If you have not been living under a rock for the past couple of years, the chances are that you have heard about Blockchain, the technology behind Bitcoin and other cryptocurrencies. While blockchain technology might be hot right now, it can be quite confusing to most people, especially newbies. Let’s explain: here’s a quick guide to blockchain technology and a little bit about Bitcoin and cryptocurrency.
Picture a spreadsheet file replicated over and over again on a network of thousands of computers, and that’s basically what blockchain does. It’s a decentralized, distributed or digital ledger that contains a plethora of continuously updated, time-stamped, and highly encrypted virtual records. Without blockchain technology, there would be no cryptocurrencies such as Bitcoin or Ethereum. Each unit of the said digital ledger is called a block.
Of more importance is that the blocks of the virtual ledger are linked together via cryptography in order in which they were created. In fact, blockchain nodes are bind together by crypto technology in a manner that’s literally immutable. That makes blockchain one of the most secure technologies known to man.
How Does Blockchain Work?
A person often initiates a change to the blockchain, creating a new “block.” What’s quite fascinating is that this “block” is broadcast throughout the decentralized network. Once “seen” by each computer on the network, the record of the block or change is permanently added to the chain. Eventually, all these computers approve of the change, and it is irreversible.
Blockchain and Cryptocurrency?
The so-called crypto or cryptocurrency is an electronic/digital/virtual money made with Blockchain technology to achieve three things: (1) regulate how it’s made, (2) safeguard the transactions, and (3) protect and conceal the identities of the owners.
Blockchain and Bitcoin
What’s Bitcoin? The brainchild of an elusive fellow by the name Satoshi Nakamoto, Bitcoin was conceived around January 2009. By definition, however, Bitcoin is a virtual currency that’s backed by Blockchain, a decentralized, distributed virtual ledger stored in a network of computers.
What’s Bitcoin Mining? Perhaps you’ve heard your friends or coworkers talk about making money by mining Bitcoins. You see, a Bitcoin uses the so-called ‘hashcash proof of work function’ and is stored in a public ledger (the blockchain). As such, Bitcoin mining is what it sounds like: bringing another currency into existence.
It’s essentially the process by which transactions are verified and added to the blockchain. By mining, you’re actually releasing Bitcoins into the public ledger. The incentive of mining Bitcoin is that the miner is rewarded in the forms of the fees associated with introducing these new coins.
Can I Spend Bitcoins? Yes, you can. While it might not seem obvious, many people around the globe use Bitcoins (and, of course, other cryptos) to buy products, services, and even invest. In fact, the most prominent acceptors of Bitcoin payments include Expedia, Overstock.com, Dish, and Newegg.
How Do I Purchase or Sell Bitcoins? Lucky for you, you actually don’t have to know the hoot about hash codes, blockchain or even cryptocurrency to get in on Bitcoin craze. Interested people usually purchase or offload Bitcoin through what they call cryptocurrency exchanges. They are like marketplaces where you can transact using these virtual currencies. More importantly, you will need a Bitcoin wallet to keep your cryptocurrencies in.
How Do I Transact with Bitcoins? If you want to send a bitcoin to someone else in an exchange with traditional currency (often the dollar), you make your intention known and the computer nodes (within the Blockchain) scan the entire network to confirm and validate that:
- You have the Bitcoin you want to transact
- You have NOT sent the Bitcoin to someone else
Once these facts have been verified and approved, the transaction is made/included in the public ledger. The transaction, once it has been completed, cannot be undone. More specifically, in the back end, you are transferring the ownership of an encrypted key.
What Else Can Blockchain Do?
The anonymous and decentralized nature of blockchain makes the technology applicable to other sectors, including charity, cybersecurity, cloud computing, IP management, supply chain management, insurance brokerage, real estate, and so forth. If you think cryptos like Bitcoin will change the face of the financial industry, then blockchain could revolutionize just about anything.