Blockchain explained

Empowering Young Entrepreneurs in Ghana through Bitcoin

Blockchain explained

Blockchain explained

What is Blockchain

So far, most people have heard of bitcoin. Bitcoins are one of (now a thousand) cryptocurrencies available in the market. The original cryptocurrency became a large asset, and the total value of Bitcoin reached $ 326.5 billion in December 2017 before falling slightly to $ 237.6 billion in early 2020. What you might not realize is that bitcoins only exist because of a digital public ledger system called Blockchain.

Blockchain first appeared on the scene in November 2008. Then someone (or a group of people) passing under the pseudonym Satoshi Nakamoto released a white paper called Peer-to-peer electronic money system. The system described by Nakamoto was revolutionary. This has created a way for digital currency to exist, be shared, bought and sold, and used to buy and sell. All this without the need for intermediary financial institutions.

Perhaps most importantly, thanks to Blockchain’s peer-to-peer structure, the cryptocurrency that stood on the public ledger would exist in a state that defies corruption. The incompatible backbone of Blockchain has since been observed to have many more benefits than just holding together cryptocurrencies.

Today it is used more and more for Blockchain, which leads many to wonder what is Blockchain and how does it work?

Understanding Blockchain: The Basics

Blockchain is a public ledger system that keeps records of all Bitcoin transactions ever made. The public book system never sleeps. It is constantly updated and shared between hundreds of thousands of computers connected via the web. These computers are called nodes. Since so many of them are updated at the same time, it is technically impossible to hack the entire system.

The data that makes up a blockchain is called a “chain”. It is the sum of all transactions ever made, from the beginning of time to the last transaction. The chain itself is formed by a network that temporally marks the executed transactions. These timestamps are created by mixing (encrypting) transaction data into a “chain” of hash-based transaction evidence.

In Nakamoto’s original white paper on Blockchain, this data set is called “a system for electronic transactions without reliance on trust.”

With Blockchain technology, there is no single person, entity or institution that anyone has to rely on. The chain provides a flawless record of all transactions made. This is commonly referred to as “proof of work.” This proof of operation cannot be changed without return and re-repair. However, since this has already happened and has been thrown into the chain, the act cannot be repeated.

How Blockchain Currency avoids double consumption

The problem with digital data is that it is easily copied and reproduced. Therefore, owning a digital currency has long been considered impossible. How can digital coins be unique so they can only be consumed once? Nakamoto Blockchain was the solution to this puzzle.

By decentralizing the transaction book, the entire network of nodes connected to the Blockchain is able to be constantly aware of the location of each Bitcoin in the system. This solves the problem of double consumption, allowing cryptocurrencies to flourish.

blockchain explained

How does Blockchain work in practice?

  1. First, someone is looking to execute a transaction using Blockchain. At this point, the request is sent over the Internet to all nodes currently connected to the Blockchain. The nodes (participating computers) receive the request and the transaction process begins.
  2. The network then checks the user status within the Blockchain and the transaction request at the same time. This is done using recognized algorithms. With the person requesting the transaction verified and all nodes agreeing on the request, the transaction can move forward.
  3. A verified transaction may involve moving cryptocurrencies from one place to another to buy or store something else. But Blockchain technology can also be applied to verify any other data that needs to be secure. This includes data records, contracts, and other data or information that needs to be shared reliably.
  4. If the transaction is notarized, it can be moved to the final stage of the process. This is accomplished by adding data from that particular transaction to data from other transactions in what is called a block. The blocks are 1 Mb in size and are created approximately once every ten minutes. They maintain all the latest transactions in the blockchain.
  5. Now that the data has been added to the block – and the block is complete with 1 Mb of data transactions – the block is added to the blockchain. Thus the original transaction is completed (as are all other recent transactions that make up that block).

Blockchain security: the sum of all transactions

It is that complete chain of blocks that makes up the incorruptible public ledger of transactions known as the Blockchain. The longest chain of the network serves as proof of the entire history of transactions. It shares with nodes as they join the network.

The beauty is that there is no centralized database of transactions that a cyber criminal could hack. Instead, Blockchain exists as a public database. It is continuously shared and coordinated between all nodes connected to the network. As the network consists of millions of host computers, Blockchain is immensely secure.

This makes the data contained in Blockchain easily verifiable. In the case of Bitcoin, this already gives the final currency a huge benefit (and therefore innate value) making it invulnerable to corruption in the hands of financial institutions or other external forces.

As time goes on, the chain of 1 Mb blocks gets bigger and bigger. For people who haven’t updated their version of (Bitcoin) Blockchain – or are downloading it for the first time in a new Bitcoin Blockchain wallet – their acquisition can take quite a while (anything from a few hours to a week).

