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0 CommentsWhat is blockchain, and what does it have to do with cryptocurrency, writes Thomas Hum on Yahoo Finance.
Blockchain is a type of database composed of a growing list of records, individually known as blocks, that are chained together through computer cryptography. The goal of blockchain is to allow for the recording and distribution of digital information that is unable to be tampered with.
Unlike a typical database where data is electronically stored in a “table” format, data within a blockchain is stored within its connected blocks, with each block containing information about the block that came before it. It is this characteristic that creates a resistance to modification of a blockchain’s data because a change to one block’s information would require the alteration of all subsequent blocks created. And although blockchains are not entirely unalterable, as a collectively agreed-upon update to the network may be known as a “fork,” blockchains are designed to be foundationally secure.
Blockchains are typically managed through a peer-to-peer network of computers working together to serve as a publicly distributed ledger of data (or transactions). Every node in the network follows a specific protocol, which the entire blockchain adheres to in order to validate new blocks and communicate with each other.
What does blockchain have to do with cryptocurrencies?
Although blockchain comes up in nearly every conversation involving cryptocurrencies, the two terms cannot be used interchangeably. Rather, blockchain is the network and platform through which cryptocurrency is transacted and generated. For example, the Ether cryptocurrency operates through the Ethereum blockchain.
Blockchain technology had been discussed in the scientific literature for nearly two decades before the advent of cryptocurrencies such as Bitcoin and ether — the two largest by market cap — with cryptocurrencies becoming one of the first and most widely known applications of blockchain. In 2009, an individual or group of individuals using the pseudonym “Satoshi Nakamoto” invented the first cryptocurrency through the Bitcoin blockchain to serve as a public ledger for transactions of Bitcoin.
One of the most significant solutions that a digital currency through blockchain technology provides is an answer to the double-spending problem. In addition, it provides this solution along with all of its functionality without the need for a trusted central authority or server. As mentioned previously, because a blockchain network consists of computer nodes, which can be located anywhere in the world, blockchains, and therefore cryptocurrencies, operate as completely decentralized platforms.
Decentralization, along with the pseudo-anonymity offered by the cryptocurrency as a means of saving and payment — as cryptocurrency wallets do not require verification such as state identification to use — is one of the themes that has made blockchain technology and cryptocurrency so popular and controversial. Other potential benefits offered by blockchain as a currency platform include 24/7, 365-day operation, transaction fees determined by a market, speed, security, and ease of access.
Other blockchain applications
Although cryptocurrency is undoubtedly the most famous application of blockchain, blockchain technology can be used for many other practical applications as well. For example, the banking and finance industry could benefit greatly from blockchain’s speed, security, and lack of set hours of operation. Other areas of society and business that could stand to benefit from the usage of this technology include federal currencies, the healthcare industry, supply chains, and even democratic elections. Each of these could leverage one or all of the previously mentioned benefits that blockchain has to offer.
