The word blockchain and cryptocurrency seem to be gaining a lot more popularity these days in the digital era.
However, not many people know exactly what the definition of either term is. In this article, we are going to discuss everything you need to know about these two terms and how it works.
Do you know how a bank keep ledgers that contain all information about transaction within the bank?
Well, blockchain is similar to that, but it records online transaction instead. It is a public file, meaning that anyone can get a copy of it, albeit the identities are encrypted, making it highly secure. This is the system that ensures the integrity of cryptocurrencies such as Bitcoin by validating,
recording and encrypting all cryptocurrencies transactions. How this system works will be explained in the next section.
Now, let us move on to the definition of cryptocurrency.
It is a digital currency developed by a certain developer with cryptographic protocols in order to secure a transaction. It is harder to fake and is considered safer and easier to perform a transaction.
In theory, cryptocurrency is immune to government interference because no central authority controls its circulation. Making it popular and attract many new users.
Since cryptocurrencies don’t require middlemen – or in a regular transaction using regular currency, the middleman here is the bank – it avoids the service fee usually charged by banks or other financial institution.
There are many cryptocurrencies available, such as Ripple, Ethererum, LiteCoin, and Bitcoin, which the latter is the largest and most famous among some of the biggest cryptocurrencies.
Blockchain is the system behind a Bitcoin which hold all the information about the owners of the Bitcoin and how much they own it.
It is a distributed ledger that creates the network for the transaction and transferring value as well as information. This transaction should be confirmed by miners to make it unforgeable and cannot be reversed.
Only miners have the ability to confirm a transaction, check them whether it is legit or not, and then spread them between parties in the network as a blockchain that is added to the transaction data which formed a permanent transaction data.
Every user of this technology will have the same copy of the entire data as everybody else, making it impossible to forge them.
This is how the system works, and its high security makes it highly talked about.
The tight and strong security of this system makes other mainstream institution started to adopt this technology into their field of work, for example, the Citigroup and London Stock Exchange. In their field of work, this system is beneficial to protect intellectual property or investment records.
Therefore, this technology has the potential use in other fields in the future, although the banks nowadays haven’t started to use this technology yet.
It may also useful for artist and musicians to use this technology to secure their work and in return receive fair compensation from fans without being cut by labels.
In fact, a Norwegian black metal band called Heimskringla has tried to do this since they realize that their income significantly decreases since their label increased the cut. By using this technology, they can sell to fans directly and at the same time securely and permanently record every transaction to their arts.
Blockchain is the basis of technology where the cryptocurrencies are part of the ecosystem. Both are working together and go hand in hand.
Cryptocurrency is needed for transaction in this technology, while without this technology, there will be no ledger to record and transfer the transaction.
In other words, you can consider cryptocurrency as the valuable token used within the network, and the technology is the platform where you are using this valuable tool.
Understanding this technology and cryptocurrencies indeed can be difficult and you may need an additional course or learning a lot of tutorial on how blockchain and cryptocurrency works.
While everybody can join the trend and involve in this financial trend, make sure you understand everything fully from the basic to the more advanced information before deciding to invest in it.