Everyone has heard of cryptocurrencies, and how they have revolutionized the idea of money, economy, and trading. No longer do we need a third party to facilitate our trading. This seems impossible once first introduced to the idea. How in the world am i supposed to trust the average person with my transaction? Who is to say that something won't go wrong if there is no one there to make sure it goes right? Simply put, blockchain technology is the future's third party trading facilitator. Let's take a look.
Cryptocurrencies run on the idea of blockchain technology. Through a decentralized database, people can make digital transactions with complete transparency as each transaction is recorded into the "blockchain". The reason this is so revolutionary is because it eliminates the need for banks to keep a deal trustworthy.
Bitcoin is a great example as to how the blockchain works. If I were to make a transaction with another Bitcoin user via the Bitcoin network, my transaction gets grouped into a group of other transactions that happened within the last 10 minutes. This is referred to as a block. This block is set up with strict cryptographic rules that keep any transaction within the block from being duplicated or altered. Once all transactions within the last ten minutes are added to the block, it waits in a chronological line to be mined by high levels of computing power.
Miners are the key to blockchain technology. A miner is defined as someone with a very high level of computing power. Multiple miners compete with each other to validate the transactions within a block by solving complex problems. The miner that validates the block first is rewarded with something. In the case of Bitcoin, a miner that validates a block is rewarded with Bitcoin, which holds value in the cryptocurrency economy. Once the block is validated, it is chained in chronological order with past blocks to create a historical record of all blocks, leaving behind a transparent history of all transactions made within the block chain. This continues, and the blockchain becomes bigger and bigger.
While this is a very simple explanation of what blockchain technology is, it can be really helpful to people who are new to cryptocurrency. As a cryptocurrency investor, understanding as much as I can about what I invest in helps me make educated decisions, which in turn helps me turn bigger profits. Hopefully this quick explanation gives you a better understanding of how cryptocurrency is changing the financial landscape in our world today.