As the Blockchain gets bigger and bigger, this time it will inevitably increase. For this reason, “hard jaw” scenarios are sometimes spoken of. This would see all Bitcoin Blockchain users forced to move (hard fork) to a new version of Blockchain.

Bitchoin & Blockchain explained: discussion of the solid state

The debate over the Bitcoin hard fork has been raging for some time. Many Bitcoin experts believe that 1 Mb blocks will become too restrictive. The concern is that as the chain of blocks gets longer, the complex cryptographic process required to verify the chains will become easy and slow.

Everyone understands the frustration of falling behind (or charging) because of watching video streaming. Now imagine that effect affecting the global currency. Financial experts understand that any backlog in Blockchain – which affects bitcoin liquidity – could negatively affect the value of Bitcoin. This, of course, worries investors immensely.

There is a general opinion that a strong jaw is needed to combat the problem of slowness. However, no one knows how a hard fork can affect the price of Bitcoin. A blockchain is the backbone that holds a popular cryptocurrency together. The trust that surrounds Bitcoin is primarily based on behind-the-scenes technology. As such, investing in Bitcoin is actually investing in Blockchain.

For this reason, there is great concern among investors that the new Blockchain may not fail. This could cause Bitcoin to suffer a catastrophic loss of value.

Which hard jaw is best?

One might imagine that the possibility of a Blockchain becoming backward is more problematic than a hard jaw, especially when the Blockchain of a rival cryptocurrency (Ethereum) has already proven that a hard jaw can be successfully managed (actually twice: once by accident).

Another problem with Bitcoin Blockchain, however, is that no one can agree on what form of hard fork to take. There are two competing options: Bitcoin Unlimited (BU) and Segregated Witnesses (SegWit). BU would hand over more energy to Bitcoin miners. It would allow Blockchain to overdo it over and over again whenever needed. SegWit retains a decentralized approach, but only doubles the bandwidth of the Blockchain. This means that one day it will probably be necessary to apply another solid jaw.

For now, no one is sure what will happen. When a hard fork happens, Bitcoin will basically become a different currency on the new Blockchain (with the original Bitcoin on the original Blockchain). If everyone is moving well into the new jaw, then everything should be fine. However, if not everyone accepts the new Blockchain (and in the case of Ether hard jaws not everyone has done so), it is possible that the rebellion could negatively affect the price of cryptocurrency.

Blockchain technology: what else can it be used for?

A traditional database contains one central copy of the data, which can be updated by only one actor at a time. Blockchain, on the other hand, allows a set of data to change multiple pages simultaneously. When, for example, a bank transfers money, it must first block access to the funds while making the transfer. It must then update the other side and then reopen access to the funds.

Blockchain banking enables faster and more efficient money transfer. Thus, financial institutions such as Barclays, BNP Paribas, Nasdaq, and even the Federal Reserve invest time and money in projects that explore the use of Blockchain technology for their own purposes.

Blockchain technology offers value not only for financial transactions. A company called Gyft uses blockchain technology to offer gift cards to small and medium-sized businesses. For many companies, the cost of providing gift cards is too high to implement. With Gyft, however, any company can easily import gift cards that can be redeemed at any store.

Factom is another of these innovations. It is an extension of the initial Blockchain protocol that allows the blockchain to be used to process larger data sets. Factom allows users to run their own personal safe books. These users can define what information is stored in the book. This allows the Factom blockchain to handle data handling in other business areas, such as the law.

Blockchain banking: just the beginning

The value of Blockchain technology is already evident all around us. This can be seen not only in the price of bitcoin, but also in other cryptocurrencies that are displayed in similar public books. The most exciting of these right now are Ethereum, Litecoin and ZCash. All of these cryptocurrencies have seen an explosion of their value over the last year and things seem to be moving in the same direction.

Moreover, this is a relatively new technology. This means that its true value is still being revealed. There may be further progress in the way it is implemented as time goes on.

For now, Bitcoin is ahead of the pack, but it would only take a few advances in blockchain technology to enter the second coin (with a perceived higher value due to the improved blockchain) entering the market. With that in mind, anyone interested in investing in cryptocurrencies should really be looking at new blockchains for innovation if they want to spot tomorrow’s big winner.

In addition, there are people around the world who are working hard to find new ways to incorporate blockchain technology into other companies. In my opinion, since blockchain tech is so affordable, some of these apps are set up for success and are likely to become extremely successful companies of the future.

Cryptocurrencies and VPN services

Finally, anyone interested in Blockchain and cryptocurrencies is advised to engage in VPN services. VPNs allow people to protect their password and login with encryption, adding an extra layer of security to all their network transactions.

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