What is Blockchain Technology?
To begin, let’s speak about the history of the blockchain. Before being in cryptocurrency, it had simple beginnings as an ideology in computer science — specifically, in the areas of data structures and cryptography.
There are three key features associated with Blockchain Technology:
- Blockchains maintain a record of all exchange information- this organized file is known as “ledger” in crypto world, and each exchange of information is refer to as a “transaction”. Each user transaction is compiled into the ledger as a “block”.
- It uses a distributed system to confirm every exchange through a Peer-to-Peer network of nodes.
- When the the transcation is verified, the exchange is recorded to the blockchain and can`t be altered.
It is important to explore the concept of “keys”. Within a set of cryptographic keys, the user receives a unique identity. Your keys are the Private Key and Public Key, and together they arecombined to make a digital signature. Your public key is how other users are able to identify you. Your private key gives you the ability to virtually sign and authorize a variety of actions on behalf of this digital identity when used with your public key.
Everytime a transaction occurs, that transaction is signed by whoever is authorizing it. That transaction might be something like “Alice is sending Bob 0.4 BTC”, will include Bob’s address (public key), and will be signed by a digital signature using both Alice’s public key and private key. This gets added to the ledger of that blockchain that Alice sent Bob 0.4 BTC, and will also include a timestamp and a unique ID number. When this transaction occurs, it’s broadcasted to a peer-to-peer network of nodes — basically other digital entities that acknowledge that this transaction has occurred and adds it to the ledger.
Each transaction in that ledger will have the same data: a digital signature, a public key, a timestamp, and a unique ID. Each transaction will be connected, so if you move back one transaction in the ledger, you may see that Chuck sent Alice 0.8 BTC at some time. If you move back another transaction, you might see that Dan sent Chuck 0.2 BTC at some other time before that.
The anonymity of cryptocurrencies come from the fact that your public key is just a randomized sequence of numbers and letters — so you are not literally signing with your own name or some sort of handle. A public key doesn’t tell you the real identity of the person behind it. You are also more or less free to generate as many key pairs as you want and have multiple cryptocurrency wallets. Be warned though, there could be other ways someone can figure out your identity — for example, through your spending habits.