Blockchain technology: Keeping Cryptocurrency secure

What Is Blockchain?

Blockchain technology allows users to digitally transfer a store of value without the use of a bank, credit card company, payment processor or other middleman. Blockchains operate across borders to allow digital payments to be sent instantly, anywhere in the world.

This innovative technology also ensures user privacy, protecting against hackers or identity theft, while also remaining open, transparent, and secure. Unlike using cash (which is difficult to trace), all cryptocurrency transactions are recorded in this verified, encrypted public list that virtually anyone can view.

The Bitcoin Blockchain

While the actual technology behind blockchain leaves most of us scratching our heads, we can break it down node by node using Bitcoin blockchain as an example. When it comes to Bitcoin, a copy of the blockchain lives on every block of data, or “node.” When someone sends a transaction in bitcoin, it is validated and added to a block by miners.

About every 10 minutes, verified bitcoin blocks are added to the blockchain (effectively leaving a record of every time someone sent or received a bitcoin). Because the nodes are all interconnected, they are constantly exchanging the newest information on the blockchain with each other. In short, each node efficiently stores, records and communicates the blockchain data. The nodes then form the framework of the blockchain, and they can essentially be made up of any internet-connected device.

When bitcoin is transacted, miners compete for the right to add a block to the blockchain in a funny, but highly energy-consuming game. If they win, they get rewarded in bitcoin and fuel future bitcoin creation. The blockchain is constantly cross-checked, encrypted and decentralized to make it virtually unbreakable and highly secure. What’s more, when someone makes a bitcoin transaction, users are protected against compromised financial information or identity theft as no personal data is exchanged.

How is a Bitcoin Born?

But how does Bitcoin even come into being? New bitcoins are brought into circulation by powerful computers using advanced software to solve complex mathematical problems that verify bitcoin transactions. Miners compete to solve the computational math problem and earn the next bitcoin block…before the process starts all over again with the next set of verified transactions.

Bitcoin miners essentially earn bitcoin by completing blocks of validated transactions and never have to actually pay for the bitcoin. But if it sounds simple for any computer geek to turn into a money-making miner, think again. The computer hardware necessary to mine bitcoin costs thousands of dollars and consumes huge amounts of energy in the mining process.

The Ethereum Blockchain

Ethereum is another top crypto contender and the second biggest cryptocurrency. The cryptocurrency token on Ethereum is called “Ether”, but many people refer to the digital currency as “ETH” or Ethereum. Unlike Bitcoin, users pay fees with ETH to execute smart contracts. These fees fuel the Ethereum platform and are often referred to as “gas.”

The Ethereum blockchain, which powers the second most popular cryptocurrency, works a bit differently. Just like the Bitcoin blockchain, the Ethereum blockchain also allows for the exchange of cryptocurrency, specifically ETH…but that’s only the beginning of the Ethereum story. ETH is then used to power the running of smart contracts. Smart contracts are computer programs that perform self-executing contracts under predetermined conditions agreed upon by buyer and seller, and they ultimately allow for the creation of decentralized apps (or dApps).

The Future of Blockchain

If blockchain hasn’t blown our minds just yet, get ready. The possibilities blockchain technology offers beyond crypto trading are real. In healthcare, blockchain can provide encrypted medical records. In voting, blockchain can create a secure process through automatic verification via computers, tablets or even smartphones. In business, blockchain can offer innovative supply chain management (and who couldn’t use that right about now?!). And that’s only the beginning of the blockchain magic.

Do you think blockchain will revolutionize digital life or is the hype overblown?