The world has transformed into a global digital economy within the last few years at an astounding rate. Especially with the advent of the pandemic, the whole world prefers a safer, distant way of handling money. Cryptocurrency as a market has also seen a boom in its users over this period. All of a sudden, it has reached unprecedented popularity. Blockchain technology has been so often talked about, concerning cryptocurrency, that it becomes a natural curiosity to anyone interested in digital finance.
Definition of Blockchain Technology?
Blockchain Technology is a digital sequence of ledgers that operates as the master plan behind cryptocurrency. Blockchain is just what it sounds, a series of blocks that store data in such a secure fashion that it is almost impossible to manipulate it.
This series of blocks, created very securely to maintain safekeeping, is where data is stored. Each block has three very important components – the Data, Hash, and a hash of the previous block. Another very important component is Proof Of Work. A block is practically invalid with a Proof Of Work. The first block is known as the Genesis Block. This is from where the chain starts.
Blockchain technology is a decentralized system. It is a P2P (peer-to-peer) network. This means that there is no central body governing the blockchain system. Decentralization has made the process trustable because of its transparency. Because of the strict processing regulations, all countless people operating this system can work in it while trusting in the overall transparency of the procedure. This also means that there are no fees for the transaction to be paid to any authority.
Cryptocurrency is by itself a ledger-based digital transaction. Therefore, the part played by blockchain technology is very central to its work.
When was Blockchain invented?
Blockchain was invented in 1991 by an unknown person under the pseudonym Satoshi Nakamoto. Pretty mysterious, is it not? Well for years no one had paid much attention to its invention until it was used to create the mechanism behind Bitcoin in 2009. Ever since then, many successful and profitable cryptocurrencies work upon this same reliable model.
How Does Blockchain actually Work?
To understand the workings of a blockchain system, let us first understand what the process entails. As mentioned before, blockchain technology depends upon the efficiency and rigor of the participants of its network encapsulated under the genius construction of the block themselves. So here is how the blockchain is formed:
- Each individual block contains a piece of information and a cryptographic hash. Information is stored under this hash, the combination of which has never existed anywhere else. And since this hash is cryptographic, it is not available to everyone. (This is from where the name cryptocurrency arises.) This hash is the identity of the block that separates it from all other blocks. It also contains a hash for the previous block, which is essential to its being linked to that block in the chain.
- Each block has separately a public key and a secret key – that is the base of a cryptographic hash-bearing block.
- The moment the data inside the block is tweaked, its hash changes.
- In a chain of blocks, when the hash of one block changes and the following block can no longer remain valid because the hash of the previous block now does not match. As it gets invalidated, the one succeeding that block becomes invalid as well and the whole sequence crashes.
- This linking of blocks is known as Cryptography.
- And yet, an extremely efficient person might still be able to tweak all the blocks and change the required data. This is where the Proof Of Work comes into play. The proof of work is an arbitrary combination of bytes that are almost impossible to guesswork through. Roughly, the probability of them being right is almost one in a billionth.
- A block is unacceptable without passing this Proof Of Work test. This Proof Of Work test takes 10 minutes to update. So even if you managed to update one Proof Of Work accurately, it would be impossible to update the whole chain.
Who are the Block Creators and what do They Do?
So, imagine that network of people is working on these blocks. There are the Block Creators, who listen to transactions and create a new block. These people get rewarded with Block Rewards. These block creators are essentially the Miners.
A simple trick saves them from choosing the wrong blockchain and adding blocks to it; they always go for the longer one. The longer chain signifies legitimacy and more amount of work being put into it. Since so many people continue creating blocks at such remarkable speed, it is virtually impossible to fraud a blockchain.
Blockchain and Cryptocurrency
In cryptocurrency, blockchain is used to maintain an account of transactions made with digital money. It accurately calculates and showcases the value of all currency owned by each of its users, mainly because of the detailed records kept by its system. Basically, blockchain protects the information on your digital finance. No transaction will go unrecorded and unmanaged.
They are highly popular because of how reliable the system makes them. The blockchain system is unadulterated by human mediums working for any ulterior motive and any changes in the foundation can be viewed by everyone instantly. It also has an automated system of instant payment for the Block creators that make the arrangement run smoothly.
Though initially popularized by Bitcoin, Blockchain technology today is used in healthcare, government databases, production and distribution, and various other financial models. Technically anyone who wants to store important information in a secured way can find Blockchain the most reliable of available options. Also, because it is an automated, computerized system, it is easily available for potential users, not very hard for new companies to replicate and use, universal in its methods, and performs a surprising degree of accuracy.
Blockchain can be easily learned
As an investor of cryptocurrency, learning the basics of blockchain technology can be useful and inspiring. Those who are debating upon the use of digital financial transactions will be comforted in knowing how mechanical and effortless the process is. However, if you are someone who is fascinated by the inner workings of the world of cryptocurrency and would like to learn more about blockchain technology, and perhaps even find a career in it, you will be happy to know that it is easy to learn. The prospects of working in this field are booming in the present years and are expected to only grow in the future.
Cryptocurrency is uncharted territory for many of us, and the need to be careful is much appreciated. The blockchain technology that is the backbone of this industry is a brilliant and underrated invention. Even though it has simplified our economical world at large, the people working at its core have to give a relentless and precise performance every single day. Learning about the workings of such an important aspect of our digital lives is always a new and challenging experience, one to quite remember.