2020/08/06 at 8:54 AM
Blockchain technology and cryptocurrency what does it mean, how does it work, how are these connected, and what’s the bigger picture here, don’t fret this article will be simplified and will serve as an introduction to these topics and questions.
Let’s begin by establishing some fundamentals about what financial transactions, legal contracts, and assets mean. All of these previously mentioned jargon have something in common, they all have monetary value and are owned or transferred to a person or business. Currently, these assets, records, legal contacts, and financial transactions are protected and managed by organizations that act as intermediaries like banks and government systems to mention a few. These organizations are responsible for governing, verifying, and maintaining the chronicle events of the assets for which they charge their service fee or commission to the user.
As an example when you transfer money from your bank account to another person’s bank account then the bank act as the middleman and coordinates the financial transaction through their internal ledges which are trusted to be secure while charging us fee for the transaction to go through successfully. This method of the financial transaction had been the norm ever since. The introduction of blockchain technology helps perform the same financial transaction however in a more transparent and open manner that uses copies of distributed ledgers that record the transactions between two people or parties in a more secure and permanent manner without the need of any middleman or banks in our case.
Blockchain technology, in the simplest terms, uses a ledger or a digital file that records a time-stamped series of transactions managed by a distributed network of computers.
The structure of the ledger itself is the blockchain, where blocks store individual transaction data that includes the time of transaction, sender, receiver, and amount of value sent. These blocks are linked with other blocks using cryptography forming a blockchain structure. Unlike how banks work where the ledger file is stored in a central server on a single data centre. Blockchain technology requires a distributed nexus of private computers owned by the general public which performs two tasks of both storing data and executing computations for validating new transactions.
Each of the private computers in the network represents a “node” in the blockchain network which has a copy of the ledger file, unlike a bank that has one central ledger that no one can access the decentralized nature of blockchain network provides transparency and security.
To keep track of the amount of bitcoin each of us owns, the blockchain uses a ledger, a digital file that tracks all bitcoin transactions.
Blockchain and cryptocurrency are frequently used interchangeably however, they are not the same thing. Blockchain is the technology that underpins the existence of cryptocurrency. Cryptocurrency is simply the digital token or the digital value that is represented and stored in the blocks that form the ledger in the blockchain technology.
Currently, we require third parties and other members to help in establishing, validating and protecting agreements, contracts, asset transfers, and other deals. However, with the amalgamation of the blockchain technology, every such transaction be it of monetary value or sensitive information can be converted to digital record that is cryptographically secure and stored in a distributed blockchain network protected from deletion, tampering, and revision. This way individuals or parties can interact with one another with complete transparency.
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