Blockchain technology has the unique potential to disrupt and improve upon countless transactions we conduct daily. Though, most information about this new tech is either too vague or too technical. So, what is blockchain technology? With this step-by-step guide for beginners, we break down this secure, transparent, and permanent system which is so much more than just a platform on which you can trade Bitcoin (BTC).
What Is Blockchain?
Blockchain is a system of decentralized digital lists, or ledgers, containing records referred to as “blocks.” Blocks hold information in a secure, transparent, and permanent way that everyone can access. It originally came about to record transactions done using the first cryptocurrency, Bitcoin.
What is Bitcoin? Though Bitcoin (BTC), the first cryptocurrency invented by Satoshi Nakamoto, is where blockchain began, the distributed ledger has capabilities far beyond that. Because the system is decentralized, meaning there is no central force controlling, moderating, or managing its information, there is no central database that can be corrupted or hacked.
Decentralization allows for complete transparency in all shared information. Furthermore, the network hosting of the information is impossible to tamper with. Rather than passing information back and forth, swapping ownership each time, everyone essentially owns it, and can access it, simultaneously.
This eliminates the possibility for human error. And because the verification process is so strict, the information within it is trustworthy. It cannot be altered because doing so would make the whole chain invalid. In other words, blockchain information cannot be muted or censored, and holds the possibility for autonomy and bringing responsibility and control back to the individual. More specifically, here’s how this works.
Getting to Know Blockchain Technology
There are plenty of things that we use without fully understanding. Though it is entirely possible to benefit from the blockchain technology without realizing it, it doesn’t have to be that way. Because blockchain applications incredibly vast and powerful, the technology can seem quite mysterious and confusing. The thing is, the underlying technology is actually quite simple.
A Chain of Blocks
Blockchain is a series of transactions referred to as “blocks.” Each block contains all of the information and data about one transaction, a hash. It also contains the previous block’s hash. A hash is a code that acts as the fingerprint of the block, it is completely unique to that block and changes each time the data of the transaction is altered.
Because each block contains the hash from the previous block, they can build on top of each other, forming a chain. If someone changes one block’s data, this will make the following blocks invalid since the hashes will no longer match. In which case, the change will need to go through a validation process.
This system is what makes tampering with blockchain information almost impossible. Blockchain is merely a string of chronological transactions, each referring to the last and owning a piece of the previous. If someone or thing wishes to conduct a transaction, they don’t personally edit a block or chain, they submit a request to the peer-to-peer network to be checked, validated, and approved.
Peer-to-Peer (P2P) Structure
More specifically, a P2P network moderates blockchain information. This model distributes authority and responsibility among countless nodes to eliminate bias and error.
The network is built on computers nodes that validate and relay the transactions to the blockchain. Every node acts as a blockchain network administrator and has opted to do so voluntarily. It is like a community watch that protects and manages blockchain information. The transactional data contained within it is verified by millions of computers through a process we call “mining.”
If a new transaction is made or a block is added, all nodes in a network must come to a consensus before it is validated. The Peer-to-Peer structure of the blockchain creates across-the-bo