Blockchain as the foundation for cryptocurrency and more. What is it and how does it work? Why is it worth knowing this technology?

Blockchain (a chain of blocks) is a new type of distributed database. Various different types of information are stored and verified inside it using cryptographic techniques. Keep reading to learn more about blockchain technology.
blockchain

Blockchain technology is something new, but gaining popularity fast. This is thanks to many different aspects. One reason why it sparks such interest is that it uses ground-breaking methods of data management. Most blockchain uses are also decentralized. A blockchain allows you to store and validate saved information. Another advantage of this technology is its cryptography which ensures the safety and authenticity of the data stored in chains. Below, we will discuss this cryptocurrency invention in more detail and give you examples of its uses. Keep reading to learn more about blockchain and its functioning!

What is blockchain technology? How does blockchain work?

The database called blockchain is an ever-growing list of records linked together cryptographically. How does blockchain work? Every record (block) includes an encrypted hash of the previous block – its time stamp and other data. The aforementioned time stamp confirms the existence of data at the moment of the block’s validation. This allows the information to be included in the hash. Blocks create a chain because each one of them includes some information on the previous one.

Blockchain technology – safety first

This type of database doesn’t allow you to easily change any saved information. Should somebody wish to change any of the records, they would also have to replace all of the following blocks. This would result in a fork (a split of the chain) which wouldn’t go unnoticed. A blockchain is a safe method of managing data which is also very foolproof.

Blockchain – bitcoin’s transaction records

Blockchain usually works as a distributed peer-to-peer network in the form of a public ledger. Its nodes must follow the regulations in order to communicate with each other and verify the authenticity of the data in blocks. This technology was invented in 2008 by the anonymous programmer known under the nickname Satoshi Nakamoto. Satoshi’s creation was a form of ledger which included all the transactions made with the bitcoin cryptocurrency (BTC). The true identity of the inventor has never been revealed.

What is blockchain cryptocurrency technology?

What else is BTC blockchain used for? This unique technology meant that it was the first ever payment method without a trusted center, which effectively didn’t allow double spending. BTC blockchain became an inspiration for many other similar chains, cryptocurrencies and applications. These systems have achieved a huge popularity amongst the users of modern financial solutions.

The blockchain wallet rising in popularity

Blockchain networks were created by small entities which started to grow with time and became very important in the world of large business projects. Sometimes these projects were criticized because of their supposed low safety level. However, as it later turned out, they were the very foundation for all decentralized financial and trading platforms.

Blockchain technology history 

Blockchain’s history can be traced back to 1982, which was when the cryptographer David Chaum published his work entitled „Computer Systems Established, Maintained and Trusted by Mutually Suspicious Groups”. This paper is considered to be the first text about the chain of blocks protocol. Many of the proposed solutions later appeared in the official bitcoin white paper.

In 1991, Stuart Haber and W. Scott Stornetta described a safely encrypted chain of blocks which didn’t allow changing the time stamps in stored documents. This was a crucial stage of blockchain development. A year later, Haber, Stornetta and Dave Bayer used Merkle trees in their works, making their chain more efficient. This was possible because of the addition of the possibility to include a couple certificates for a document in one block.

Implementing the chain of blocks for the first time – BTC blockchain

As we have already mentioned, the first blockchain was used by the anonymous programmer Satoshi Nakamoto. He described and published his work in 2008, as the white paper document for the bitcoin cryptocurrency. In 2009, the bitcoin blockchain started working as a network of nodes. Thanks to their computing power, these nodes secure the transactions made using the digital coin.

Blockchain technology improvements

Satoshi applied the improved method of marking blocks in his project – with the use of timestamps. This system was also used by Hashcash – the platform created in 1997 by Adam Brack meant to protect e-mail inboxes from spam. The stamps modified by Nakamoto do not require any verification from the central control center. It’s also not necessary to include the parameter which determines the speed of inserting the blocks into the chain.

The dynamic evolution of blockchain

Nakamoto’s invention quickly gained popularity. Just five years after launching the BTC blockchain, the total size of the network’s transaction ledger was 20 gigabytes. Since January 2015, the size of the bitcoin blockchain grew from 30 GB to 200 GB (in 2020).

The creator of this technology never used the term “blockchain” in any of their texts. Only the two separate words “block” and “chain” are used. Blockchain became an official English word in 2016.

What is blockchain, as we know and use it today?

More than a few years have passed since the first use of a chain of blocks. Still, the technology’s use and potential is endlessly growing. Here are some examples of blockchain usage:

  • cryptocurrencies;
  • smart contracts;
  • supply chains;
  • counterfeit prevention.

Examples of blockchain technology application

The most frequent blockchain use is certainly cryptocurrency. Almost all digital coins use blockchains to save their transactions. It’s not just bitcoin, but also the litecoin (LTC) and ripple (XRP) networks.

Litecoin blockchain

Litecoin is a cryptocurrency based loosely on the bitcoin protocol, but it is faster and cheaper to use. The network was set up in 2011 by Charlie Lee. Similarly to BTC, LTC transactions get validated in blocks using the PoW algorithm – thanks to the computing power of the excavating machine. New litecoin money also gets created in this way. The litecoin blockchain is a ledger of about 53 GB in size.

XRP blockchain

The XRP blockchain is one of the elements in the ripple system, used for interbank payments. Its other components also include a system of nodes called network gateways. While these gateways are a crucial component responsible for Ripple’s transaction speed and network scalability and bandwidth, the block transaction ledger is also very important. It is necessary to prove the transactions’ authenticity and secure them in the chain.

NFT blockchain

Another interesting function of blockchains, connected to cryptocurrencies, is that they confirm ownership using inconvertible NFT tokens. The NFT blockchain functions as a register of certificates which verify that the user actually owns digital or physical assets. 

The NFT token can represent just one resource, which is why it is referred to as inconvertible. One network which supports NFT tokens is Ethereum. It is a platform based on blockchain technology. A blockchain wallet in which you can store your Ethereum tokens is the Metamask.

Blockchain and smart contracts – no need for a notary

This term is used to describe contracts concluded automatically within the blockchain-based system. This type of agreement does not require the parties to know or trust each other, nor does it need a mediator. It can only be concluded when certain conditions are met. This rule is guarded by the smart contract system software, e.g., Ethereum. No person can interfere with the functioning of such a platform and the conclusion of a smart contract.

Blockchain and supply chains – in need of proper management

Blockchain technology has been used to control supply chains in international trade and industry. In 2016, the technology company Everledger teamed up with IBM to create a service for tracking diamonds in the market in order to ensure their optimized extraction. Since 2019, the Diamond Trading Company has been involved in the work to create a blockchain-based diamond supply management system.

Blockchain and counterfeit prevention – cryptography protecting authenticity

It is widely known that blockchain technology can be used to protect products and document uniqueness. However, many specialists claim that blockchain should be supported by solutions that offer a strong connection of real objects with cryptographic databases. This is the direction on which the Dutch company NEN is currently focusing on – connecting blockchain with QR codes. This method effectively authenticates credentials.

It is widely known that all progress calls for certain requirements – one of which is the access to efficient and secure data management. A cryptographically linked blockchain offers just such possibilities. New applications of blockchain technology appear regularly – it can be very interesting to keep an eye on these innovative solutions.

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