Bitcoin Series #4: Everything You Wanted to Know About Blockchain
I’m going to make Bitcoin and blockchain extremely easy to understand!
Cryptos, like finance and investing have their own set of technical jargon. The most fundamental and important of which is the blockchain. Blockchain is the foundational idea on which Bitcoin and other altcoins have been developed.
That’s cool. But what is this blockchain thing?
The blockchain is a digital ledger which is stored on a decentralized database. This network is made up by a chain of computers that will need to approve all exchanges before they are verified and recorded on the ledger.
You can think of blockchain as Wikipedia. Wikipedia does not have a single author writing all the content. It instead relies on people like you and me to add articles and make changes to existing articles. The records of all the changes are stored and we can go through the new version, as well as the old version on an article.
How does it work?
Bitcoin, and other cryptos, stores details of every single transaction which takes place. The technology is also able to prevent the same Bitcoin from being spent multiple times.
For example, if person A wants to send money to person B, the transaction will be represented online as a block. This block is then broadcast to every party in the network, and those within the network will be able to approve a valid transaction. The block is then added to the change which provides an indelible and transparent record of transactions.
Blockchain technology can be used, not only for Bitcoin and cryptos but, for every transaction which involves transferring of value from money to goods and services.
What are blocks?
Blocks are nothing but data files which make up the blockchain. And a number of these blocks together form the blockchain.
Blocks are the records of all the recent Bitcoin transaction that are waiting to be entered into prior blocks. Once a block is completed, it will give way to the next block to be implemented into the blockchain. And so the number of blocks keep increasing.
If we think of the blockchain and blocks in terms of normal banking transactions, we would say that the blockchain is the entire record of all bank transactions, whereas single blocks would represent one of the transactions which must be confirmed by the bank. A block, in this case, would be similar to a transaction at the ATM.
Ok. But what’s so great about blockchain?
Unlike traditional currencies, the decentralised nature of blockchain provides a number of advantages:
Security and transparency
It is almost impossible to commit fraud since the ledger is open for anyone who is able to access the Internet to be able to view the entries.
For example, if an attack was to take place that attempted to change the Bitcoin protocol, the majority of the network would need to confirm the transaction or alteration to the blockchain and only then would the alteration be accepted.
Removes the need for middlemen
Bitcoin allows consumers and suppliers to connect directly without requiring a third party, like banks, to facilitate the transaction. This in turn also lowers the transaction costs.
Increases transaction time for exchanges
Regular transactions via banking can potentially take days for the final settlement while Bitcoin allows transactions to take just mere minutes and can be processed 24/7 (no banking holidays).
The potential for using blockchain is virtually limitless and can solve many of the challenges that we face with fiat currency such as collecting tax revenue and sending money to countries where banking might be difficult.
Blockchain truly is the future!
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