What Is Blockchain Technology?
Blockchain technology is the technology that allows Bitcoin to work. But few people really understand how it works. Today, we’re explaining what it is and how it makes Bitcoin tick.
Think of the Blockchain as a public ledger of all Bitcoin transactions
The blockchain is like a public ledger of all Bitcoin transactions that have ever been executed.
The blockchain is constantly growing with every Bitcoin transaction. Every time a Bitcoin transaction is executed, a completed “block” is added onto the blockchain. That’s where the word “block chain” comes from. Get it?
Blocks are added in a linear, chronological order. So basically, the blockchain is like a timeline of all Bitcoin transactions that have ever taken place.
Each computer connected to the Bitcoin network gets a copy of the Blockchain
All computers connected to the Bitcoin network get a copy of the blockchain downloaded to their computer. This blockchain is automatically downloaded upon joining the Bitcoin network.
These computers are referred to as “nodes”.
Each node, or computer, plays a role in validating and relaying transactions on the Bitcoin network.
When you look at the blockchain, you can view complete information about the addresses and their balances from the beginning of time to the present day – including everything from the “genesis block” to the most recently completed blocks.
The fact that nodes host the blockchain prevents the need for Bitcoin and other virtual currencies to have a centralized database. So, while a currency system like PayPal has a central database, Bitcoin does not require one due to the decentralized nature of the blockchain technology.
Blockchain is the Main Technological Innovation of Bitcoin
The creation of the blockchain is seen as the main technological innovation of Bitcoin because it stands as proof of every transaction on the network.
Every time a block gets completed, a new block gets added on before being filled in by the next transaction. Each block is linked to the other in a chain, with each block containing a hash of the previous block.
Just like a ledger in a bank, the blockchain consists of a full history of banking transactions. Bitcoin transactions are entered chronically into the blockchain in the same way the bank enters transactions. In this analogy, you can think of the blocks like individual bank statements.
More Than Just Bitcoin
Keep in mind that Bitcoin isn’t the only virtual currency that uses blockchain technology. The technology is also used by a number of other virtual currencies. A good blockchain is seen as a hallmark of a stable and honest virtual currency because it allows the public to view all transactions in real time.
Poor-quality virtual currencies – like some of the currencies advertised by multilevel marketing companies – do not often use blockchain technology, which is why they’re considered a poor investment.
Some of the other major cryptocurrencies and online platforms using blockchain technology include:
Each has a slightly different version of the blockchain technology although they all work in a way that’s based on the original Bitcoin blockchain.
The Size of the Blockchain May Become a Problem
In the early days of Bitcoin, the blockchain was relatively small because only a limited number of transactions had taken place.
Today, the blockchain is massive. On average, every 10 minutes, a new block is added to the block chain through mining.
Some people view this as a fundamental problem of bitcoin: the ever-growing size could pose problems for storage and synchronization.
Nevertheless, Bitcoin continues to be healthy and prosperous to this day. At this point, the size of the blockchain has not become an issue.
The Blockchain Is a Fundamental Part of Bitcoin’s Security
The blockchain is an important reason why Bitcoin is viewed as a successful and stable currency.
It’s described as a tamper resistant technology because all of the blocks are timestamped using the hash of batches of recent valid transactions. This timestamping proves that the data must have existed at the time.
Every block includes the prior timestamp, which forms a chronological chain of blocks.
At the same time, all block chain records are further secured cryptographically.
If someone were to tamper with the blockchain in some way, it would be immediately noticeable.
What is a Sidechain?
Sidechains are private or public networks that are isolated from the main Bitcoin blockchain but still based on the same protocol.
Some of the popular sidechains around today include:
That last sidechain is actually approved by the SEC and was developed by Overstock.com
Ultimately, Bitcoin couldn’t exist without blockchain technology. It’s the key technological invention that has made Bitcoin the world’s most popular cryptocurrency.