So now that you know what a cryptocurrency is, let’s move on to the system that it runs on. Blockchain technology builds the foundation for many cryptocurrencies and projects to run on. In this lesson, we will talk about what blockchain technology is, how it works, and the advantages it brings.
What is a Blockchain?
Blockchain technology is here to change the digital world as we know it. Sometimes referred to as Distributed Ledger Technology, it makes use of decentralization and cryptographic hashing.
On a fundamental level, a blockchain is a list of transactions that anyone can view and verify. You can think of it as a data sheet that everyone has access to.
The ‘block’ in blockchain refers to a block of transactions on the network. Meanwhile, the ‘chain’ is a string of these blocks. When a new block is validated by the network, it is attached to the end of an existing chain. As the chain of blocks continues to grow, it forms a ledger of transactions.
While blockchain technology isn’t considered that new, the consensus protocol is. The cooperation of users to build the chain globally is automatic and runs on a network of computers around the world. Unlike data that is stored by a centralized party (such as bank records that can only be accessed by staff), blockchain data is stored in various parts of the world.
Through the blockchain, users can perform transactions online without relying on a middleman. Blockchain technology is giving power back to users.
Advantages of Blockchain
By now you probably have a slight idea of how blockchain is here to change the world. There is much to benefit from, including:
A Trustless System: With blockchain technology, you don’t need to rely on a person or middleman whose integrity might be questionable. You know that the system works because of the algorithm that ensures the end results. On top of that, transactions are carried out at a much faster speed.
Reliable Security: Having blockchain data stored on a network of computers around the world is also a big advantage for security. There needs to be consensus on data accuracy from all members and each validated transaction is permanently recorded. Essentially, all transactions are verified and securely stored.
A Global System: Users from all over the world are able to interact with each other with ease. Cryptocurrencies can be sent anywhere on the planet and it won’t cost more. Other uses of blockchain are also carried out on a global scale. You won’t feel the setbacks of geographical borders anymore.
Now that you have a basic understanding of blockchain technology, it will be easier to grasp how cryptocurrencies, NFTs, and other products are built on top of different blockchains.
You should be able to answer all the questions below. If you are having trouble answering any of them, go back and review the lesson & the external content.
- What is the ‘block’ in blockchain?
- What is the ‘chain’ in blockchain?
- How is blockchain technology cutting out the middleman?
- What are three advantages of using the blockchain?
- What is a peer-to-peer network?