Here is a simple beginner’s guide for people newly aware of Blockchain. Below are some basic Blockchain facts.
- Blockchain is not actually Bitcoin. It’s the technology used by Bitcoin or cryptocurrencies.
- It exists only on the internet.
- It is a chain of digital blocks.
- A block contains details of a transaction such as the sender, the recipient, how much, and date time.
- Blockchain is the same as a database. However, it’s not stored in only one location, it is stored in multiple locations.
- Blockchain explorer is a website where the user can view the blocks.
- All of its data is available to the public. Although, they are unreadable letters and numbers.
- Blockchains can be decentralised, owned by no one, or centralised, owned by someone.
- Decentralised blockchain is commonly used by Bitcoin.
How does it work?
If someone requests a transaction, like wanting to buy Bitcoin, the information about this transaction is put into a block (sender, recipient, amount, price, etc.
The block is given an ID, which is a long string of letters and numbers, also known as a ‘cryptographic hash’ or simply ‘hash’. A new block also contains the hash of the previous one, forming a chain.
Each block is added to the blockchain permanently and serves as a point of truth. Some blockchains can store other information, like a list of conditions of transaction.
Publicly, anyone can read the blockchain information in validating a transaction.
Why do we use Blockchain?
- Decentralisation — a decentralised blockchain is independent and not owned by anyone. This helps to prevent the government from shutting down Bitcoin.
- Immutability — blocks are permanent. This prevents people from changing information about and after transactions.
- Transparency — a public blockchain shows transaction information which is publicly available to everyone. This transparency helps to prevent fraud.
- Solves Issues — blockchain solves difficult problems such as Byzantine Generals Problem and the Double spending problem.
Double spending is when the same amount is spent by two or more at the same time. With this, there’s no way to detect which is the first transaction.
A decentralised network like Bitcoin requires a number of verification confirmations of transactions before they are placed on the blockchain. While the process happens, a double spend attack could occur.
In the cryptocurrency network, only miners are allowed to confirm transactions. This is done by solving a cryptographic puzzle.They spread them across the network when they take and validate the transactions.
Afterwards, all the nodes within the network are added to its database. If the transaction is successfully confirmed, the miner receives a reward and transaction. Furthermore, the confirmed transaction is now unforgeable and irreversible.
Largely, cryptocurrency networks are constructed on the consensus of all the participants emphasising the validity of balances and transactions. However, within their network, there are nodes if they disagree on a single balance. Then the system would simply break. Even so, there are programmed rules within the network preventing this from happening.
What are the benefits of Blockchain to Australia?
- Global exchange
- Lower cost of business
- Global trust
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