Blockchain, the magic behind cryptocurrency

Blockchain is Bitcoin’s decentralized ledger which keeps track of each customer transaction and is visible to anyone who downloads the software.  On October 31st 2008, Satoshi Nakamoto sent an email to an obscure cryptography mailing list stating “I’ve been working on a new electronic cash system that’s fully peer-to-peer, with no trusted third party.”

Blockchain technology is the basis for bypassing the middleman using computers, algorithms, hashes and cryptography with community members verifying the transactions.  The blockchain was the missing link to decentralized digital currency.

Blockchain open ledger

For hundreds of years banks have kept a secret ledger of accounts of individuals private information and transactions.  The blockchain gives anyone with a computer access to the ledger.  2009 was the first time a person could send a transaction anywhere in the world without going through a central institution.  All the information of the transaction, personal information, underlying data are all encrypted and placed in blocks in 10-minute intervals.  

Blockchain Miners

Each transaction creates its own hash encryption which is 64 characters as shown here for an example.  These transactions are then sequentially linked to each other, and then miners scramble to find the winning block hash decided by Bitcoin’s core algorithm. 

The first miners to find this block hash are awarded a certain amount of Bitcoin.  Almost as a side effect of trying to find the block hash miners verify the transaction in pursuit of the block and the Bitcoin.  The community then verifies the legitimacy of the block in the blockchain.  A consensus on the block is very important as this can deter bogus transactions or double spends of Bitcoin.

The 51% attack

The 51% attack is if a group of miners controlled more than 50% of the hash-rate and were granted at least every other new block.  A new blockchain could theoretically end up forming instead of the legitimate transactions.  One deterrent is that a block producer will not get paid until 99 more blocks have been formed. 

Secondly it would cause Bitcoin to lose value which would not be profitable.  But still a nefarious country who wants to see Bitcoin taken down could hypothetically do so through this sort of attack on the blockchain. Even with this attack, there are checkpoints that are hardcoded into the software that will not allow someone to change past transactions.  

The Future of Blockchain

Blockchain is 10 years old and still in its infancy, it will have plenty of growing pains going forward but the technology itself is sound.  Technology is creating greater efficiency which takes much less power than when Bitcoin began. 

Other technologies using blockchain have different hash algorithms which are increasing speed of transactions.  For those who wish to invest in crypto you are an early adopter of the technology and the growth curve is all still in the future. 

Bitcoin

Home