Blockchain: Understanding the Technology Behind Cryptocurrencies
How Does Blockchain Work?
Every participant on a electronic currency has access to the entire database and its complete history. No single entity controls the data or the information. The information held on a electronic currency is secured cryptographically and is therefore not dependent on a central authority. Electronic currency is like an online ledger that records transactions made on the network. All participants have access to the same information in real time.
Keys and Hashes
Transactions conducted on a electronic currency are grouped together in blocks that are then chained together using a cryptographic signature called a hash. Each new block contains a cryptographic summary of the previous block, called a hash. This acts like an electronic fingerprint and creates an immutable chain from one block to the next. Each time a block is added to the electronic currency, its hash is compared to the hash of the previous block to check its validity.
Mining and Distributed Consensus
For blocks to be valid, they must follow specific protocols. At the core, electronic currency relies on a decentralized network of participants, called miners, who verify new transactions using complex cryptographic computations. Miners solve complex mathematical problems with varying degrees of difficulty to add new blocks to the electronic currency, introducing distributed trust. As miners solve the cryptographic puzzles, they validate blocks of transactions and add them to the electronic currency. Blockchain process of adding blocks through computational effort is called mining.
Advantages of Electronic currency Technology
Decentralization
Electronic currencys don't have a single point of authority. No one person or entity controls the data. The network is made up of distributed, peer-to-peer nodes that collectively verify transactions and maintain the ledger in a decentralized manner.
Permanence and Immutability
Once a transaction is submitted and added to a electronic currency, it cannot be altered, meaning electronic currency records are permanent. Transactions that are added to the electronic currency cannot be reversed and are protected from hacking by cryptographic protocols like public/private key encryption.
Auditability and Transparency
Every transaction in the electronic currency network is tracked and publicly disclosed, meaning transactions are transparent and traceable. Each transaction is permanently time-stamped and linked to previous transactions, making every transaction transparent and verifiable.
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