If you’re one of those people who still don’t understand these things, or even think you understand them well enough, it’s still good for you to read this article. you might find something interesting, Remember “Repetition is the mother of education.”
I believe if you read this short article carefully, you will have a good understanding of blockchain, what it does and how it does it.
you will also understand what cryptocurrency is, its difference from physical money and how it works.
According to investopedia, a blockchain is a distributed database that is shared among the nodes of a computer network. As a database, a blockchain stores information electronically in digital format. Blockchains are best known for their crucial role in cryptocurrency systems, such as bitcoin, for maintaining a secure and decentralized record of transactions. The innovation with a blockchain is that it guarantees the fidelity and security of a record of data and generates trust without the need for a trusted third party.
On the other hand: It’s a link of blocks which are getting chained to each other.
Blockchain is a publicly distributed ledger, which means everyone has access to all records, and all information on the blockchain is permanent and immutable, nothing can be changed.
A typical structure of a block in a blockchain.
The block has 4 attributes which are:
- Previous hash: the hash value of the previous block, the current block must have the hash of the previous block in order to link one block to another
- Transaction Details (Data): Details of the transaction you wish to complete
- The nonce: A random value that varies the value of the Hash
- Hash: The resulting hash is a hexadecimal value that contains both numbers and letters.
A cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are decentralized networks based on blockchain technology—a distributed ledger enforced by a disparate network of computers. A defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation as stated by investopedia.
Example: You have $20 with serial number 123 and your bank account number is 456
When you deposit this money into your bank account, the bank branch, central bank and government will see and confirm that $20, 123 has been transferred to bank account 456.
This is exactly how cryptocurrency works, each individual cryptocurrency coin is like the serial number we usually see on physical money, but just without the physical money.
The transaction data and ledger are encrypted using cryptography. which is decentralized, it means that it is controlled by users and computer algorithms and not by a central unit.
Your personal information will not be attached to the crypto wallet, and any cryptocurrency held in your wallet is owned directly by you not like banks which are controlled by the government and the bank itself.
Here you have full control over your account, which means no one can close your wallet or block your transactions. Only you have to save your wallet information somewhere, because if you lose access to it, you lose it forever.
Which is completely understandable because if you lose or forget your bank account number or ATM password you immediately rush to the bank for a quick assessment, because they are the ones who control your account and all its details.
Totally different from Crypto,with the crypto wallet, no one knows your information, it’s just you and only you, that’s why when you lose access, you cannot run to anyone because everything is owned and controlled by yourself.
For instance suppose A wants to buy an Iphone 10 from B, and B charges $250 for the phone. A no longer uses cash, so A must use his debit card and swipe it on B’s terminal.
So when A swipes his card immediately, the message will be sent to his bank “A wants to send $250 to B’s account and the bank will approve it.
Same example on the Crypto side. (dealing with coins) if A wants to pay B 250 coins, that data goes to the public Records where a bunch of computers around the globe keep track of every transaction and if A does not have the 250 coins in his wallet, all the computers that follow the transactions will notice that there is a disharmony.
Therefore, it will immediately tell you that you do not have 250 coins in your wallet and the transaction will be rejected.
Everyday banks record all transactions coming from their customers. They send and receive money from other banks, people’s accounts and at the end of the day they have a tally of all the money that went out and came into customer accounts.
So based on the example that we just spoke about, when the request comes in, you swipe your card, the bank will check how much money you have in your account and says, “based on your previous transaction, you have $500 in your account.”
So the $250 that A wants to send to B this transaction will be immediately approved and when the money goes into B’s bank account, it does the same thing, the $250 will be immediately added to B’s current balance.
Note that your money is just a number on the screen, it’s the result of a lot of transactions, banks keep careful records of all transactions.
People trust banks and believe it’s a safe place to keep their money. Yes, maybe more secure than their pockets, wallets, homes name it.
But with the rise of the internet, critical thinkers started to wonder “is there a way that we could do the same thing coordinate these same transactions transfer of money between two people without the bank”
The result is a very nifty and clever concept called blockchain. Now blockchain performs the same function as the bank, and in an open way. Blockchain does not store any of its information like the banks do, Instead, the blockchain is copied and distributed over a network of computers.
Each time a new block is added to the blockchain, each computer on the network updates its blockchain to reflect the change. So, instead of doing it privately, all transactions are actually recorded publicly on the internet.
The reality is, the technology that’s the backbone of all of this, I mean “blockchain” relies on the public ledger which is conceptually like a heart and soul, but physically relies on computers doing a bunch of micro-calculations 24/7 everyday and every night.
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