What Is Blockchain Technology in Cryptocurrency?

Before we finish this course, there is one important concept you need to be familiar with when talking about cryptocurrency.

Blockchain technology is a new yet more reliable way of recording digital data or transactions. This network has become revolutionary in the cryptocurrency network as it resolves the issue of transaction and data security.

Once a crypto transaction enters the blockchain network, it will be extremely difficult, if not impossible, to change the recorded data.

Follow this lesson to learn more about blockchain technology and its importance in cryptocurrency.
 

Lesson Highlights

• The first real-life application of blockchain technology was with the emergence of Bitcoin. The first crypto was based on blockchain, suggesting that the digital coin is capable of peer-to-peer (P2P) transactions if recorded to the blockchain.
• Blockchain contains a series of blocks that are chained together in chronological order. The blocks have encrypted transaction information, which makes it physically impossible to reveal the input behind the encryption.

 

Blockchain Technology Explained

Blockchain is simply a decentralized database. It stores financial transaction data and shares it across all the computers under the same network.

All pieces of data in its database are accessible and recorded on all computer networks of the same ledger. This means that everyone on the internet has access to the data stored and shared in blockchain.

Decentralized? Well, in its most basic form, being decentralized means that the blockchain network is not managed nor controlled by any central authority or intermediary. 

The data stored in the blockchain primally tells who owns what (digital assets). This data keeping is not recorded by anyone; it’s automated.

The assets recorded to blockchain are not limited to financial assets (currency pairs, crypto, stocks, bonds, etc); assets in blockchain also include tangible assets like:

1. Vehicles
2. Machinery
3. Building

While blockchain can store and share various digital information or data, one of its famous uses in today’s world is storing the data of cryptocurrency transactions.
 

Blockchain Key Terminologies

Before diving deeper into the blockchain concept, you should first be familiar with blockchain jargon. Being familiar with these key blockchain terms would make this lesson a little less confusing.

1. Blocks: A container of a successfully recorded transaction in the blockchain.  
2. Hashing: A process of encrypting the transaction information that is put in a block.  
3. Distributed Ledger: A structure of cryptography’s input and output spread across all the devices in the specific network.  
4. Network of Computers: A bunch of computers that are linked together to exchange data. These computers or devices are under the same network.  
5. Peer-to-Peer Network: A decentralized transaction between the client and a server where both parties (or peers) can act as the other.

 

Blockchain and Cryptocurrency: How They Work Together?

Blockchain technology has been and is still a fundamental security infrastructure in the cryptocurrency market.

The emergence of blockchain technology has aided the issue of security and transparency in digital currency transactions. The blocks (the transaction data) are stored and connected to other blocks in the blockchain.

Each block relies on cryptography to conceal the actual transaction information and protect the identity of crypto buyers and sellers. All blocks are cryptographically hashed and linked (or chained) together with all the blocks in the network.

With this reference, you can see the chronological order of the transaction and the respective encrypted transaction information.

But what makes it secure?

Well, once a transaction is recorded to the block, it will be impossible to alter it because it undergoes hashing and is linked to the other blocks in the chain. If the data in the block is altered, the preceding blocks will still carry the original data, making the blockchain data inconsistent.

If this happens, the network will reject the transaction because the hashes are not matched.
 

Blockchain Came Together with Bitcoin

Okay, let’s have a quick history lecture!

Did you know that the world’s first cryptocurrency protocol was built based on the concept of blockchain technology?

The initial concept of Bitcoin is to allow electric cash system exchanges that are purely peer-to-peer or without any intervention from trusted third parties like financial institutions. This concept is mainly derived from Stuart Haber and W. Scott Stornetta’s idea for blockchain technology, preventing people from tampering with document timestamps.

Today, the largest cryptocurrency, Bitcoin, still uses blockchain to make all transactions within the network transparent and secure.