With cryptocurrency, a whole new language and technology have come into vogue. While some investors are interested in the returns, others are willing to dive deep and understand the technology on which it is operating. Cryptocurrencies are virtual coins — Bitcoin, Ethereum, and Dogecoin among others — that can be mined, bought, and traded for value. The technology that enables it is called a blockchain. It is a system of recording data in a way that makes it difficult to change or cheat the network. It also makes the data available to everyone at any time, so that all transactions are transparent.
What is a blockchain?
A blockchain is a digital ledger of transactions that are distributed across a network of connected computer systems. Each block in the chain is a repository of transactions. And every time a new transaction is made, a record of it is added to the chain and resultantly to every participant’s ledger. Blockchain works the Distributed Ledger Technology (DLT), in which transactions are entered with a cryptographic signature called a hash.
An example of distributed ledger technology is a Google doc. When a Google doc is shared with a group of people, it is distributed instead of being transferred. This gives many people access to the document at the same time.
How does it work?
A blockchain consists of essentially three concepts — blocks, nodes, and miners.
Blocks: Every blockchain consists of multiple blocks and each block contains the data, a record of transactions. The key thing is that no one person or entity owns the chain.
Miners: Miners are tasked with creating new blocks on the chain through a process called mining. Miners solve complex mathematical problems to add the data on the block. When a block is successfully mined, the miner is rewarded financially.
Nodes: Each block is connected to another block, which forms the chain, via a node. A node is basically the network’s stakeholders and their electronic devices that maintain copies of the ledger and keep the network running.