What is the blockchain?

Mar 22, 2021 | Community Guides

Blockchain is the technology that enables Bitcoin and other cryptocurrency transactions to be stored and tracked transparently.

If that doesn’t mean anything to you consider going back to reading our What is Bitcoin? post in our community guides. Or equally, read on and it may begin to click.

In its most basic form, the blockchain is a ledger. It’s a record of transactions. If you look at your bank statement, you will see money in, money out and a resulting balance.

Taking Bitcoin as an example. If I send Bitcoin to you, 1000s of computers, which make up the bitcoin network, are simultaneously competing to be the first and most efficient computer to verify the transaction and solve the cryptographic puzzle.

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The node that does it the quickest gets the bacon. The bacon is more Bitcoin in the form of a transaction fee. Other nodes confirm the solution in a consensus. This transaction is then stored in a ‘block’ along with all the other processing transactions sent.

This transaction fee is minimal and the transaction is quick! Try sending large amounts of fiat currencies £, $, euro etc. and watch the fees and the time is taken for each transaction increase. God help you if it is overseas and the exchange rate is unfavourable.

The sender address, the receiver address and the amount transacted are stored and cannot be manipulated or changed. If it was in any way changed, the other nodes would not come to a common solution and the transaction would not be verified.

On average, every 10 minutes the block is completed and added permanently to the blockchain. The blockchain is updated for everyone ensuring the distributed ledger is the same globally.

This distributed use of computing power to confirm correct transactions on the blockchain is what makes it so powerful. If multiple nodes in the Bitcoin network confirm the transaction to be true then it is confirmed.

So, now we know how Bitcoin is sent and received. What about other cryptocurrencies? Well, they use the blockchain too.

The industry has been able to grow at such a quick pace due to Satoshi Nakamoto (Bitcoin creator) leaving his code available for all to use. This is called open-source.

In having the Bitcoin code as open-source 10,000s of spin-out coins and tokens have been developed that are revolutionising nearly every industry on the planet. Sparking a new industry of cryptocurrencies.

All other cryptocurrencies tend to be open-source too. This leads to exponential growth and rapid improvements in the industry over a very short time frame.

The possibilities are endless. Secure, tamper-proof and trustless voting on the blockchain? You got it…. Privacy coins on the blockchain? Look no further than Z-Cash and Monero. Even art is now backed by blockchain with Non-fungible tokens or NFTs – check out Beeple.

Anything company that needs trustless verification, increased security and global accessibility can benefit from the blockchain.

Ethereum, another main cryptocurrency is an ecosystem in which other cryptocurrencies can be built on top of. They will run on the Ethereum blockchain.

Other blockchains such as Binance Smart chain or BSC also allow tokens to be built and ran on the BSC. There are pros and cons of each, but maybe that is for another article.

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