What is a Blockchain? How Does Blockchain Technology Work? (Bitcoin & Blockchain Explained)
Blockchain is a revolutionary computer science breakthrough that allows people from all over the world to keep track of how much money is in the Bitcoin network.
Bitcoin is not the only blockchain, but it is the first of its kind. It's the largest, the most trusted, and the longest running blockchain in existence.
It has withheld every malicious attack since it's creation (2009) and the network gets stronger and more valuable as more people use it.
Let's say you want to keep track of all the money on Earth. Imagine a spreadsheet with everyone's balances - whenever someone spends money the spreadsheet is updated.
The problem is whoever is updating the spreadsheet could lie or make a mistake.
The solution to this is to give everyone a password - a private key. The private key allows you and only you to access your money.
Since only you can access your money, you're cutting out the middleman (banks). Your money can never be taken from you. Your account can never be frozen. There are no restrictions.
With Bitcoin and the blockchain - you are your own bank. You are responsible for your money. If you lose your private key, you lose your money. Learn how to keep your cryptocurrency safe!
There is complicated cryptography and code going on in the background involving: digital signatures, timestamps, hashes, proof-of-work, nodes, incentive, and more..
To learn more about that, check out my:
A blockchain is a growing list of data (blocks) that cannot be changed thanks to cryptography. Currently 175GB - increases every new block.
As data comes in, let's say transactions, it fills out in a block. Imagine you're writing a story. As you fill the piece of paper with words you eventually run out of space. So you get another piece of paper.
This is what is happening but with digital blocks of storage.
As soon as you move on to a new block, the data in the previous block is locked in place forever. It can never be changed. It is immutable.
A system where data cannot be changed is a trusted system. What you see is what you get.
How Does A Blockchain Work?
Thousands of computers (also known as nodes / miners) are connected on a network.
Every time new data is created it is broadcast to all the computers on the network. This data fills out in blocks.
When one of the computers on the network solves the computational puzzle (proof-of-work), it is broadcast to all the other computers. Each computer then verifies the data to make sure it matches their own.
When the data is accepted as truth, all of the computers then begin working on the computational puzzle of the next block.
A block does not have to be full of data before the next block is placed on top of it. But a block cannot exceed it's maximum storage.
How Does Blockchain Prevent Fraud / Double Spending? Incentive Explained
You would need more computational power than all of the other computers on the network combined to commit fraud thanks to proof-of-work (solving the computational puzzle).
Even if you did have more computational power than everyone else combined, you could only change the data that you're involved in. You wouldn't be able to steal money out of my wallet if we've never transacted with each other.
Imagine you have access to all that computational power. If you spent $200 online to unlock a video course, you could quickly download it all and then get your money back by changing the data.
You could use the same $200 for multiple transactions with people / services. This is the double spending problem.
However you would make more money playing by the rules thanks to the reward given when you solve the proof-of-work.
If you have more computational power than everyone combined, you get rewarded more than everyone else since there is only a limited supply of Bitcoin (21 million).
If you do commit fraud, nobody will trust the system anymore and it will have no value since money isn't safe. You'll lose all the money you have in the system and now you have a bunch of computational power which is expensive.
The longest chain of blocks serves as proof of all of the previous transactions and is the most trusted because it came from the largest combined pool of computational power.
Bitcoin and blockchain technology allows people all over the world to transact with each other without relying on middle parties. A peer-to-peer electronic cash system that runs on trust.
The network hasn't even been live for ten years at this point. We're still in the baby stages of growth - look at how much the internet developed in twenty years. We're on that path.
This is life changing and world changing technology. Who knows what the future has in store for us. Any predictions?
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