Understanding blockchain seems complicated at first, but if you dive into it, it will make sense. It is a way of linking data using specific identifications that are reviewed and verified by a network of users without a central control or authority.
A blockchain is essentially a digital ledger for recording transactions, a specific type of database.
The blockchain is also the key record-keeping technology behind most cryptocurrencies that enables the system to circumvent the need to rely on a central authority, such as a bank or a government.
How does blockchain work?
Blockchains store data in blocks that are chained together. Every new data is entered into a block. When the block is full with data, it is chained onto the previous block in a chronological order. When it is added to the chain, each block is given an exact timestamp and a hash - a code that is like a fingerprint which identifies the block and its content. Therefore the data entered to the blockchain network is irreversible.
This makes blockchain technology very secure. It also makes it almost impossible to spend the same crypto coin twice or to steal it, because the information, the ledger of transactions, is kept on a decentralized, peer-to-peer network of computers, which can be cross-referenced.
Let’s say a hacker wanted to steal coins from others on the blockchain network! The hacker could alter their own copy of the data on the blockchain, but to be successful, they would need the majority of the decentralized network’s computing power to agree with the changes. This would also require redoing all the blocks because the timestamp and the hash would have changed, and because the content of the block has changed. This makes the whole online heist all but impossible. The larger the network, the more secure it is.
A blockchain can be used to store different types of information, but currently it is most commonly used as a ledger of crypto transactions.
Here is the example of Bitcoin:
- Owning Bitcoin means owning a Bitcoin address that has a balance recorded on the blockchain
- Owning a Bitcoin address means owning a private key, which allows the signing of transactions and access to your crypto coins
- The Bitcoin blockchain is used in a decentralized way, meaning that no single central authority has control over the ledger. The data entered is also irreversible. If a computer holding onto the history of Bitcoin transactions has an error in its data, it can use thousands of other computers as a reference to correct itself. This means that no one can alter the information held in the blockchain network without altering all subsequent data entered. The blockchain networks serve as a ledger of transactions.
- Transactions are permanently recorded and can be viewed by any network member.
The idea of digital timestamps first came up in the early 1990s. Blockchain technology was introduced in 2009. Bitcoin’s mysterious founder (or founders), under the name Satoshi Nakamoto, wrote about it as “a new electronic cash system that's fully peer-to-peer, with no trusted third party”.
While blockchain is first and foremost known as the key technology behind Bitcoin and other crypto coins, there have been efforts to use blockchain technology in other areas to boost transparency and security, such as in online voting or land registries.
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