If you want to get involved in cryptocurrencies, NFTs, and marketplaces, one word you will frequently come across is Blockchain. Blockchain also allows a new way for transactions to be carried out safely and transparently with no need for third parties. So, what is it, and how does it work? Follow us, and we’ll explain everything!
Blockchain Explained
Blockchain is a system of recording information that makes it difficult. In some cases, impossible to change, hack, or cheat that system.
A blockchain is a digital ledger of transactions duplicated and distributed across the entire network of computer systems on that Blockchain.
Every block on the chain contains several transactions. Every time a new transaction takes place, a record of it is added to every participant’s ledger, meaning changes cannot be made without multiple people knowing about it. This type of database managed by multiple participants is known as Distributed Ledger Technology (DLT).
Who invented Blockchain?
In 2008, a person (or persons no one knows) using Satoshi Nakamoto published a whitepaper online that described the principles behind a new type of digital money called Bitcoin – you may have heard of it!
The goal was to create digital money that would make online transactions between people anywhere in the world possible without needing a third party, which is how transactions are traditionally done. Think of a payment processor like Paypal or a credit card company. These are third parties.
To do this would require a system that would eliminate an issue called “double spending,” where a person might use the same amount of money multiple times. The solution? A network that was constantly verifying the movement of Bitcoin… the Blockchain!
What’s so good about Blockchain?
This was not the first attempt at creating digital money, but attempts in the past have consistently failed until now.
The main issue with creating digital money is a simple issue of trust. How do you know that the person making the currency won’t give themselves millions or steal everyone else’s once they start using it?
Blockchain solved this problem. Unlike most normal databases, which have someone controlling the changes, the Blockchain essentially has no one in charge. It is run by those who use it. Moreover, cryptocurrencies like Bitcoin can’t be faked, hacked, or double-spent so that people can trust their value.
How Does a Blockchain Work?
Think of a chain, an actual chain with links and everything. Each link in the chain represents a mass of information containing transaction data. At the top of the chain are the transactions that happened today. As you move down the chain, you see older and older transactions. Once you get to the other end of the chain, you will have seen every transaction in the history of that Blockchain. It is an open, transparent record of a cryptocurrency’s or an NFT’s history.
Trying to manipulate or forge transactions will cause a break in the chain, and everyone in the network will see it and know what happened.
People often call it a ledger, as, like a bank’s ledger, the Blockchain will track all the money flowing into and out of the network.
What are the advantages of Blockchains?
Here are just a few of the advantages that can be gained through Blockchain:
Increased Privacy: Cryptocurrency payments don’t’ require including personal info, which protects you from having personal details stolen.
Globality: They are global, which means transactions can be carried out anywhere in the world quickly and cheaply.
Transparency: Because every transaction is published publicly in the Blockchain, anyone can look into them. That leaves no room for manipulating transactions, changing the money supply, or any other type of illicit adjustment.
Blockchain, especially regarding cryptocurrency, is becoming the biggest threat to traditional finance. Currently, most financial dealings occur online, and every transaction requires a bank, credit card company, or payment processor to facilitate it. Blockchains allow these transactions to take place without those middlemen or the added costs and complexities they bring.
