What Is Blockchain Technology? A Beginner’s GuideJune 22, 2018
You may have heard the term “blockchain technology” before, in reference to Bitcoin and other cryptocurrencies. For the uninitiated, the term might seem abstract with little real meaning on the surface. However, blockchain technology is a critical element of cryptocurrencies — without it, digital currencies like Bitcoin would not exist.
If you are new to cryptocurrencies, and new to blockchain technology, read this guide on the basics to get yourself started. If you are already a seasoned trader, maybe you’ll learn a thing or two you didn’t already know.
What is blockchain technology?
Blockchain technology was originally developed to facilitate the digital currency Bitcoin. But these are two separate technologies. While bitcoin is an encrypted currency, blockchain is the platform for peer-to-peer payment, supply chain tracking, and lots more. Consider this as an operating system for applications such as bitcoins and ethereum to function.
In the simplest words, blockchain technology is a shared and open ledger that keeps a record of the transactions and cannot be modified. And as the name implies, blockchain includes an ever-increasing blocks of data with each block containing transaction information.
The blockchain technology is based on decentralisation which means the data is accessible to everyone while the data is managed by a cluster of computers and not owned by a single person.
So, then, how does the blockchain work? Let’s recall a few key features before we get into the details:
1. Blockchain keeps a record of all data exchanges — this record is referred to as a “ledger” in the cryptocurrency world, and each data exchange is a “transaction“. Every verified transaction is added to the ledger as a “block”
2. It utilizes a distributed system to verify each transaction — a peer-to-peer network of nodes
3. Once signed and verified, the new transaction is added to the blockchain and can not be altered
To begin, we need to explore the concept of “keys”. With a set of cryptographic keys, you get a unique identity. Your keys are the Private Key and Public Key, and together they are combined to give you a digital signature. Your public key is how others are able to identify you. Your private key gives you the power to digitally sign and authorize different actions on behalf of this digital identity when used with your public key.
Why is Decentralization So Important?
For enthusiasts of blockchain, you will hear a lot about the decentralized aspect of it. What makes this so appealing is that it makes the blockchain impervious to censorship, tampering, or corruption.
Because it uses a peer-to-peer network, copies of the ledger are stored in many different locations, and unless you manage to track down every single one of them (Bitcoin is estimated to have over 35,000 nodes in its P2P network), you can’t destroy it. As well, because so many different, independent nodes are keeping track of the ledger, modifying it in an untrustworthy way won’t go very far because all the other nodes will disagree with that transaction and won’t add it to the ledger.
This is a huge part of why so many people believe blockchain technology is the future of currency, and why it is being adopted in industries other than cryptocurrency.