What is a ‘blockchain’?
So recently we attempted to explain what cryptocurrency is, in its simplest form.
From that, we mentioned a ‘block chain’. A term that if you have been skirting around the realms of crypto, but what is a blockchain?.
So, with my simple mind, I can only hold a certain amount of information. I thought I would have a go at trying to explain what a ‘blockchain’ is.
What is a blockchain in cryptocurrency?
Basically, it is a database, a database of all the transactions that have been made.
What is different with this type of database is that it is completely open, and everyone can have an up-to-date copy. Meaning that everyone can see exactly what is in the database and can validate its accuracy. Therefore, there is no way to fabricate aspects of the database.
It uses cryptography in a similar way to what we mentioned in our last article, which ensures that these database records cannot be counterfeited or changed. All through a network of computers. Meaning that not one person or organisation is in control of it.
Also ensuring the security of the network and can prevent it from going down if one computer fails as you cannot take out all of the computers in the network
How does the blockchain work?
Every time a transaction is made, it is put into the database. It goes into a group of transactions or a block.
So, each block holds information of a certain amount of transactions. The computers in the network all work to prove the accuracy of these transactions and once it does there is consensus, and the block is complete.
The block will hold a cryptographic hash or imagine a distinct code that will be linked to the next block. So when the first block is full. A second block is created but they will be linked by this ‘hash’.
Imagine a line of these blocks you can then easily tell which one came first. And which one before and after that.
To recap. A blockchain is a database that keeps information in it. Easy to remember the next bit 'a chain of blocks'. So each block is linked to the previous block.
In cryptocurrency, these blocks are a list of transactions, but the possibilities are endless and could be used for so many different things. This is why the technology is still so exciting.
Advantages of a blockchain
So hopefully a blockchain in its simplest form makes some sense now. There is of course a lot more to it, but in simple terms that is it. But why is it such a good thing.
Security and accuracy
The blockchain is incredibly secure by the network of computers constantly proves the validity of the transaction. The transactions will always be accurate as the network is always working together to prove its accuracy.
It can’t be altered ‘Immutability’
Once a transaction is on the blockchain it cannot be altered. Meaning the ledger is always accurate and can never be manipulated.
The blockchain can be open and viewable to anyone, all transactions are there for all to see. Anyone can scrutinise the transactions. This is huge for a financial system. I think we would all be in shock and horror if our currencies were all open source and we could see how it was manipulated.
There is no middleman with the blockchain. Because it is run by a peer-to-peer network of computers. There is no one organisation or person that can operate it. It is outside of institutions. Which for finance and money is absolutely huge. Transactions can happen across the entire world in a much more fast and more efficient manner.
The blockchain is a very simple idea, operating within complex and clever systems. It shows why cryptocurrency has blown a hole in the financial world. The ability to hold your own coins and operate a financial system with no centralised body is incredible.
The security, privacy, and transparency, in a decentralised manner is one that excites me massively. I believe greatly the more people learn about cryptocurrency and how it works. It will be impossible to not want to get involved. This is the future. Don’t get left behind.
Although I have tried my explanations may not be the best so here are some other sources of information.
Also, join me at the next bitcoin webinar run by Luno for a simple explanation, run on zoom. Link here
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