Along with Bitcoin came a technology called blockchain. In a nutshell, blockchain is the encryption technology that allows crypto transactions to happen securely across the internet. Here we discuss the main features of blockchain technology to make it more transparent to understand.
Before blockchain, there was the Merkle Tree. The Merkle Tree worked on the same principle as blockchain and was used in handling data between computers. The Merkle Tree made sure that data was transferred between machines without being altered in any way. That was back in 1979. Fast forward to the nineties and the Merkle Tree was used to make a chain of blocks. The blocks were used to keep secure data records, each connected to the block before it. And that was the start of the blockchain. In 2008 the mysterious Satoshi Nakamoto used the blockchain technology for Bitcoin. The tech enabled the secure transfer of the cryptocurrency across the internet without needing to be centralized.
How It Works
Because cryptocurrency is decentralized, a record has to be maintained somewhere of what value of cryptocurrencies is out there and who has what and so on. With fiat currency, this is easy because you either have the physical money in hand, which you exchange for something, or the bank has a record of what you have and deducts an amount if a purchase or withdrawal is made. In the world of cryptocurrency, the blockchain is the ledger where transactions are recorded. Without the blockchain, cryptocurrencies would actually lose their value. To understand this, you need to imagine a world where no one really knew how much money you have, and you could just claim to have billions and keep buying more and more stuff. That is pretty much what would happen with cryptocurrency without the blockchain.
What It Does:
Keeps a record of transactions: If you have bought bitcoin then the blockchain with a record that you have bitcoin of this value. You are assigned a numerical signature which you identify yourself as for all crypto transactions. When you initiate a transaction, a record of made in the blockchain and the amount spent is deducted from your initial value.
Verifies transactions: Every transaction is stored in a block and linked to the previous transaction. Transactions first have to be verified by cross-checking with the block so that you don’t spend more than what you have. Once verified the block is in place and cannot be altered.
Allows decentralized access: With regular currency, if you initiate a bank transaction, the recipient has to verify with your bank that you do actually have the funds for the transaction. The blockchain, on the other hand, is not governed by a centralized entity like a bank. Anyone who has your public key will be able to check the validity of your transactions on the blockchain.
In this way blockchain technology has enabled peer to peer transactions without the need of a middle-man. The main feature of blockchain technology, of course, is that it is not easy to tamper with. Once a transaction has been verified and, in the block, it would take a lot of skill and electricity to make an alteration. For this reason, blockchain technology has revolutionized online transactions.
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