support countless other services as well.
Why It Matters
The blockchain is a decentralized, digital distributed ledger. It has many applications beyond the financial world. Specifically, at its core, it is as a storage device for data. Additionally, it can also store scripts and commands that allow it to be used in other ways. Cloud storage allows companies to securely share and store data without using more on-site storage. The blockchain does the same for information on a larger scale. Lastly, it can also be used as an authentication tool that verifies transactions between two parties.