IN A NUTSHELL: BLOCKCHAIN
Bitcoin gave birth to Monero, Ether, Dash and others
IN A NUTSHELL: BLOCKCHAIN
Blockchain … It’s the word we keep hearing over and over again. Be it the evening news, car radio broadcast, or an article in our day to day coffee smelled morning routine of random website surfing – chances are it’ll pop out somewhere. But what does it actually mean? What are the blocks, what is the chain? Let’s dive in and find out.
Well, at it’s very core blockchain is a record-keeping tool. Imagine a network of computers, linked together without a hierarchy. Every hash of information they exchange is registered as a block. In turn, each block records a number of transactions, just like a page in a record-keeping book. The amount of transactions on a block varies. Each block of the famous Bitcoin blockchain for instance holds up to 1 megabyte of information.
A recorded transaction looks like a hash of numbers and letters, generated to include information from the current and past transactions. It creates a chain effect, making information immutable – once it’s added it can not be changed. But before it’s addition onto the blockchain, all transactions need to be verified through a consensus mechanism, which allows all the nodes on the network to agree on things without an authority.
So, what makes blockchain so unique and useful, you may ask? Well, blockchains are secure – it’s hard to demolish them. Suppose someone hacked into one of the computers on the network and altered information there. The hacker’s time would be wasted in vain because the network remains unaffected thanks to it’s distributed nature. Another major plus is found in transparency - any participant can view all transactions on the network in real-time.
Because the way blockchains are managed, they are fully decentralized, which is another plus. And finally, blockchain’s permanent record keeping excludes the possibility of data being altered of removed, which makes it stable and reliable.
That’s fine, you may say, but what’s it got to do with Bitcoin? See, prior 2009 the only way people could exchange money digitally was through a bank, exchange or online service. These are all third parties that control our information, money and transaction records. And that’s no good. Then a man named Satoshi Nakamoto introduced the world to Bitcoin with a goal to create a peer-to-peer payment network that would remove the need for a third party to verify these transactions. He came up with a system of blocks connected in a chain that was chronological and permanent.
Being the first cryptocurrency, Bitcoin gave birth to Monero, Ether, Dash and others in attempts to solve the initial problems of anonymity, further decentralization and overall quickness of digital currency exchange. But that’s whole different story. And blockchain, although not a solution to everything, still remains an important mechanism, applicable not only to financial transactions.