Blockchain Technology Explained

Blockchain tech plays an important role in cryptocurrency mining

blockchain
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Blockchain technology allows for fast, secure, and transparent peer-to-peer transfer of digital goods that include money and intellectual property. In cryptocoin mining and investing, it's an important topic to understand. 

A Brief Primer on Blockchain Technology

One of the most talked about and misunderstood topics in recent times, blockchain technology is completely 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 they are 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 their authenticity and prevent fraud. The underlying technology that facilitates these transactions and eliminates the need for an intermediary is the blockchain.

Important: One of blockchain's main benefits lies in its transparency, as the ledger functions as a living, breathing chronicle of all peer-to-peer transactions that occur.

Each time a transaction takes place, such as when one party sends bitcoin directly 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 other similar types of transactions that have occurred recently. In the case of bitcoin transactions, the recent transactions are for the previous 10 minutes or so. Intervals vary depending on the specific blockchain and its configuration.

Important: The validity of the transactions within the cryptographically protected block is then checked and confirmed by the collective computing power of miners within the network in question.

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's data through a hashing algorithm until a solution is found. When the problems are solved, the block and all of its respective transactions are verified as legitimate. Rewards — bitcoin or some other currency — are then divvied up among the computer or computers that contributed to the successful hash.

Tip: 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's contents and providing a public record that can be trusted. In addition to being constantly updated, the chain and all of 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 a number of 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 for a moment that there was no blockchain in place and that you had one bitcoin token in your possession with its own unique identifier assigned to it.

Now, say you wanted to buy a new television from a business that accepts cryptocurrency, and that shiny new TV happens to cost one bitcoin. Unfortunately, you also need to pay back your friend for the bitcoin which you borrowed from him last month.

In theory, without the blockchain in place, what's to stop you from transferring 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 really caught on until now. With blockchain, which not only distributes a public record of all transactions but confirms a block before each of its individual transactions can be finalized, the possibility of this fraudulent activity is essentially wiped out.

In the past, intermediaries such as banks and payment processors validated these transactions to make sure that everything was on the up and up. Blockchain technology lets a user to 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 ability for anyone to view a public blockchain such as the one associated with virtual currencies is a key factor in why the technology works as well as it does. The easiest way to peruse this distributed database is through a block explorer, typically hosted on a free-to-use website such as Blockchain.info

Most blockchain explorers are heavily indexed and easily searchable, allowing you to locate transactions in a number of 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 like bitcoin. In the long run, these digital cash transactions may end up being a small part of blockchain technology's overall footprint on the world as a whole 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 a number of important tasks such as:

  • Executing contracts
  • Safely buying and selling intellectual property
  • Distributing important medical information
  • Ensuring that voting in elections is incorruptible

World society has just begun to scratch the surface of blockchain applications. New potential uses for blockchain are being discovered on a regular basis.

Private blockchains will allow companies to revolutionize their own internal processes, while public, open-source variations will continue to change the way people handle business in their daily lives.