An indisputable innovation in the sphere of financial technologies is the well-known cryptocurrencies: Bitcoins and Etherium. But to understand why this is so you need to get to know Blockchain. Cryptocurrencies, and the blockchain technology behind them, make it possible to transfer value online without the need for a middleman. In this article, we’ll take a look at what blockchain is, how it works, and what blockchain technology and cryptocurrencies have in common.
What Is a Blockchain?
Blockchain is a type of technology that is a collection of databases of financial transactions. Also known as a ledger. Blockchain stores information electronically in digital format on a central server that is accessible to all users. The records in the digital ledger are on multiple computers in different locations around the world. The database is constantly growing as new transactions or so-called “blocks” are added to it. In this way a continuous chain of blocks is formed. Blockchains are best known for the role they play in cryptocurrency systems in maintaining a secure record of transactions. This turns the blockchain into a distributed database with a P2P architecture. The term “distributed” means that the data is stored in many locations. And “P2P” means that there is no central authority in the system where a master copy of the data is maintained.
One of the main differences between a typical database and a blockchain is the way the data is structured. A database usually structures its data in tables. Whereas a blockchain structures its data into parts (blocks) that are linked together. A blockchain system is less vulnerable to hacker attacks because there is no central location for the database.
How Does It Work?
Blockchain technology is described as an “archive”. It is also referred to as a distributed archive. The technology is not centralized, it does not support any one organization. The maintenance and validation of transactions are distributed among all network participants.
The aim is to allow digital information to be recorded and distributed but not edited. editable. The block system is composed of digital information. It has three main functions.
- The blocks store information about the transactions made such as date, time, and amount.
- The blocks store information about who is involved in а transaction
- Blocks store information that distinguishes them from other blocks. Each block stores a unique code called a hash, that distinguishes one block from another.
When a block starts storing new data it is added to the chain. For a block to be added to the public transaction ledger the following things must happen:
- A transaction must take place
- This transaction must be verified
- Information about this transaction must be stored in a block
- This block must receive a “hash”
When a new block is added to the Blockchain technology it becomes publicly visible to anyone.
What do cryptocurrencies and blockchain technology have in common?
It can be said that almost all cryptocurrencies are based on blockchain technology. The public list of transactions is the basis for the existence of cryptocurrencies. This allows secure payments to be made without the need for a middleman. When you make a bitcoin transfer, you do not need to provide any personal data. This means there is no risk of your financial information being compromised.
Blockchain helps business and government operations be more accurate, efficient, secure and inexpensive, with fewer intermediaries. It’s also being used to improve the accuracy of medical records, streamline manufacturing, fight corruption and much more.