Let’s dive into the underlying technology behind virtual currency: blockchain. Invented by Satoshi Nakomato in 2008, the first major application of blockchain was to serve as the public transaction record for Bitcoin (BTC). A profound innovation, blockchain facilitates the exchange of value without the need for a central authority. Blockchain is beginning to disrupt many industries, not just through cryptocurrency and related financial services, but by serving as a distributed, transparent ledger to help companies maintain records in a more efficient way.
Blockchains are made of complex computer code. If you consider the term’s parts, it will make more sense: a chain of blocks that contain information. The information contained in the blocks are the records of transactions. As these transactions are made, they are bundled into “blocks” that are recorded and added to the chain in chronological order.
But there is a linking requirement for the blocks that makes the term blockchain especially apt. Each link is a cryptographic code (like a password) found by a cryptocurrency miner’s computer which competes with other miners to solve mathematical formulas in order to find the linking code. The code is passed to all nodes and the next blockchain is added. The miners then proceed to try to find the next code in order to attach the following block of transactions and so on. When a code is found by a miner, they are rewarded with a payment in cryptocurrency or through fees paid for processing transactions. Nodes are not computers doing the mining. Nodes store transaction history and the owners are not directly compensated.
As already noted, blockchain was invented to support Bitcoin. All cryptocurrencies are, by definition, based on blockchains, either their own or originating from a previous one. Most are based on the Bitcoin or Ethereum blockchains. In these cases, a chain is split (or “forked”) to create a new platform for another virtual currency to exist on. All coins derived from the bitcoin blockchain are considered “altcoins” and some of the most popular ones are Litecoin (LTC), Bitcoin Cash (BTH), Zcash (ZEC), Dash and Qauntum (QTUM). The most widely traded coin derived from Ethereum(ETH) is EthereumClassic (ETC). Coins may eventually be moved onto their own blockchain to adjust performance and functionality. As coins become more stable through their growing blockchains, they are more likely to be added to a virtual currency marketplace.
Another crucial element of blockchain is decentralization. In most cases the nodes are globally distributed. This means that it is extremely difficult to stop or erase a transaction, a block or the chain because it’s very unlikely if not impossible that the entire network would be affected by any single event. Decentralization also prevents any one node or group from taking control of the blockchain and so it essentially runs by consensus of the network.
Blockchain technology is, above all, an unbreakable record keeping platform. It can be used for many services; smart contracts and DApps being two of the most important after the support of virtual currencies. And like so many other aspects of the cryptocurrency revolution, there is massive potential for the future uses of blockchain.
