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It’s so difficult to find a person who yet hasn’t heard about such a term as a blockchain—it’s almost impossible. People might not understand what is a blockchain and where it can be applied, but most of them understand, it is somehow related to the world of cryptocurrency. Digital currency is something people have gotten used to, but still it’s difficult to figure out the process of mining.
People often get confused with terms mining, cryptocurrency, and of course, blockchain. But in fact, these terms are very closely related. There cannot be a digital currency without a blockchain, and you won’t be able to mine it without a system. But what is a blockchain in simple words and how does it work? In this guide, you will find out more about this system and what is her essence.
Is Blockchain Technology the New Internet?
Technically, it’s not the new Internet. The word “blockchain” means that it’s a chain that consists of blocks. Each block contains information about transactions made by other people within the network. But let’s make it clearer by using understandable language.
Imagine that you want to transfer money from one account to another. What would you do in this case? Probably, you will either use online banking and officially send a sum of money from one account to another, or you would go to a bank and ask an employee to make this transaction. Either way, you pay a fee for sending money from one account to another, and the fee can be big, especially if you want to send money to a different bank.
Basically, you need a third party and you have to pay this third party to transfer your money. Some people think it’s not fair since the bank (third party) has nothing to do with the money you have earned on your own. That’s when a blockchain had been created. In this system you can send money (coins) directly without an intermediate. That seems fair. If to conclude, blockchain might be a new bank without high fees.
Understanding Blockchain Technology
The simplest example for dummies (everyone been here) is Google spreadsheet. A spreadsheet is an Excel file but you can allow different people to access it. But the difference is that everyone can see the data in the file, but no one can change it. That’s blockchain technology.
Each transaction is recorded, and since it’s a public ledger, everyone can see the information. Such peculiarity grants transparency, no one would be able to hide the purchase, etc. You might have heard that the network is decentralized, but how is that possible?
The system consists of so-called nodes that record the information to the chain in the form of blocks. These nodes are computers that run a specific program. This network of computers maintains the system. Each node is independent, that’s how the decentralization is achieved.
How Does Blockchain Work?
Let’s return to the example with Google spreadsheets. The system works with rows and columns, it stacks information in different columns or rows. Blockchain technology, obviously, works with blocks. It consists of data, each block of information is added to the chain in chronological order. Everything is linked together and no one can break the chain.
The first block of info is called the Genesis Block. It’s a public ledger, and as Google spreadsheets, everyone has a copy of a complete ledger. Complete means that all the transactions are verified and added to the chain as blocks.
The Three Pillars of Blockchain Technology
These pillars are the most fundamental peculiarities of technology. Let’s see:
1. Decentralization – one of the most important characteristics that allow to forget about the third party. Instead of one unit that tells everyone what to do, the technology uses nodes that are independent.
2. Security – everyone knows that hackers can hack everything, so how can someone trust this system? But users have protection since they are using specific crypto or electronic wallets where their investments are safe.
3. Scalability – this pillar might not be as obvious as the previous two. The scalability means the ability of a network to maintain itself and to increase.
As you can see, it’s quite easy to understand how this technology works.