If you’re old enough, you might remember when the internet was really starting to take off in the mid-90s. If you were in a product or retail business, moving things through the supply chain, there was a moment there when you had to stop and ask: Is this thing real? is it going to last? That really happened! Every company in the supply chain had to make decisions about adopting to the new way of doing things or risk being left behind. Most US companies transitioned to the new reality reasonably well over time, but there were some major companies that didn’t get it early on that missed the boat entirely.
The terms “Cryptocurrency” and “Blockchain” do not describe the same thing. Cryptocurrency is an entity, or commodity if you will, that is unique to each individual coin whereas Blockchain refers to the underlying technology that secures your invested funds and provides the mechanism that verifies any Cryptocurrency transactions that you make, whether that is making a purchase or moving funds between accounts and Cryptocurrency types.
What is a Blockchain?
Although the computational concept of Blockchain had been created back in 1991 by Stuart Haber and W. Scott Stornetta, it wasn’t until Bitcoin rolled out in 2009 that there was an actual real-world application that implemented the technology. Bitcoin was the first product to be built using blockchain technology as its backbone. In 2007 Bitcoin’s pseudonymous creator, Satoshi Nakamoto, published a research paper introducing the digital currency. If you want a deep-dive technical overview of Bitcoin and how it uses the blockchain, you should read the attached nine-page PDF. Nakamoto himself simply referred to it as “an electronic payment system based on cryptographic proof instead of trust.”
Blockchain can definitely be complex from a technical standpoint, but its core concepts may be easier to understand if you think of a blockchain as a type of database. To be able to understand blockchain, it helps to first understand what a database actually is. A database is a collection of information that is stored electronically on a computer system. Information and data in databases is typically structured into table format to allow for easier searching and filtering for specific information.
Database have been around since the dawn of computing and are designed to house significantly large amounts of information that can be accessed easily by any number of users at once. Large databases achieve this by housing data on servers that are made of powerful computers. These servers can sometimes be built using thousands of computers in order to have the computational power and storage capacity necessary for many users to access the database simultaneously.
Structure of the Blockchain
Now I just said that a blockchain is basically a Database, but the key difference between the two is the way data is structured in a blockchain. A blockchain collects information together in groups (or blocks) that hold the sets of data. Blocks have specific storage capacities and when filled, they are chained onto the previously filled block, forming a chain of data known as the “blockchain.” All new information that follows that freshly added block is compiled into a newly formed block that will then also be added to the end of the blockchain once filled.
A database structures its data into tables whereas a blockchain, like its name implies, structures its data into chunks (blocks) that are chained together. This makes it so that all blockchains are databases but not all databases are blockchains. This system also inherently makes an irreversible timeline of data when implemented in a decentralized nature. When a block is filled it is set in stone and becomes a part of this timeline. Each block in the chain is given an exact timestamp when it is added to the chain.
The Transaction Process
- A new transaction is created.
- The transaction is transmitted to a global network of peer-to-peer computers.
- To confirm the transaction, this network of peer-to-peer computers will solve a series of complex mathematical equations to ensure its validity.
- Once the transaction is confirmed and verified by the network, it is clustered together into blocks.
- Within the confines of the secure database, the blocks are chained together, creating a history of un-editable, permanent history of every transaction.
- At this point, after the initial transaction, the verification process, and the writing of data to the blockchain database, the transaction is complete.
Transaction Transparency and Security
Because of the decentralized nature of Bitcoin’s blockchain, all transactions can be transparently viewed by either having a personal node or by using blockchain explorers (like blockcypher.com) that allow everyone to see transactions streaming live as they occur. Each node has its own copy of the chain that gets updated as fresh blocks are confirmed and added. This means that if you wanted to, you could track Bitcoin, or any other blockchain, wherever it goes.
Blockchain technology accounts for transaction security and trust in multiple ways. First, new blocks are always stored linearly and chronologically. That is, they are always added to the “end” of the blockchain. If you take a look at Bitcoin’s blockchain, you’ll see that each block has a position on the chain, called a “height.” As of 4/5/2021, the block’s height had reached 677,901 blocks.
After a block has been added to the end of the blockchain, it is very difficult to go back and alter the contents of the block unless the majority reached a consensus to do so. That’s because each block contains its own hash, along with the hash of the block before it, as well as the previously mentioned time stamp. Hash codes are created by a math function that turns digital information into a string of numbers and letters. If that information is edited in any way, the hash code changes as well.
What is Cryptocurrency?
The short answer is that Cryptocurrency is decentralized digital money, based on blockchain technology.
Cryptocurrencies are systems that allow for secure payments online which are denominated in terms of virtual “tokens,” which are represented by ledger entries internal to the system. “Crypto” refers to the various encryption algorithms and cryptographic techniques that safeguard these entries, such as elliptical curve encryption, public-private key pairs, and hashing functions.
Bitcoin is the original Cryptocurrency and was first introduced in 2009. The success of Bitcoin has spawned this whole new industry, and there are now in excess of 5,000 other Cryptocurrencies out there in the marketplace, with a combined approximate value in excess of 1,5 Trillion dollars. Most all of these Cryptocurrencies have a specific target market and are offering real-world services and solutions for the people who use them. Beyond the blockchain technology which they all employ, there can be differences in the overall implementation of their solutions, so despite the novel and exciting nature of Cryptocurrencies, you should do a fair amount of research and strive to understand how each coin/system works before putting your money there.