Blockchain is the technology that most cryptocurrencies are based on. Generally speaking, it is just a simple database of transactions that anyone can view and verify. It has got some peculiarities. One of them is that you can only add information to it, but not delete. This means that you wouldn’t be able to delete or change something, already added. Another special feature is that each new entry is digitally connected to the previous one. This connection is through the “fingerprint” in the last entry of the previous one (like in a chain), and all together they form a chain of blocks – that is a blockchain. If you try to change the block – the fingerprint in the next will be changed too, and so on as in domino-effect. That means that you can’t make any changes unnoticed – if you change something, everyone will see that. This is convenient and reliable when it comes to making payments or transferring confidential data. And if you go down through the blockchain – you will view through the history of transactions from the newest to the oldest.
How does the blockchain work and where is it used?
Blockchain isn’t centralized at all. That means that there is no person or organization capable of its operation, responsible for it, or monitoring its operation worldwide. Copies of blockchains are often stored on many different computers independently. The idea is that everyone can download blocks from different people and build the same copies of the blockchain on their computers. If you want to send a certain amount of money to someone, you create the instructions that are sent to everyone, but the money isn’t sent to the person at the same moment. If another person at the same time decides to send money to someone, they simply create and send instructions to the network, and at any time the participant can gather the instructions, waiting, to create the new block. The transaction takes place only when it is considered confirmed. None is in control of it and everybody can participate. Blockchain isn’t solely used for cryptocurrencies, it is a relatively new and rapidly developing technology, on top of which many different applications can be built. It is widely used in the healthcare and videogames industry, and various digital registers.
What makes blockchain safe for financial operations?
From the first glance it seems easy to cheat, but the system prevents you from using the money you don’t own. The word “cryptocurrency” itself consists of two words – cryptography and currency. Safety mechanisms work due to game theory, cryptography, and consensus algorithm. Game theory studies math models of interaction, and cryptography is the study of advanced math techniques to secure communication. Cryptography implies that there is the effort to prevent the members of communication from achieving their goals, and puts into practice techniques to make communication reliable. Consensus algorithm allows coordination between users. It is supposed to work in the distributed setting, which is opposed to centralized setup. That means it should be fault-tolerant, where all system’s agents agree on a source of truth even if some of them fail. As blockchain is completely decentralized (neither an individual nor an organization is in control of it), it is secured by a large network of users, using open-source software. The accuracy of blockchain is constantly checked and secured in this network. Thanks to this you, your friends and thousands of other users can work as personal banks. Your computer simply connects to the computers of other people. You also don’t have to register on websites with passwords and emails. You only have to download a special application on your smartphone. And safety protocols aren’t your problem too – the application will manage this itself – and you just can send and receive cryptocurrency in minutes.
Note: each blockchain is a community or an ecosystem, either public or private. Another issue about the usage of blockchain is the public accessibility of data and the personal privacy of the same data. Anyway, there are many advantages of using blockchain-based cryptocurrencies: they are global – easily accessible worldwide, easy to use, fast and not under control of any third party. Why not give it a try?