bitcoin

Considered an upcoming tech trend of the future, Blockchain is a term that most people have heard of yet the majority do not really know what it is. Here is a brief overview on what Blockchain exactly is and its function.

At the most basic level, you could say that the clue is in the words. Blockchain is digital information (Blocks) stored in a public database (Chain).

Blocks/The digital information is comprised of three parts: Information on transactions (date/time etc), who is participating in these transactions, and information that DISTINGUISHES one block from another.

Each block stores a unique code called a “hash” that allows us to tell it apart from every other block. Hashes are cryptographic codes created by special algorithms.

How Blockchain Works

A block stores new data which is added to the chain. Here are the four keys that the block must meet: A definitive transaction, verified transactions (relies on computers), the transaction must be stored in a block and the block must be given a hash.

Blockchain and Bitcoin

The concept of Bitcoin is interlinked with Blockchain. Satoshi Nakamoto’s definition – “a new electronic cash system that’s fully peer-to-peer, with no trusted third party.”

And it fulfils exactly that function. It is important to understand that printed money is verified by a central authority, usually a bank or government. Bitcoin is not controlled by anyone and transaction verification is fulfilled by a network of computers.

Mining: This process is completed through running a program on the computers and try to solve a complex mathematical problem, called a “hash”. When a computer solves the problem by “hashing” a block, its algorithmic work will have also verified the block’s transactions.

The completed transaction is publicly recorded and stored as a block on the blockchain and is unalterable. Transactions are PUBLICLY RECORDED on the blockchain however USER DATA is not (for obvious privacy reasons).

PUBLIC VS PRIVATE KEYS:

As a result, participants must run a program called a “wallet.” Each wallet consists of two unique and distinct cryptographic keys: a public key and a private key.

Bitcoin private key is a randomly generated string (numbers and letters), allowing bitcoins to be spent. Bitcoin public key is used to ensure you are the owner of an address that can receive funds. A bitcoin wallet address is a hashed version of your public key.

This is a very basic intro to Bitcoin, I’ll be discussing the relevant pros and cons in a later post!

Blockchain Pros and Cons

Vast Distribution: Blockchain data is often stored in thousands of devices on a distributed network of nodes. Each network node is able to replicate and store a copy of the database. There is no single point of failure.

Stability: Confirmed blocks are very unlikely to be reversed, meaning that once data has been registered into the blockchain, it is extremely difficult to remove or change it. This makes blockchain a great technology for storing financial records or any other data where an audit trail is required because every change is tracked and permanently recorded.

Zero trust system: A blockchain system negates the risk of trusting a single organization and also reduces the overall costs and transactions fees by cutting out intermediaries and third parties.

51% Attacks: If one entity manages to control more than 50% of the network hashing power, which would eventually allow them to disrupt the network by intentionally excluding or modifying the ordering of transactions. Though, important to remember that this has never happened.

Data modification: Once data has been added to the blockchain it is very difficult to modify it.

Private keys: Users need their private key to access their funds, meaning that they act as their own bank. If a user loses their private key, the money is effectively lost, and there is nothing they can do about it.

Storage: Blockchain ledgers can grow very large over time. The Bitcoin blockchain currently requires around 200 GB of storage. The current growth in blockchain size appears to be outstripping the growth in hard drives and the network.

Sources: Investopedia, Binance Academy, 101 Blockchains