Blockchain and Bitcoin: Background and Benefits
Bitcoin, explained in a nutshell
Bitcoin is an online currency, or ‘cryptocurrency’ with an electronic security system, run by a massive network of individuals.
Initial benefits of each user having ownership in this currency is rather clever in its practical and democratic value, giving back responsibility for what is essentially owned by the people. This shifts the traditional, ‘please Sir, can I have some more’, mentality which is, of course a self-endorsing formula sustained by the multinational banking corporations worldwide.
Bitcoin, however, is a self-fulfilling, endless concept, founded securely on mutual trust with a ‘share-holder’ sense of ownership; it rewards creativity, risk-taking and game-changing perspectives with financial security routed deep within its core.
Trusting others – who are seemingly strangers – with your money sounds preposterous, but with Blockchain data as security it becomes extremely impregnable.
Blockchain is so protected in fact, that it has the potential for storing any kind of digital information imaginable. Systems like Bitcoin could indeed be the future of all secure digital transactions both nationally and internationally.
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What is a Blockchain and how does Bitcoin relate to it?
A Blockchain is quite simply a chain of blocks which contain information held within a digital platform. Originally, a methodology in 1991 by a group of researchers intended to time stamp digital documents to avoid backdating and tampering, such as that of a notary.
This was mostly unused until it was adapted by Satoshi Nakomoto in 2009 to create a digital cryptocurrency, Bitcoin.
A Blockchain is a distributed ledger and fundamentally open to anyone. Once the data has been recorded inside a Blockchain, it becomes very difficult to change it.
When looking at a ‘block’ we can see that it has three main components; data, hash and hash of previous block, which in turn creates the chain. The data stored depends on the type of Blockchain it is.
Bitcoin for example, uses Blockchain technology to save details about a transaction in the block, such as; the sender, the receiver and the amount of coins. This gives you the security, privacy and confidence to use this platform.
Each block also has a hash, which is electronically comparable to a fingerprint, an electronic identity if you will…
This identifies a block and all its content. Each hash is unique, non-replicable and individualistic.
Once a block has been created, its hash is calculated. Changing something inside the block will cause the hash to change, so in other words, hashes are very useful in the detection of highlighting changes.
The third element inside each block is the hash of the previous block, which effectively creates the continuity needed for the chain. It’s essentially this process that makes the Blockchain so secure.
Security against tampering within a Blockchain
If a block is tampered with, the hash of the block will change, therefore making all subsequent blocks invalid, as they no longer have a valid hash from the previous block.
Using hashes alone is not enough to prevent tampering, so to mitigate this, blockchains have something called ‘Proof of Work’, which slows down the creation of new blocks.
For Bitcoin, this process takes 10 minutes. This mechanism makes it very hard to tamper with the blocks, because you’ll need to recalculate the ‘Proof of Work’ for all following blocks.
In short then, it’s incredibly secure, which comes from its creative use of hashing and the proof of work mechanism.
There is one more way that blockchains secure themselves, and this is by being distributed using the peer-to-peer network, rather than a central approach. Everyone can join, and this immediately installs a sense of ownership; vested interest and trust within each user.
So, to successfully tamper with a blockchain you’ll need to tamper with all the blocks of the chain, redo the proof of work for each block and take control of more than 50% of the peer-to-peer network. Only then will a tampered block become accepted by everyone else. Naturally this is all but impossible, which is fantastic for enhancing user confidence.
The future of Blockchain
All we can be sure of is change, and the Blockchain is constantly evolving. Recently there have been several developments such as ‘Smart Contracts’ used for exchanging coins based on certain conditions.
The technology can be used for other things like storing medical records, paying for services such as online tutoring, creating a digital notary or even the collection of taxes.
About the author
David Bailey-Lauring is a single father of three boys and a content writer and regularly writes about sport, business, education and tech in the UK, USA, and Europe.