Blockchain technology was first mentioned in 1991 but gained popularity in 2009 with the creation of Bitcoin.
And if you have been following cryptocurrency investment, you probably saw the term blockchain mentioned over and over again. You have read that blockchain is the backbone of the cryptocurrency network. You have read that it is a new data storage technology that makes cryptocurrency safe and attractive to use.
But do you know what a blockchain is anyway? Or how does it work in cryptocurrency? Is blockchain secure in cryptocurrency transactions?
Let us dive in to answer that.
What is blockchain?
Blockchain is a database that stores information in blocks rather than in tables like traditional databases. When the block reaches its data storage capacity, it is “chained” on previous blocks. Once the block link to the previous ones, the data will stay there forever. This way “chain of blocks” builds a timeline of data which allows higher transparency of the transactions.
Blockchain is known differently as distributed ledger technology (DLT). It includes an architecture based on the peer-to-peer network that allows different users to process transactions and then stores them in a record of all previously made transactions.
Even though blockchain technology is highly associated with the cryptocurrency market, it has great potential in various sectors. Instances include healthcare data sharing, voting mechanisms, and supply chain monitoring.
How does blockchain work in cryptocurrency?
What makes blockchain technology distinguish in the context of bitcoin (and all other cryptocurrencies) is the decentralized network in which it stores the data.
Blockchain runs in a distributed ledger technology storing data globally across thousands of servers while allowing everyone on the network to see the transactions. Nods, the computers which are part of the bitcoin network, have access to all data that has been stored in the blockchain. The nodes then act as a reference point if there is a data error in any nodes. It is this decentralized, transparent network blockchain supports that makes bitcoin safe and attractive to use.
How are transactions made with blockchain technology?
The decentralized network ensures no person or group of people controls the transaction data— the opposite of what banks do.
When you make a transaction with bitcoins, the transaction enters the peer-to-peer network, distributed globally on thousands of computers. The transactions get validated when the network of computers solves the equation. Then, the confirmed transactions groups into blocks. The blocks are time-stamped into the previous blocks that store the history of all transactions made. Once the blocks are chained, the transaction is finished.
Is blockchain secure in cryptocurrency transactions?
The decentralized and transparent nature in which the blockchain function makes the technology safe to use.
Blockchain makes it possible for all the data transactions to be stored in real-time among the network of computers globally. If someone wants to alter or hack data from one block, the network will cross-reference it and dismiss the change. In this way, a hacker to change the data inside a block needs to control over 51% of blockchain copies. For bitcoins, this is nearly impossible, mainly because its blockchain has more than 660,000 blocks of data so far.