If technology is a part of your life, doesn’t matter how big or small, you must have heard the buzzwords such as Bitcoin, Blockchain or Cryptocurrencies. While all of this may seem to be relatively new, the reality is, its roots date back to as early as the 1980s. In this article, I am going to explain exactly what is Blockchain and what do we mean by Cryptocurrencies and the relation between these two. I am not going to go into too much technical details and only focus on the overview here.
Blockchain vs Bitcoin
Let me first clear up the most widely present confusion, that is Bitcoin and Blockchain are the same thing. As soon as you hear the word Bitcoin, you immediately think of Blockchain and vice versa. While this may be reasonable, you should not confuse the two since Bitcoin is only an implementation of the Blockchain technology.
With the invention of Bitcoin in 2008, the world was introduced to the Blockchain technology. Bitcoin is the first practical implementation of Blockchain among the many that are going to revolutionise various sectors such as Financial, Government, Media, Law, IT etc. Bitcoin is being used a currency in many parts of the world by Blockchain enthusiasts to carry out their day to day transactions.
Bitcoin, in its truest form, is a cryptographically secured virtual currency that uses the Blockchain technology to create and confirm transactions. Any transaction carried out on Bitcoin is between two parties and a need of a mediator, such as Bank, is eliminated, thus reducing the mediator or transaction fees.
What is Blockchain?
Let’s dive deeper into this technology that is at the heart of research carried out by most of the big names in the IT industry. This is where it’s going to get a little bit technical, so hold on to your horses.
Blockchain consists of two parts, Blocks and Chain. Block is nothing but a collection of the transactions carried out on the network. This network consists of various nodes, that act together to verify the authenticity of the block and once verified, append it at the end of the latest verified block, hence forming a chain of blocks. This chain of blocks, came to be known as Blockchain. Now, I am not going to go into how the block is formed and how the transactions are verified, because that is rather complex for the scope of this article.
So, till now, we learned that Blockchain is nothing but a chain of blocks that are linked together. These blocks are verified by the nodes on the network and once a majority of the nodes (51% of the nodes) verify the block, it is added to the chain. This concept removes the need of a third part mediator to verify the transactions since the nodes themselves act as validators. Let’s look into some of the major advantages of Blockchain technology:
- De-centralisation: One of the biggest advantage of Blockchain, is that it removes the control from a central authority. Since all the nodes participate in the verification of the data posted to Blockchain, no single party has unnecessary control in the network. Think of an example of a Bank, when you transfer X amount of money from one person to another, the bank is the sole central authority to oversee that transaction, but in Blockchain network, that transaction will be verified by the network of nodes and not just a single node, so in a way, it removes the need of the central authority, such as a Bank.
- Security: The transactions on the Blockchain are secured cryptographically by using a pair of public and private keys. The private key is known only to the owner of that key and the transaction signed with a user’s private key can only be decrypted by that user’s public key and vice versa. If any point, a transaction is tampered with, the signature will change and hence the transaction will be rendered invalid and subsequently rejected by the network.
- Immutability: As we saw earlier that a blockchain is a chain of blocks linked to each other. It provides practical immutability in a way, that if a malicious user wants to change one block of the chain, it’ll have to change all blocks linked to it to go unnoticed. Since, it is a long chain of blocks, so each block is eventually linked to each other block and hence changing even one block within the Blockchain would require the hacker to change each and every block within the Blockchain, which is practically impossible to do so.
- Transparency: Another great advantage of Blockchain is transparency, which is built into the core as all the data resides on multiple nodes in the network and is available to the public in a fully public Blockchain. Anyone can simply go to the Blockchain and read the data within any block without needing to go through a central authority (in a public blockchain).
What are cryptocurrencies?
Cryptocurrencies, as the name suggests, are cryptographically secured currencies. These are digital assets that operate upon the blockchain and are exchanged between two parties via the use of public-private key pairs.
Bitcoin, Ether and Ripple are all different types on cryptocurrencies that make use of different Blockchains. A cryptocurrency requires the use of a wallet to store them, just like any other currency can be kept in a wallet.
A wallet is a software that has a pair of public and private keys, and are used to store cryptocurrencies. Let’s say we have a wallet to store our Bitcoins (BTCs), which means that the public key of that wallet will store our BTC cryptocurrency. Now whenever we want to transfer those BTCs to someone else, we will need to sign the transaction using the private key of the wallet whose public key stores those BTCs. Hence the public and private keys work in a pair to transfer cryptocurrencies over the Internet.
This is how the cryptography plays a crucial role in the transfer of cryptocurrencies over the Internet. If, by any change, you lose the private key of your wallet, you will not be able to recover the BTCs stored in that wallet, reason being, the private key needs to be present to transact with those BTCs. Therefore, it is extremely important that you never lose your private key and never ever share it with anyone else but you.
As we discussed above, Blockchain is a relatively new technology that came into the limelight with the launch of Bitcoin, but it has already proved its applications in almost all of the major industries in the world. Cryptocurrencies are only a small part of the application of Blockchain and the future holds a lot of potential.
I’ll be writing more on this technology over the next few months, so keep following and supporting.