A Beginner’s Guide to What is Blockchain Technology
The term ‘blockchain technology’ is often heard in reference to Bitcoin and other cryptocurrencies. This technology is an important element of cryptocurrencies and without it, Bitcoin and such other digital currencies would not exist.
If you are new to blockchain technology and cryptocurrencies, read on to get acquainted with the basics.
History of Blockchain
Before being used in cryptocurrency, blockchain had humble beginnings. It was a concept in computer science and particularly in the domains of data structures and cryptography.
The hash tree or Merkle tree was the primitive form of blockchain and this data structure was patented in 1979 by Ralph Merkle. It functioned by handling and verifying data between computer systems. Validating data was crucial in a peer-to-peer network of computers to ensure that nothing was changed or altered during transfer. It also made sure that false data was not sent. To put it simply, it is used to prove and maintain the integrity of shared data.
The Merkle tree was made use of to develop a secured chain of blocks in 1991. This was a series of data records wherein each connected to the one before it. In this chain, the newest record would contain the history of the entire chain. This gave birth to the blockchain.
The distributed blockchain was conceptualized by Satoshi Nakamoto in 2008. It would contain a highly secured history of data exchanges, make use of a peer-to-peer network to verify and stamp each exchange, and could be handled autonomously without any central authority. This became Bitcoin’s backbone and created the blockchain that everyone is aware of today, along with the world of cryptocurrencies.
Key Features of Blockchain
- Records all data exchanges: Blockchain maintains a record of all data exchanges and this record is known as a ledger, data exchange is known as transaction and every verified transaction added to the ledger is known as a block.
- Uses a distributed system to verify transactions: A peer-to-peer network of nodes is utilized to verify every single transaction.
- Transactions added to the blockchain cannot be altered: Once the transactions are verified and signed, they are added to the blockchain. Once added, it cannot be changed or altered.
How Does the Blockchain Technology Work?
The blockchain technology works with a set of cryptographic keys, which provide users with a unique identity. Your keys will be the Public Key and Private Key, and they combine together to provide you with a digital signature. Whilst others are able to identify you with your public key, your private keys provide you the power to digitally authorize and sign different actions on behalf of your digital identity when used together with your public key.
The public key represents your wallet address in the world of cryptocurrency. With the help of your private key, you can authorize withdrawals, transfers and other such actions with your digital property. You must always keep your private key safe as this offers direct access to your digital assets.
When you make any transaction, the transaction will include your public key address and signed by your digital signature that uses both your public and private key. The transaction will be broadcasted to a peer-to-peer network of nodes and added to the ledger.
Since your public key is a randomized sequence of letters and numbers, it guarantees complete anonymity. A public key does not reveal the real identity of the person behind it. Also, you are free to generate as many pairs of the key as you want and can also have more than one cryptocurrency wallets.
Advantages of the Blockchain Technology
- Direct transactions eliminate the intermediary and overhead costs
- Enhanced time effectiveness due to real-time transactions
- Reduced risks related to fraud, cybercrime and tampering
- Highly secure due to decentralized and cryptographic blockchain protocols
- Transparent processes with proper record creation and tracking facilities
Today, the blockchain technology is being used in various industries including healthcare, travel and hospitality, government, financial services, retail and CPG, and so on.
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