Let’s talk about blockchain, which is the concept behind popular Cryptocurrencies like Bitcoin, Ethereum, Cardano, and Litecoin. Blockchain seems complicated, but its core concept is really pretty simple – it’s a type of database. To be able to understand blockchain, it helps to first understand what a database actually is.
A database is a collection of information that is stored electronically on a computer system. Information or data in databases is typically structured in table format to allow for easier searching and filtering for specific information. A simple example for most people to visualize is a spreadsheet, like what you’d use in Excel. The main difference is that spreadsheets are designed for one or a few people to store and access small amounts of information. By contrast, a database is designed to house huge amounts of information that can be accessed, filtered, and manipulated quickly and easily by any number of users at once. In either case, data is traditionally housed/stored in a centralized location.
This helps us imagine a starting point, but how is blockchain different from a database? After all, a database isn’t a new concept, and blockchain is a new technology. One key difference is the way the data is structured. A blockchain collects information together in groups, also known as blocks, that hold sets of information. Blocks have certain storage capacities and, when filled, are chained onto the previously filled block, forming a chain of data known as the “blockchain.”
All new information is put into a newly formed block that will then also be added to the chain once filled. And one of the main benefits of the blockchain are the secure aspects of it. It's complex, but essentially, it builds linear blocks that are difficult to change because of the decentralized nature of it – there is no top-down control. The reason that this is so important is that cryptocurrencies – like Bitcoin, Cardano, Litecoin or Ethereum, are decentralized networks based on this blockchain technology.
The blockchain serves as a distributed ledger enforced by a global network of computers which is used to keep an online ledger of all the transactions. The reason that this is so secure is that every new block generated on the chain must be verified by each node.
Blockchains are highly secure, but other aspects of a cryptocurrency ecosystem, including exchanges and wallets, are not immune to the threat of hacking. In Bitcoin's 10-year history, several online exchanges have been the subject of hacking and theft. So, there are still some concerns around parts of the security, but blockchain itself is a secure and fascinating technology.
The information is provided for educational purposes and not investment advice. Cryptocurrency is very risky and can cause loss of principal.