Blockchain and Cryptocurrency in Summary
In our previous posts, we’ve often mentioned the term “blockchain” a lot and associated it with cryptocurrency transactions. From those articles, we’ve explained briefly blockchain as a recordkeeping technology that uses a network of computers to store and record of cryptocurrency transactions.
But what is blockchain? What is its connection with cryptocurrency transactions? In this article, the Swipe team aims to explain the basics of blockchain and its link with cryptocurrency. We hope that through this article, users who are just starting in cryptocurrency will have a better grasp of the system that helps crypto transactions secure and reliable.
Basics of Blockchain
To put it simply, blockchain processes cryptocurrency transactions. It is a decentralized public network that allows users to securely store and send information and currency (more on cryptocurrency at present).
The term blockchain is derived from the actual process of storing “blocks” of data and linking them together with the other created blocks, thus creating a “chain-like” flow of secured data. When a new block or transaction is created, it is automatically linked or “chained” with the previous transactions making it more secured.
How? Blockchain is a public network. Instead of having a central server to oversee all the transactions, it runs in multiple computers or servers spread out all over the world. As each transaction is completed, all the servers receive and store a copy of that data.
Why is it more secure? Blockchain addresses the issues in a centralized system. In a centralized system, only one authority can validate, store, and back up the transactions. This system is prone to possible errors and attacks because only one authority has access to all the databases. Imagine, a cyber attacker need only to compromise the main server to alter and change data. Whereas in blockchain, the data is distributed in networks of computers around the world, making it hard and impossible to tamper. Transactions will not push through if it doesn’t match with the existing records in the blockchain, which is why it is close to impossible for it to be compromised as it would require hackers to change that data stored in all the servers around the world.
How is it possible? Without a central control network, the blockchain network is open to any company and person. Though it is open to anyone, their identity is anonymous. This might sound an untrustworthy system when first heard, but to make it clear, though anyone can join the network, there are several complicated blockchain tests for those who want to enter the chain.
What tests? There are a series of tests to prove before people can officially enter the network. One of the common examples of a test is the “proof of work” system. In this system, computers must prove that they have done work by solving very complex and increasingly difficult math problems. This process is called “mining” in cryptocurrency, and to solve math problems, computers need to run numerous programs that cost a huge amount of energy consumption. Once they “prove” themselves, computers can now start adding blocks to the chain (verifying transactions or storing data) in exchange for some rewards such as tokens or Bitcoins.
Blockchain and Cryptocurrency Relationship
The technology behind Blockchain was developed to process Bitcoin transactions. Initially, the idea of this technology was introduced in 1991 by Stuart Haber and W. Scoot Stornetta. The two explained the possibility of implementing a time-stamping system for digital documents without it being tampered. However, it was only with the launch of Bitcoin that this technology was fully realized and implemented.
Bitcoin’s purpose is to have a decentralized financial system where people don’t need any central authority to verify their monetary transactions for them. Through blockchain, the flow and the transactions will be safe, transparent, and secured.
The success of Bitcoin brought light to the rise of other cryptocurrencies running in blockchain technology. In the case of Swipe, its Swipe Network protocol enables on-chain use of Swipe products directly with the Ethereum blockchain while connecting these processes to an off-chain dual processing system. The Swipe Network operates through smart-contract interactions on-chain given the security of Ethereum network while running an off-chain layer 2 network for speed, efficiency, and cost.
Blockchain and Cryptocurrency showed significant growth over the past years. Aside from cryptocurrencies, other industries find the concept of blockchain effective in storing data and making business transactions. As more companies and industries start to adapt these, commercialization of blockchain and cryptocurrency, which is difficult to imagine before, might be possible in the near future.
