What is blockchain technology and how does it work?

Crypto guide for beginners - Part 2 - What is blockchain technology and how does it work_ - blog-min

This is the first article within Crypto guide for beginners. Read the first article.

The two terms: blockchain and cryptocurrency are often used as synonyms, though they are not. The phrase ‘Bitcoin Blockchain’ means that Bitcoin blockchain is the platform enabling the launch of Bitcoin cryptocurrency. However, blockchain technology is very complicated, embracing not only the function of the underlying platform for cryptocurrencies but also has a wide range of other applications.

Blockchain network characteristics

1. Transparent

Originally, blockchain networks are public ledgers, meaning that all transactions are visible to anyone and accessible to anyone. Of course, nowadays there are private ledgers, but the amount of such networks in the global web3 ecosystem is very insignificant.

2. Permanent

One of the properties of the Bitcoin blockchain is that starting from its creation in 2009 until nowadays it records and stores all transactions with digital assets. Digital assets are not only cryptocurrencies, these could be tokens that can hold data about real objects and services: property, goods, patents, smart contracts, etc.

3. Immutable

Blockchain is an append-only ledger. Data about transactions enters it, and stays there permanently, with no option to be changed or corrected. Strong cryptographic protection prevents bad actors in web3 from meddling with blockchain transaction history. 

Why is a blockchain called so?

The meaning of blockchain is quite clear if we cut the word into two parts: blocks that are chained. Taking the example of the Bitcoin blockchain, it’s true that all transactions to be put into the blockchain are organized in blocks. Each block records recent transactions before they get validated by the network. Once the data about the transactions are validated, the block is closed and permanently joins the blockchain. The Bitcoin blockchain adds six blocks each hour, which means that if someone wants to send a transaction to the Bitcoin blockchain, they will wait roughly 10 minutes for their transaction confirmation.

Is blockchain technology secure?

Blockchains are decentralized which means that they simultaneously run on a network of computers (nodes) scattered around the globe. There is no central node to control the transaction verification and block confirmation, nodes communicate with each other enabling peer-to-peer confirmation scenarios (consensus). The fact that blockchain is decentralized makes it safer compared to legacy record-keeping systems because blockchain doesn’t have a single point of failure. The fact that it is self-governing makes any duplication or fraud very difficult to achieve. 

Coming to life as an alternative financial system, the Bitcoin blockchain brought to life thousands of other blockchains with over 20,000 cryptocurrencies. Blockchain technology has outgrown the financial sphere and is actively exploring other industries as well.

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