Blockchain Basics
Blockchain is a special type of digital ledger that stores records of transactions. What makes it unique is that it’s decentralized, meaning it’s not controlled by any single authority. Instead, the ledger is maintained by a network of computers (nodes) worldwide. Transactions are grouped into blocks, and each block contains a unique code (hash) and a reference to the previous block. This creates a chain of blocks, hence the name ‘blockchain.’
Once a block is added to the chain, it becomes virtually impossible to alter or delete the information, making it highly secure and trustworthy. Blockchain’s main use case started with cryptocurrencies like Bitcoin, but its potential extends to various fields like supply chain management, and voting exciting applications.
Cryptocurrencies
Cryptocurrencies are a type of digital or virtual currency that leverage cryptographic techniques to secure financial transactions, control the creation of new units, and verify the transfer of assets. Unlike traditional currencies issued by governments and central banks, cryptocurrencies are decentralized and typically operate on blockchain technology.
Blockchain, as explained earlier, is a distributed and decentralized digital ledger that records transactions in a secure and immutable manner. Cryptocurrencies use blockchain as the underlying technology to facilitate, validate, and secure transactions.
How cryptocurrencies work with blockchain:
Digital Transactions:
Cryptocurrencies are used for peer-to-peer digital transactions. When you send or receive cryptocurrency, the transaction details are recorded on the blockchain.
Decentralization:
Cryptocurrencies operate on a decentralized network of computers (nodes) that maintain a copy of the blockchain. There is no central authority controlling the currency, which means no single entity can control or manipulate it.
Mining:
To add new transactions to the blockchain, a process called mining is used. Miners, who are participants in the network, use powerful computers to solve complex mathematical puzzles. The first miner to solve the puzzle gets to add a new block of transactions to the blockchain and is rewarded with newly created cryptocurrency and transaction fees.
Consensus Mechanism:
Cryptocurrencies use a consensus mechanism, such as Proof of Work (PoW) or Proof of Stake (PoS), to validate transactions and maintain the integrity of the blockchain. Consensus mechanisms ensure that the majority of the network agrees on the validity of transactions and the addition of new blocks.
Security:
Cryptocurrencies rely on cryptographic techniques to secure transactions and control the creation of new units. Public and private keys are used to verify ownership and authenticate transactions.