In this text, we deal with the question of what is Blockchain technology and on what principle does it work? Blockchain and cryptocurrencies are closely related, and since bitcoin is the most famous cryptocurrency and you have probably heard of it, we will explain how Bitcoin blockchain works.
Blockchain is a database of all transactions recorded in the bitcoin system. This database is not located in one place but consists of smaller databases (blocks) that are digitally interconnected, and which contain information on digital transactions of any kind.
So, literally translated: blockchain is a chain of blocks – in bitcoin, transactions are packed into blocks, and blocks are tied into a chain.
Is there an intermediary in blockchain technology?
There are, but they differ from intermediaries in the bank, post office, and other institutions. Imagine sending money to a friend through a bank, the money is deducted from your account and then transferred to his. You have confidence in the bank employee that the transaction will be performed, and the bank charges for its service and affects the prices.
With bitcoin, things work a little differently and intermediaries cannot influence the transaction, that problem is solved by a mathematical algorithm.
Network members who keep records of transactions in the block verify and lock it. For this work, the network rewards them with bitcoin and we call this process mining (cryptocurrency mining).
What makes Blockchain technology special?
Because it is not possible to change the data entered in the blockchain, because it is impossible to change the content of one block without changing the content of all the blocks that follow it.
When someone sends bitcoin from one address to another, the transaction is time-stamped and recorded with each participant in the system.
No one can cheat the system and send something they don’t own because:
- would not be synchronized with other system participants and transaction records;
- the rules are defined at the beginning and are implemented through program code.
Cryptography, more precisely the HASH function, is used to bind blocks. All Bitcoin users are connected to a peer-to-peer network and each user represents one node (node) of that network.
Since the peer-to-peer network is such that each user can be directly connected to only a few other users, this means that it is connected to everyone else indirectly and that there is no central server, which means that bitcoin is decentralized.
Is the Blockchain data public?
Yes, and everyone can see the contents of the blockchain and all transactions ever recorded, with people hiding behind the numbers so that the transaction looks like this:
User 686247761484 sends $300 dollars to the user 42267915241
User 250370301623 sends $150 to the user 25442798391
Each bitcoin user has a private key, a public key, and a bitcoin address. The private key is used to sign transactions from the bitcoin address associated with that key. Imagine that the bitcoin address is your bank account number, and the private key is your pin with which you verify payments from that account.
Keep the private key like eyes in your head, because unlike the pin that the bank will give you again, the private key is impossible to recover if it is lost.
What would the introduction of Blockchain change in society?
Blockchain is a great solution if there is a need for the database to be decentralized and to achieve greater security and data security.
Bank accounts, classified government information, and other centralized data can easily be hacked. However, if you try Blockchain in a similar way, you would have to hack the entire chain of blocks, which is almost impossible.
The introduction of blockchain technology would reduce corruption, the number of employed intermediaries in institutions, data theft… It seems that many of today’s problems would be solved, it remains to be seen whether the idea will come to life.
We hope that we have brought Blockchain technology closer to you as much as possible and the way it works, although the topic is really extensive and it is impossible to cover it with a single text. If you have any experience or opinion on this topic, share it on social media with this post.