What is blockchain and how does it work

22 May, 2021 - 5 min read

Blockchain is a record-keeping technology behind bitcoin and other cryptocurrencies. Its records are secured through decentralisation and cryptographic hashing.

Before we start geeking, here are the key take points to note on blockchain technology:

  • Block is a database
  • As the name suggests, blockchain stores information in blocks which are then chained together.
  • Each new block is added to the previous blocks in chronological order.
  • It can be used to store anything including, most notably, financial transactions or ledger for transactions.
  • In the case of cryptocurrencies, blockchains are immutable, that is once a block is added, it can never be reversed.

What is blockchain

A blockchain is a database, it collects information in blocks that contains pieces of that data. When each individual block is in full capacity, it is added or chained to the previous block forming a chain, thus blockchain.

When implemented in a decentralised way, blockchains makes a series of immutable data, with each block assigned to its timestamp.

Blocks

A blockchain consists of blocks, each block consists of data, nonce and a hash.

  • Data – This is the data in the block, it can be anything including transaction data such as who sends what to anyone.
  • Nonce – A nonce is a 32-bit whole number randomly generated when a block is created. This means it has a range of about 4 billion values, An overage computer can calculate about 100 million hashes per second, therefore it’ll go through the nonce range in about 40 seconds. The nonce forms the block header hash.
  • Then, a hash is a 256-bit number added to the nonce, a hash must start with a huge number of zeros

Blockchain miners

Blockchain miners create new blocks in a process called mining. A block has a nonce and a hash linked together, the nonce and hash must also reference the hash of the previous block in the chain.

Miners are there to find a nonce that generates an acceptable hash using special software. When they find that nonce, their block is added to the blockchain.

After a block is mined, it is accepted by all the nodes on the network and the miner is given a token of appreciation.

Nodes

Decentralization is an important concept in blockchain technology. It is impossible for a single entity or organisation to own the whole blockchain, it is shared with other nodes.

A blockchain is a decentralised ledger connected via nodes. Each node can be any electronic device that has memory and connected.

All the nodes in a blockchain have their own copy of the blockchain network. The network must algorithmically prove the authenticity and validity of every newly mined block.

Uses of blockchain

Blockchain has many widely adopted use cases. From corporations to government agencies, blockchain is being adopted at a fast pace.

Cryptocurrencies

What motivated you to open this post is probably because you have heard that bitcoin and etherium use blockchain technology to maintain their integrity and acceptability.

All cryptocurrencies are tokens that can be used as money or value to buy goods and services. Bitcoin, Etherium and a plethora of others use blockchain as a ledger and also for the cryptographic methods for maintaining integrity and accountability.

Why everyone suddenly loves cryptocurrency

  • Blockchain security and immutable nature makes the cryptocurrencies hard to steal.
  • There is no supervision or interference with central banks, because cryptocurrencies are distributes, you can send money to anyone around the world.
  • If you can wisely invest in cryptocurrencies you might end up rich. The USD is declining and that makes cryptocurrencies more valued.
  • Many large companies are adapting to cryptocurrencies such as Elon Musk’s Tesla.

Why everyone suddenly loves cryptocurrency

2008

Satoshi Nakamoto, a pseudonym for a person or group, publishes the bitcoin whitepaper “Bitcoin: A Peer to Peer Electronic Cash System.”

2009

The first bitcoin transaction was made between Hal Finney and Satoshi Nakamoto.

2010

Laszlo Hanycez does the first purchase, two pizzas, with 10,000 BTC’s bitcoin now it’s worth $80 million.

The market cap of Bitcoin exceeds $1 million.

2011

1 BTC = $1USD

Electronic Frontier Foundation, Wikileaks among many start accepting Bitcoin as donations.

2012

Blockchain and cryptocurrency are mentioned in popular television shows like The Good Wife.

2013

  • BTC market cap surpassed $1 billion.
  • Bitcoin reached $100/BTC for first time.
  • Buterin publishes “Ethereum Project” paper suggesting that blockchain smart contracts.

2014

  • Gaming company Zynga accepts bitcoin
  • Buterin’s Ethereum Project is crowdfunded via an Initial Coin Offering (ICO) raising over $18 million in BTC
  • PayPal integrates Bitcoin .

2015

  • Merchants accepting bitcoin exceeds 100 000.
  • NASDAQ and Chain test the blockchain technology for trading shares in private companies.

2016

  • IBM announces blockchain strategy for cloud-based business solutions.
  • Government of Japan recognises blockchain and cryptocurrencies.

2017

  • Bitcoin reaches $1,000/BTC for first time.
  • Cryptocurrency market cap reaches $150 billion.
  • Bitcoin reaches its all-time high at $19,783.21/BTC.
  • Dubai announces its government will be blockchain-powered by 2020.

2018

  • Facebook commits to starting a blockchain group and start planning to create it’s own cryptocurrency.
  • IBM develops a blockchain-based banking system.

2019

  • China’s President Ji Xinping publicly embraces blockchain as China’s central bank announces it is working on its own cryptocurrency.
  • Twitter & Square CEO Jack Dorsey announces that Square will be hiring blockchain engineers.

2020

  • Bitcoin almost reaches $30,000 by the end of 2020
  • PayPal announces it will allow users to buy, sell and hold cryptocurrencies

2021

Elon Musk says his company Tesla will start accepting bitcoin as a form of payment.

Theophilus Ngaribvume

Hi 👋, i'm Theo Nga, a software developer based in Zimbabwe, Harare. I love JavaScript and Python.

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