Before discussing blockchain, you should be familiar with the concept of cryptocurrencies…
In the past few years, we all heard about cryptocurrencies, especially after we witnessed the rise of Bitcoin.
So, What is Cryptocurrency?
Cryptocurrency a digital currency that was specifically designed to work as a secure medium of exchange, since it uses strong encryption techniques, thus ensuring secure financial transactions.
Bitcoin, one such cryptocurrency, is regulated by a network of computers through encryption techniques. Although its production is independent of any bank or state, it’s the technology it uses that has increased trust in it.
What about the Bitcoin transactions? How are we going to validate them?
Blockchain!
Blockchain first came into existence to keep a track of bitcoin transactions. It is a highly restricted database whose entries are the bitcoin transactions. The blockchain operates as a digital ledger of transactions that records and links the transactions.
Blockchain can be imagined to be a chain of blocks where the block refers to the digital information and the chain is the public database; so, it means, “a series of digital information stored in a public database.”
Although blockchain was first introduced for cryptocurrencies (Bitcoin), it has now found other potential uses as well.
- A block stores information related to the transactions made: date, time, and amount (in dollars)
- Block also stores information related to the participants of the transactions, e.g., a unique digital signature
- It also stores information that differentiates these blocks from other blocks. Each block has a unique code stored in it — hash which helps separate it from every other block
For instance, you purchased a product online (transaction took place between you and the website you purchased from), a block representing this transaction is created and sent to all the computers (nodes/miners) in the network. The node verifies your transaction by checking the details like the purchase, time of the transaction, amount, sender, receiver, etc.
So, How secure are Blockchain transactions? Why should we know about blockchain?
Originally published at https://the-writer-next-door.blogspot.com on December 9, 2020.