What is blockchain tehnology and what are cryptocurrencies ?
By now you probably heard this word a thousand times in all places you went and all the buzz around it.But what is that word even mean?
If you search on Wiki you will find this “A blockchain, originally block chain, is a growing list of records, called blocks, which are linked using cryptography. Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data. “
So basically blockchain is a list of blocks generated one after another by cryptography where each new block has all the records of previous ones.
“By design, a blockchain is resistant to modification of the data. It is “an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way. For use as a distributed ledger, a blockchain is typically managed by a peer-to-peer network collectively adhering to a protocol for inter-node communication and validating new blocks. Once recorded, the data in any given block cannot be altered retroactively without alteration of all subsequent blocks, which requires consensus of the network majority. Although blockchain records are not unalterable, blockchains may be considered secure by design and exemplify a distributed computing system with high Byzantine fault tolerance“.
This is where all power is hidden. Peer-to-peer technology that brings you trust,security and reliability. It’s robust system where middle man is not needed and trust is defined by technology and cryptography. No one can alter the data (there is something called 51% attack that in theory could happened) and longest chain block survives and continues to produce valid blocks. There are many consensus how blocks are produced but two most famous are POW (proof of work) and POS (proof of stake). In POW protocol you need to solve hard mathematical problems which requires high computing power and first machine that solve a problem generate block and validate data but also get reward for finding it. This process is called mining just like mining gold in gold mines and miner is rewarded in coins. In the beginning people could mine those kind o coins by personal computer (PC) and store it in wallets on their PC’s hard drive. But in time difficulty of that mining process is rising because more and more machines digging. Today you have mining farms for that process but they consume huge amounts of power electricity.
On the other side you have POS consensus where block are created with random selections defined by amount of coins, age of nodes or many other combinations to create decentralized distributed consensus. This kind of consensus requires lees computing power because block are created in decentralized nodes where owners need to have a stake to confirm their participation. For this they are usually rewarded by fees that are generated in that blockchain. POS model has more variations and modifications to make it more secure and robust decision about block creator.
“By design, a blockchain is resistant to modification of the data. It is “an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way”
Most famous POW representative is Bitcoin known as BTC. “Blockchain was invented by a person (or group of people) using the name Satoshi Nakamoto in 2008 to serve as the public transaction ledger of the cryptocurrency bitcoin. The identity of Satoshi Nakamoto is unknown. The invention of the blockchain for bitcoin made it the first digital currency to solve the double-spending problem without the need of a trusted authority or central server.” By introducing BTC to whole world many of the common systems were frightened with this idea because their role is in jeopardy. Most applications and benefits can be done in financial sector where banks lead the way for now. BTC and cryptocurrencies give all people equal opportunity to make transactions without a middle man but they keep trust and security.
Bitcoin is also called digital gold because of its properties which are durability, portability, divisibility, uniformity, limited supply and acceptability. You can split BTC in smaller units called satoshies and 1 BTC equals 100,000,000 satoshies (1 million). Maximum supply of bitcoins for all existing is defined by code and is going to be 21 million and no one can ever create any new ones. Because of this more and more people see BTC as good investment and try to speculate on it’s price. All BTC must be held in wallets where owners can hold, send or receive bitcoins. With this technology you instantly becoming your own bank. But with that amazing opportunity come obligation and knowledge. You become your own chief of security and your banker so all cards are in your hands. Every crypto wallet contains of two keys. They are called public key and private key (PK). They are generated when you create your BTC wallet and public key is something like your bank account (or IBAN number) and it looks like random string of numbers and letters. Every blockchain public key starts with specific letter. For example BTC starts with 1 or 3. Your public key is private but anyone can see it on bitcoin network explorer but it is also anonymous so no one can know which person is the owner unless it reveal it self. You share that public key (your wallet address) to everyone you wanna make transactions with. Second key is more important one because who ever holds that key can access that wallet on many places by installing BTC wallet or using web wallets. So it’s very important to hold your private key (PK) hidden and safe somewhere where only you and people you trust have access (be very careful who you share it with). Now days there are specialized devices for more security called hardware(cold) wallets. A hardware wallet is a special type of wallet which stores the user’s private keys in a secure hardware device. They have major advantages over standard software wallets: private keys are often stored in a protected area of a microcontroller, and cannot be transferred out of the device in plaintext. Most famous ones are Ledger Nano and Trezor but as cryptocurrencies going more popular new manufactures are coming into hard wallet game.