The advent of the Crypto Market and all of the changes it is bringing to the world economy comes from a number of factors, one of them being the underlying technology behind its functioning. This article aims to explain to the general public how the blockchain technology works and why it is so promising.
The current definition of Blockchain is an immutable digital list of data records organized in blocks and linked through cryptographic proofs.
The blockchain first prototype is dated back to 1991 with scientists Stuart Haber and W. Scott Stornetta, in which cryptographic techniques were used in a chain of blocks to secure digital documents from unauthorized changes. After that, many scientists continued studying this technology, but only in 2008 with the release of the Bitcoin Whitepaper was that blockchain and its potential went to another level. As another inflection point, in 2013, Vitalik Buterin created the Ethereum blockchain, that allowed the development of decentralized applications over its infrastructure.
The Blockchain is a distributed computing platform, meaning that there are computers distributed globally, these computers are called Nodes. Each node has a copy of the blockchain, which comprises the network state and its transactions. The state of the blockchain is the current balance of each account, and the transactions are state transitions. These transactions are organized in chronological order inside blocks linked through Hash Functions.
A Hash Function takes data of any size and passes it through a mathematical function that produces an output of fixed length called hash. Inside each block, there is a hash that ‘’points’’ back to the previous block. The hash contains information about all of the blockchain previous blocks, as a property of the hash function. With that, any attempt to edit one of the previous blocks would show immediately.
As one can imagine from a distributed platform, there is a known issue regarding how the nodes of the network can operate even with malicious nodes sending wrong messages. To solve this issue, Consensus Algorithms were developed. These algorithms consist of mechanisms that allow all users to coordinate between themselves agreeing on a single source of truth, even if with a malicious user.
There are a number of different consensus algorithms, but Bitcoin and Ethereum use Proof of Work (PoW) and Proof of Stake (PoS), respectively. Both of these algorithms were briefly explained in a previous article that referred to the Ethereum Merge and can be accessed here: “ETH Merge: from PoW to PoS.”
With that brief introduction, we can verify how important blockchain technology is for the development and adoption of a decentralized currency that has no direct influence from governments and can function without third-party intermediation. In addition to the cryptocurrency market, blockchain technology can be used in a number of different applications that require a decentralized and trustworthy network. Such applications, for example, are Supply Chain, Healthcare, Insurance and Internet of Things.
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