I remember back in 2017, a friend of mine was talking about investing in Bitcoin. I hadn’t heard much about Bitcoin other than the FBI shutting down the Silk Road black market and subsequently confiscating most of the Bitcoin. Working as an IT professional, I focused more on the negative and wildly speculative nature that surrounded Bitcoin. I overlooked the true value of Bitcoin, the underlying technology known as blockchain.
The blockchain is a secure distributed ledger which keeps track of transactions between parties.
The ledger tracks balances for all parties and updates them when transactions have occurred.
The blockchain records all Bitcoin transactions in sequence to the ledger after confirmations from network nodes.
Nodes are computer servers which host the bitcoin network.
The network of Bitcoin nodes are distributed, decentralized, and they all store an identical copy of the transaction ledger. When transactions are initiated, the first node to receive it validates the transaction. Depending if the transaction is authentic or not, the node writes it to a block which contains the most recent Bitcoin transactions waiting to be transferred, or rejects it altogether.
A block contains the most recent Bitcoin transactions that have not been written to the blockchain. To link it to the blockchain, it also contains unique information from the last block that was written to the blockchain. Once this new block has been validated, confirmed and is written to the blockchain, it is permanently linked to the end of the blockchain. This blockchain update is then sent to be across the entire Bitcoin network to be synced by all other Bitcoin nodes.
Miners are a type of node that support the Bitcoin network by providing processing power to add new blocks to the blockchain. In return, miners are rewarded with Bitcoin for the amount of blockchain mining they accomplish. A future article will cover Bitcoin mining in greater detail.
Depending on the amount of Bitcoin, each transaction will be confirmed by 1-6 nodes in order for the transacted amount to be settled. This decentralized network is more secure and resilient. Thus, the Bitcoin ledger data is always available as long as just a handful of nodes remain operational.
All transactions stored on the blockchain ledger have the following properties:
By trusting the secure verified ledger, the blockchain provides a “trustless” digital financial middleman.
Yes, Bitcoin’s blockchain utilizes the SHA-256 hashing algorithm. SHA-256 is an industry standard cryptographic hashing function which was designed by the National Security Agency in 2001. SHA stands for Secure Hash Algorithm and the 256 denotes the number of bits in the hash. A hash refers to data that has been securely encoded making it next to impossible to decipher without the cryptographic key.
Bitcoin wallet addresses, transaction IDs, and blockchain data are all securely encrypted with SHA-256.
Let’s take a look at some examples:
bc1qar0srrr7xfkvy5l643lydnw9re59gtzzwf5mdq
4ce18f49ba153a51bcda9bb80d7f978e3de6e81b5fc326f00465464530c052f4
Now that we’ve seen what Bitcoin transactions look like, let’s talk about what else Bitcoin can do.
Bitcoin and the blockchain provides an alternative to centralized financial institutions.
Governments, banks, and other centralized financial entities inflate, deflate, create, and destroy currencies as they see fit. Throughout human history, these centralized entities have typically corrupted the financial systems causing economic turmoil, public scrutiny, and the rise and fall of nations.
Bitcoin offers an alternative where anyone can purchase, store, sell, and transact on their own terms with full ownership and control. No credit or background checks, no time consuming application process to register an account, and no minimum deposits required.
Without having to rely on banks and other financial institutions, Bitcoin gives financial control back to the people.
Bitcoin presents an alternative financial medium but the blockchain presented many different use cases.
Bitcoin’s blockchain could potentially store any type of data, not just financial transactions.
The true value of Bitcoin comes from the power of blockchain and what it can do.
The blockchain can securely store any type of data including financial records, smart contracts, supply chain information, and applications known as decentralized apps.
With the invention of the blockchain, a distributed and decentralized internet 3.0 became a reality.
The second most traded cryptocurrency Ethereum, introduced smart contracts and the ability to build decentralized applications on the blockchain. Powered by a similar blockchain network of nodes and mining computers, a contract or decentralized app can tap into the distributed resource power of the entire blockchain network.
Bitcoin’s blockchain eventually inspired an entire ecosystem of communities and companies who are solving real world problems by utilizing the power of the blockchain.
Although Bitcoin is quite valuable today as a cryptocurrency, it gave birth to the blockchain which is far more valuable.
-Konjo
Credits
Icons made by Freepik, Nikita Golubev, monkik, srip, turkkub, catkuro, itim2101, surang, Eucalyp, and DinosoftLabs from https://www.flaticon.com/
Disclaimer
The content provided on this website does not constitute investment advice, financial advice, or trading advice. Please conduct your own due diligence and research before making any investments. Please understand the risks involved before investing in crypto.
Resources
https://www.flaticon.com/
https://bitcoin.org/
https://ethereum.org/
https://www.blockchain.com/
https://www.konjotech.com/2021/06/04/bitcoin-blockchain/
https://www.bitcoinmining.com/
