Blockchain is the technological building blocks on which the cryptocurrencies function and operate, but its potential is just not confined to this specific purpose only.
What is blockchain?
Blockchain is similar to a virtual master ledger and hence it is also known as distributed ledger technology (DLT). Primarily, it is a decentralized database that instead of being owned by any government or any other central institutions is owned by the network itself.
It provides a shared public record of changes in the ownership of an asset. The database is run according to the rules of the network and can be used to create and track digital tokens, including cryptocurrencies.
How does it work?
Whenever a new computer or ‘node’ joins the crypto network, it can start carrying out transactions. Such network comprises of millions of other computers spread across the world. Whenever a transaction occurs, the details appear on the network and everyone obtains an updated record. Furthermore, the network verifies all the data that is introduced into the blockchain. Because blockchains are decentralized, hackers can’t manipulate and disrupt it via any individual computers.
Transactions are bundled together into a ‘block’, which is then added to the database thus making the blockchain a full and complete chronological record of who owns what on the network. The data is public, but the identity of the individual or the party generating the transactions is not. The decentralized technological system is so robustly designed that it ensures that the data on the network cannot be tampered or hacked because it is hosted by millions of different participant simultaneously.
What is a ‘miner’?
Blockchain relies on so-called ‘miners’ or specialized computers, who keep it alive, operational and growing. How they operate is a complex thing and varies from system to system. For example, a miner in a bitcoin network is selected to take up all the transactions, compile them into a ‘block’, verify them and add them to the existing chain of blocks. They are then rewarded with new bitcoins in return for their efforts. This keeps the blockchain thriving. Different cryptocurrencies have different approaches.
How can it be used?
The blockchain technology, underpinning the cryptocurrencies, has revolutionary potential beyond it which is largely theoretical at present. Its uses are no more going to be limited to just hosting cryptocurrencies. It is being designed to make an impact on banking and payments systems, voting records, recording ownership of works of art, and even precious gems like diamonds. Blockchain technology is enabling the transfer of property rights, or stocks from one person to another without having to go through intermediaries, consequently making it quicker and cheaper to move assets around.
Understandably, governments across the globe are showing keen interest in this technology. The UK Government, for example, considers that it may “help governments to collect taxes, deliver benefits, issue passports, record land registries, assure the supply chain of goods and services and generally ensure the integrity of government records and services”.
The currency part of blockchain
Somewhat less sophisticated versions of cryptocurrencies existed before blockchain came along, where trading was done anonymously and virtually without interference from large exchanges or regulatory bodies. However, because it was anonymous and unregulated, it could be utilized for illicit transactions and unreliable operations. Blockchain helped to bring oversight and discipline into this alarming matter.
Is blockchain safe?
The proponents of blockchain technology consider it to be one of the best ways to safeguard crypto transactions. The credibility to this argument comes from the fact that each block in the chain is chronologically connected to those that come before and after it and the result is hosted by all the nodes. As a result it’s difficult to manipulate even a single record because this unrealistic attempt would involve altering the chain and the discrepancy would easily be picked up by the network and the block will be dismissed.
Blockchain records are secured with cryptography and the users access them with their own private keys. In absolute terms, no system is perfect and some blockchain networks are more secure than others. The security aspect of blockchain and the cryptocurrencies operating on them is consistently evolving with the advancement in technology and communication.
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