Unless you have been hanging out under a rock for the past few years, you have probably heard the term “blockchain technology” before when someone was discussing Bitcoin or cryptocurrencies in general. If you aren’t familiar with blockchain, this term may seem somewhat abstract, without much meaning at the surface level.
However, the fact is – blockchain technology is an essential component of cryptocurrencies. If it did not exist, then various digital currencies that are so well-known today would not exist, either.
If you are still new to cryptocurrencies, as well as blockchain technology, then the information found here can give you some background and help you learn something you may not have known in the past.
A Brief Overview of the History of Blockchain
To begin with, it’s a good idea to get to know more about blockchain technologies history. Before this was ever used for cryptocurrencies, this technology was used for computer science. Specifically, it was used in the areas of data structures and cryptography.
The hash tree was the extremely primitive form of blockchain, and it was also called the Merkle tree. Patented in 1979 by Ralph Merkle, this particular data structure functioned by handling and verifying data between two or more computer systems. In any peer-to-peer network of computers, the ability to validate data was crucial to ensure that nothing was changed or altered during the transfer process. It also helped in making sure that false data wasn’t sent. Put simply, blockchain technology was used for maintaining and proving the integrity of data that was being shared.
By 1991, this Merkle tree was used for the creation of “secured chain of blocks,” which was essentially a list of various data records, with each one linked to the last. The latest record in the chain contained the history of the whole chain, which is how blockchain was created.
Satoshi Nakamato conceptualized and then distributed blockchain, for the first time, in 2008. It contained a secure history of data exchanges, utilizing a peer-to-peer network that stamped and verified every exchange. It was able to be managed without the need for a central authority. This is what became the very foundation of Bitcoin, and as a result, the modern blockchain that is known today was created, along with the vast world of cryptocurrencies.
An Explanation of How Blockchain Works
Now that you know how it was created, you may wonder how it actually works. Some details to keep in mind include:
- Blockchain is designed to maintain a record of all data changes, and this record is called a “ledge” with each data exchange being a “transaction.” When the verified transaction is added to the ledger, then it is a “block.”
- Blockchain uses a distributed system for the verification of each transaction.
- After being signed and verified, the new transaction is then added to the blockchain and at this point, it can’t be altered.
First, you must understand keys. When you have your set of cryptographic keys, then you receive a unique identity. You have a Public Key and a Private Key, and together these provide your digital signature. The public key is how other people identify you, and your private key allows you to digitally sign in an authorize actions for your digital identity.
During a transaction, the information of the receiver’s address (public key), as well as the digital signature of the sender, is recorded. It is added to the ledger of the blockchain relating what occurred along with a unique ID number and timestamp. When the transaction occurs, it is then sent to a peer-to-peer network of nodes that acknowledge the transaction has occurred and add it to the ledger.
The anonymity factor of cryptocurrencies is derived from the fact that your public key is a randomized sequence of letter and numbers. Also, public keys don’t reveal the actual identity of who is behind it.
Blockchain is something that is still growing and being developed today. As such, the opportunities and offers with this technology are also going to continue to grow, which means that there may be even more opportunity to use it in the future. If you are interested in using blockchain technology, then learning as much as you can about it initially is a good first step.