We have heard the terms ‘Blockchain’ and ‘Cryptocurrency’ doing the rounds,
but what exactly they are is the question.
Cryptocurrency List Widget:
Bitcoin Cash (BCH)
Here we will speak about what the terms mean and how you can partake in the crypto market.
A blockchain is a kind of database. The database is essentially a collection of information stored on a computer system. A tabular format is followed to structure a database. This makes searching and filtering information much easier.
The database is used to store large amounts of information that can be accessed by many users at once. The information is usually saved in servers supported by robust computer systems that can be built using thousands of computers with computational power and storage capacity that makes it possible for it to be accessed by many at a time.
But, blockchain differs from a database in how the data is structured. Blockchain usually stores information in groups, called blocks. Each block has a storage capacity, which when filled is chained onto the previous filled block, forming a chain of data, popularly known as the blockchain. A new block is then added which will be added to the chain once filled.
Unlike a database, blockchain stores data not in a tabular manner but chunks. These chunks are later chained together. So, each blockchain is a database, but each database is not a blockchain. Once data is added to the blocks, it is set in an unchangeable timeline. So each block has an exact timestamp of when it was added to the chain.
To understand blockchain, let’s take the example of Bitcoin. Bitcoin needs a specific kind of database that stores every kind of transaction. Bitcoin stores databases in a set of computers. Each computer or set of computers is operated by an individual or group of individuals. Bitcoin’s blockchain is decentralized, ie, no third party controls it. But centralized blockchains also exist.
Blockchains have nodes that have records of data that have been stored since inception. If there is an error in a single node, the thousand other nodes can act as reference points to correct itself. This ensures that no single node can change information within it. This makes the history of transactions unchangeable. This reduces the chances of data manipulation since any tampering would result in the nodes cross-checking each other that will detect the error. Thus, the scheme of events in a blockchain ensures transparency.
A decentralized blockchain is completely transparent. Transactions can be viewed by having a personal node or having blockchain explorers that help see transactions live. A copy of the chain is attached to each node which gets updated as and when fresh blocks are added to the chain. Even in cases of hacks, where the coins are moved or used will be known.
Since new blocks are added chronologically at the end of the chain, it is difficult to reverse a decision without the consent of all. This means that if there is an alteration in one due to a hack, all others will be able to detect an irregularity.
A cryptocurrency is a form of digital currency that is exchanged for goods and services. The term is derived from the encryption techniques that are used to secure the currency, such as elliptical curve encryption, public-private key pairs, and hashing functions. Since cryptocurrency is secured by cryptography, double spending is impossible. Most cryptocurrency is decentralized, meaning they are not issued by any centralized authority. They are developed on blockchain technology.
Individual companies also issue their currencies, specifically used for trading in their goods and services. There are more than 10,000 kinds of cryptocurrencies that are traded.
Cryptocurrencies allow for secure payments to take place online. These are denominated in terms of virtual “tokens,” which are represented by ledger entries internal to the system.
Cryptocurrencies are becoming immensely popular and people are rushing to buy them because cryptocurrency transcends the barriers of centralization to create a space where payments are secure but at the same time not controlled by any entity. Central banks are subject to inflation that reduces the value of money over time. Cryptocurrency ensures the security of funds without a third-party monitoring transaction. The world is slowly gaining acceptance for cryptocurrency as a means of transaction, but there’s still a long way to go.
The value of cryptocurrencies goes up only when someone else pays more for the currency. So, in cryptocurrency, there is no real cash flow. Cryptocurrencies also by nature are not quite stable. This creates uncertainty in the cryptocurrency space. If the cryptocurrency is predicted to rise in a few years, then owners will save them up rather than spend them for transactions, thus making it less desirable as currency.
However, if one wishes to purchase cryptocurrency, they have to have a ‘wallet’. The wallet is an online application that holds currency. An account can be created on the exchange to switch real money to cryptocurrency.
Cryptocurrency and Blockchain
Cryptocurrency is a medium of exchange that uses the blockchain to create and store monetary units using encryption techniques and verify the transfer of funds.
Transactions take place by someone requesting a transfer of funds. The request is then broadcasted on the P2P network consisting of computers called nodes. The network validates the user’s status and transaction through algorithms. The transaction may have cryptocurrency or other information. Once verified, the transaction is combined with other transactions on the block to make a ledger entry. Once the block is full, it is added to the existing chain. Once attached, it is unalterable. This is how a transaction takes place on the blockchain.
The crypto market still has to undergo many reforms to be accepted as a reliable means of transaction. The ups and downs of the cryptomarket are unsuited for those who like to be on the safe end. But, cryptocurrency, through its fast developments shows immense potential for further growth and acceptance within society.