The Emanation of Blockchain and how it relates to Cryptocurrencies.
This is a Guest Post by Michael Kuchar.
In 2008, a man called Satoshi Nakamoto launched one of the most potent technologies in internet history. The introduction of Blockchain technology was to originally act as a framework to Bitcoin which was later introduced in 2009. With the intention of presenting a different currency that could eliminate the double spending problem and become free from the manipulation of any centralized authority, Satoshi Nakamoto created the blockchain to act as a backbone of Bitcoin and make the establishment of the decentralized currency a reality. Few years after its introduction, it was found that blockchain could be more useful outside the role it plays in the existence of cryptocurrency.
What is Blockchain and how does it Work?
One of the most popular definitions of blockchain is that: “it is a distributed, decentralized, public ledger that records transactions,” or “it is a growing list of records called blocks that are linked using cryptography.” According to the authors of Blockchain Revolution (2016), Don & Alex Tapscott, blockchain is an incorruptible digital ledger of economic transactions that can be programmed to store not just financial transactions, but everything of value. Just as the name suggests, blockchain is nothing but blocks arranged in chains. The block represents transaction information, and the chain represents a digital database. The block contains transaction information such as the time and date of transaction as well as the amount involved. The block also stores the information of the parties involved in the transaction. In this case, it represents them with a digital signature instead of their real names. Blocks also contain unique information called “hash,” and this distinguishes one block from the other. In a simple sense, blockchain is made up of series of blocks (just as a book of transaction ledgers is made up of pieces of papers put together. Each page of the ledger signifies a block).
Interestingly, before a block or record is added to the blockchain or the public ledger, four things must happen:
- A transaction must take place.
- The transaction must be verified
- The transaction must be included in a block
- The block must be assigned with a unique address called the “hash.”
Once these requirements are met, a block is successfully added to the public ledger. Records on the blockchain are arranged chronologically, and once they get exposed to the public, they becomes impossible to be altered.
How Blockchain Combine with Bitcoin to Deliver Transparent Transaction.
One attribute that makes Bitcoin a favorite to take over the future financial system is its transparency, and guess what? That transparency attribute exists by the help of the blockchain technology. Just as we pointed above, the blockchain stores the transaction information of the sender (transaction output), the transaction information of the receiver (transaction input) and the amount involved. Assuming I receive a cryptocurrency from someone, my wallet address will get listed on the blockchain including the amount and the address from which the money was sent. When I in return send this amount or a fraction of it to a different Bitcoin address, the blockchain will record me as the sender (transaction output), and record the receiver including the amount, the time and the date of that transaction. As the cryptocurrency move from one wallet to the other, the blockchain records accurate and detailed information of each movement. From this, it becomes possible to trace the original sender of the cryptocurrency and all the addresses that had engaged the cryptocurrency with details of the date and time, and interestingly, the information becomes publicly accessible on the Blockchain. With a more advanced search, the identities behind the addresses linked to the digital currency involved can be exposed. In this sense, cryptocurrencies such as Bitcoin are not completely anonymous. The blockchain works as a perfect banker and information keeper to the cryptocurrencies and all information are available for anyone to access.
What Makes Blockchain Different from the Traditional Ledger?
Blockchain has some attributes that make it unique and feasible to the application of cryptocurrencies and open to use in different fields.
Peer to Peer
Blockchain facilitates and validates a transaction without the involvement of any third party or centralized authority. Unlike the traditional way of sending money through a medium before getting to the other party, blockchain makes it possible for two parties to deal directly without being worried about trust or witness.
Cryptography
It provides the needed security to prevent anybody from tampering with the data.
Add Only
Data added to the blockchain are in time sequential order. This situation makes it impossible for anyone to manipulate data.
Distributed and Consensus
Data added to the network are distributed across the whole network to make it impossible to tamper with. Consensus ensures that the public ledger updates itself frequently without the intervention of anybody, and this defines its decentralization.
How Blockchain Relates to Cryptocurrency
Cryptocurrency and blockchain have an interesting relationship which gives relevance to the former. Firstly, Cryptocurrencies such as Bitcoin is dependent on blockchain technology. This means the blockchain will exist with or without the influence of cryptocurrency. From the above-explained attributes of the blockchain, it is clear that Bitcoin and the other digital assets that run on the blockchain takes their decentralized nature and fast transaction attributes from the technology. The strength of cryptocurrencies lies in their anonymity and decentralization.
Interestingly, these strengths are powered by blockchain. Blockchain performs all the underground works that make Bitcoin and other cryptocurrencies relevant. Anything that makes Bitcoin more unique and appealing to individuals and institutions comes directly from the blockchain. From this, it can be said that “Blockchain gives meaning to Bitcoin, but not the other way round.”
The relationship between Bitcoin and Blockchain is likened to a spreadsheet of transaction records. However, the combination of the blockchain and bitcoin or cryptocurrency, in this case, creates a digital asset and digital banking service which is different from the traditional services. Transactions involving traditional currencies deal with the movement of money through different parties. Contrary, transactions made in cryptocurrencies do not deal with the movement of currencies, but the change of ownership on the blockchain network. Selling cryptocurrency to an exchange platform; for instance, means the right to the ownership of the coin has been transferred as nothing physical is involved in the exchange.
Anything that has to do with the movement of cryptocurrencies- from mining to trading of digital assets is facilitated by the blockchain technology. In this case, the relationship between cryptocurrencies or bitcoin and blockchain can be summarized that: “blockchain acts as an independent technology that gives life to bitcoin and makes it relevant in its operation as an electronic peer to peer currency.”