Blockchain technology and cryptocurrencies: How does it work?
You probably have heard the term “blockchain” being used more and more in the last ten years. No wonder since it has an endless amount of applications across almost every industry. Its technology can be applied to track fraud in finance, secure patient medical records, or to track intellectual property in business.
At first, blockchain may seem complicated; however, its core concept is quite simple. To put it shortly, it is a type of database where information is stored and secured. As the word suggests, blockchain is made of blocks that contain several transactions. Every time a new transaction occurs, a record of that is added to every participant’s ledger. It is a decentralized database managed by different participants and is otherwise known as Distributed Ledger Technology(DLT)
Here are some properties of DLT
● It is programmable such as Smart Contracts
● It is distributed, and everyone has a copy of the ledger for transparency
● It is secure, and all records are individually encrypted
● It is anonymous since the identity of the participants is unknown
● It is immutable, and people cannot change the validated records.
● It is unanimous since all the participants agree to the validity of the documents.
How secure is this kind of technology?
It is one of the most secure technologies to date, which explains why it has found many applications in various industries. Here’s how it works. New blocks are always stored chronologically, meaning that they are constantly added to the “end” of the blockchain. Each one of these blocks has a position on the chain, which is called height. After a block has been added, it isn’t easy to go back and alter its contents unless the majority of people have reached a consensus to do so. That’s because it contains its own hash, the hash of the block before it, as well as the previously mentioned time stamp. The hash codes turn digital information into a string of numbers and letters, and if that information is edited or altered, the hash code changes as well.
So, if a hacker wants to alter the blockchain and steal from the participants, it would no longer align with everyone else’s copy. When they cross-reference their copies against each other, the hacker’s version of the chain would be cast away as illegitimate.
If some hackers wanted to succeed with such a trick, it would require that they simultaneously control and alter 51% of the copies of the blockchain. This kind of attack would require an immense amount of money and resources since they have to redo all of the blocks.
How does blockchain technology work for cryptocurrencies?
Blockchain technology was created in 1991 by Stuart Haber and Scott Stornetta, who wanted to implement a system where people could not tamper with timestamps. However, it wasn’t until 2009 where it found its first real-world application; cryptocurrencies. Blockchain has long been associated with cryptocurrency since it was created as the transparent ledger system for Bitcoin to operate on. However, its security has seen growing adoption in several areas. Nowadays, there are several cryptocurrencies with their own blockchain and distributed ledger architectures.
This kind of technology works best because, with typical databases, someone in charge can change the entries and transfer money to someone’s account. However, with blockchain, nobody is in control; it is run by all the people who use it, and the tokens can’t be faked, hacked, or double-spent — so people that own crypto can trust that it has some value.
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