What Is Blockchain Technology?
You may have heard the term “blockchain technology” before, in reference to Bitcoin and other cryptocurrencies. For the uninitiated, the term might seem abstract with little real meaning on the surface. However, blockchain technology is a critical element of cryptocurrencies — without it, digital currencies like Bitcoin would not exist.
If you are new to cryptocurrencies, and new to blockchain technology, read this guide on the basics to get yourself started. If you are already a seasoned trader, maybe you’ll learn a thing or two you didn’t already know.
A Brief History of Blockchain
To start, let’s talk about the history of the blockchain. Before it was ever used in cryptocurrency, it had humble beginnings as a concept in computer science — particularly, in the domains of cryptography and data structures.
The very primitive form of the blockchain was the hash tree, also known as a Merkle tree. This data structure was patented by Ralph Merkle in 1979, and functioned by verifying and handling data between computer systems. In a peer-to-peer network of computers, validating data was important to make sure nothing was altered or changed during transfer. It also helped to ensure that false data was not sent. In essence, it is used to maintain and prove the integrity of data being shared.
In 1991, the Merkle tree was used to create a “secured chain of blocks” — a series of data records, each connected to the one before it. The newest record in this chain would contain the history of the entire chain. And thus, the blockchain was created.
In 2008, Satoshi Nakamato conceptualized the distributed blockchain. It would contain a secure history of data exchanges, utilize a peer-to-peer network to time stamp and verify each exchange, and could be managed autonomously without a central authority. This became the backbone of Bitcoin. And thus, the blockchain we know today was born, as well as the world of cryptocurrencies.
How Does Blockchain Work?
So, then, how does the blockchain work? Let’s recall a few key features before we get into the details:
1. Blockchain keeps a record of all data
exchanges — this record is referred to as
a “ledger” in the cryptocurrency world, and each data exchange is a “transaction“. Every verified transaction is added to the ledger as a “block”
2. It utilizes a distributed system to verify each transaction — a peer-to-peer network of nodes
3. Once signed and verified, the new transaction is added to the blockchain and can not be altered