Bitcoin is one of the most widely accepted cryptocurrencies around the world. This is because of the blockchain technology that supports bitcoin transactions.
So, what is a blockchain? A blockchain is actually a large public database where every bitcoin transaction is stored as blocks.
Each block is encrypted via hash code, and blocks are linked with each other in such a way that any newly created block’s hash code is designed based on the previous block’s hash code. Because of this hash coding, if an anonymous person tries to tamper with the chain, the hash code becomes more complex, making theft impossible. Even very small changes in the network are indicated to all bitcoin users connected to the network.
Bitcoin and the hash function
A hash function is a complex mathematical function that takes as input a series of random characters and converts them into a rigid string of characters. The hash function is composed of a string of letters and numbers, which is linked to a particular block of verified and validated bitcoin transactions.
Users can add up the blocks in the chain. So, after adding up the transaction chain, if someone tries to change or tamper with the block, the hash code becomes very complex, and the anonymous user attempt is unsuccessful.
The need for blockchain technology
At inception every bitcoin transaction was stored as a record, and those records were maintained by one central server. For example, there are ten transaction records, all noted in a diary by one single person. If one of the record owners tries to steal money the transaction record shows a block decreased in size, thereby allowing the person in charge to identify this change.
The blockchain owner inserts a hash function for every record so that a potential thief cannot access the chain. Even if the thief succeeds in accessing the record to reprogram the hash function he or she would be caught due to the fact that that the current record hash was based on the previous block hash code.
By introducing complications into the hashing function, the thief was unable to tamper with the record. That said, problems arose when the blockchain became too large to store in a diary. The this type of centralized storage and processing was inefficient due to the fact that all blockchains were being held on a centralized, controlling server.
With a a centralized server network, only a single server is responsible for the entire system. This is when a new storage capability emerged – that of a distributed blockchain network.
The great benefit of blockchain technology is the fact that all transactions (stored on spreadsheets) can be downloaded by all bitcoin users. So every user gets a copy of the entire transaction.
Any small change in one transaction is instantly noted and users of that particular chain can be notified.
How is a transaction carried out in blockchains?
To perform a transaction, every bitcoin user must have a wallet address. This address can use Bitcoin valid currency for trading. This address is like a public key that allows a sender to send bitcoins to a receiver. This public key is the wallet address of the receiver. So a sender has to send the bitcoin with his encrypted private key to the receiver’s wallet address, which the public key of the receiver.
Once a transaction occurs it is broadcast to the entire blockchain network where all the nodes connected in the network will verify whether the transaction is valid, and then the transaction is stored as a block on the transaction chain. Once the transaction is stored in the blockchain, the block can never be altered by anyone. Generally, a block contains the following information:
♦ hash code
♦ links to the previous block
In this way the blockchain controls each bitcoin transaction, making it both secure and anonymous. This is the reason why more people are getting attracted to Bitcoin compared to other cryptocurrencies.
Shift Frequency © 2020 – How blockchain technology works