Bitcoin has quickly become a viable alternative currency. Though the value of this cryptocurrency has dipped in recent months, its blockchain technology is undoubtedly here to stay. Let’s take a quick look at how blockchain technology works and why it is so important.
The Magic of Blockchain
Blockchain technology is sort of like a digital ledger of transactions made with Bitcoin. This ledger is public, making transactions visible to parties outside of those directly involved in the deals. These transactions are recorded in a digital database. The database is copied. Copies are transmitted to all computers in the network. The nodes across the network communicate with one another to determine if the copies are exactly the same.
The purpose of copying and transmitting each transaction is to publicize and validate them. Furthermore, this approach decentralizes Bitcoin, eliminating the need for any sort of middleman to verify the transactions. If it is determined a ledger copy is not the same as a result of a manipulation of the transaction record, the transaction is rejected. Such a security protocol stops people from modifying the ledger to spend Bitcoin several times over or transmit others’ funds to their own account.
A new block that serves as a bundle of the transactions must be made and tacked onto the chain to keep the blockchain updated with newly verified sales/purchases. However, in order to make and add the block to the chain, the block has to be validated by a solution to a crypto puzzle. Those who solve the puzzle with the payout of Bitcoin or other cryptocurrency are rewarded with Bitcoins. Validators use mining software and hardware to win Bitcoin payouts. These individuals are known as miners. Once miners determine the proper answer to the puzzle, the network nodes verify it and the block reward is transmitted. Another block is created and tacked onto blockchain.
Blockchain at Work
Let’s take a quick look at an example of blockchain in action. Consider a situation in which Tom agrees to sell his gaming collection to Steven for a single bitcoin. The record of such a trade lists the transaction details that include a time stamp along with an idiosyncratic cryptographic signature. The transaction is transmitted to each computer within the network to scan each copy of the database to ensure the transaction is truly valid and completely unique. Once the network determines the transaction is valid, miners bundle the transaction in a block and try to solve the crypto puzzle for validation. Steven receives the card collection from Tom. Tom receives the Bitcoin from Steven.