Blockchain Technology Explained

Blockchain tech plays an important role in cryptocurrency mining

Artists rendering of a Bitcoin

Caiaimage / Adam Gault / Getty Images

Blockchain technology provides fast, secure, and transparent peer-to-peer transfer of digital goods that include money and intellectual property. In crypto coin mining and investing, blockchain technology is an important topic to understand. 

Brief Primer on Blockchain Technology

Blockchain technology, one of the most discussed and misunderstood topics in recent times, is overhauling the way digital transactions are conducted and could eventually change the way several industries conduct their daily business.

Two words that have rapidly become part of the mainstream vernacular are bitcoin and blockchain. While related, these terms refer to two different things.

Bitcoin is a form of virtual currency, more commonly known as cryptocurrency, which is decentralized and allows users to exchange money without the need for a third party. All bitcoin transactions are logged and made available in a public ledger to ensure authenticity and prevent fraud. The underlying technology that facilitates these transactions and eliminates the need for an intermediary is the blockchain.

One benefit of blockchain is transparency. The ledger is a chronicle of all peer-to-peer transactions that occur.

Each time a transaction takes place, such as when one party sends bitcoin to another, the details of that deal, including its source, destination, and timestamp, are added to a block.

The block contains the transaction along with similar types of transactions that occurred recently. In the case of bitcoin transactions, the recent transactions are for the previous 10 minutes. Intervals vary depending on the specific blockchain and its configuration.

The Role of Miners

The validity of transactions in the cryptographically protected block is checked and confirmed by the collective computing power of the miners in the network. On an individual basis, miners are computers that are configured to use their GPU or CPU cycles to solve complex mathematical problems, passing the block data through a hashing algorithm until a solution is found.

When the problems are solved, the block and its respective transactions are verified as legitimate. Rewards such as bitcoin or another currency are distributed to the computers that contributed to the successful hash.

When the transactions within a block are deemed valid, they are attached to the most recently verified block in the chain, creating a sequential ledger which is viewable by anyone.

This process continues in perpetuity, expanding on the blockchain contents and providing a public record that can be trusted. In addition to being updated continuously, the chain and its blocks are distributed across the network to a large number of machines. This ensures that the latest version of this decentralized ledger exists virtually everywhere, making it almost impossible to forge.

Why Blockchain Is Needed

Peer-to-peer connectivity over the internet has existed for some time in several formats, allowing for the distribution of digital assets directly from one person or business to another. Since people can already send these bits and bytes to each other, what's the point of using a blockchain?

The behavior of the bitcoin blockchain is the perfect example to answer this question. Pretend that you have one bitcoin token with a unique identifier assigned to it. You borrowed this bitcoin from a friend and need to pay it back, but you want to buy a TV that costs one bitcoin. Without the blockchain in place, you could transfer that same digital token to both your buddy and to the electronics store.

This dishonest practice is called double-spending, and it's one of the main reasons why peer-to-peer digital transactions have never caught on until now. Blockchain distributes a public record of all transactions and confirms a block before each of its individual transactions can be finalized. This validation process eliminates the possibility of this fraudulent activity.

In the past, intermediaries such as banks and payment processors validated these transactions to make sure that everything was accurate. Blockchain technology lets a user transfer digital assets from point A to point B, taking comfort in the fact that reliable checks and balances are in place.

Exploring the Blockchain

The opportunity for anyone to view a public blockchain such as the one associated with virtual currencies is a critical factor in why the technology works as well as it does. To view this distributed database, use a block explorer, typically hosted on free-to-use websites such as Blockchain.com.

Most blockchain explorers are indexed and searchable, allowing you to locate transactions in different ways including by IP address, block hash, or other relevant data points.

Future Uses of Blockchain

Blockchain has come to the forefront of many discussions because of its role in the distribution of cryptocurrencies such as bitcoin. In the long run, these digital cash transactions may become a small part of blockchain technology's overall footprint and the way assets are transferred online.

The possibilities for blockchain implementation seem endless, as its underlying technology can be leveraged in many fields to perform these important tasks and more:

  • Execute contracts.
  • Buy and sell intellectual property.
  • Distribute medical information.
  • Ensure that voting in elections is incorruptible.

Private blockchains allow companies to revolutionize internal processes. Public, open-source variations change the way people handle business in their daily lives. World society has just begun to scratch the surface of blockchain applications. New uses for blockchain are discovered regularly.