Satoshi Nakamoto came up with the idea of a blockchain. A distributed database and used it to build Bitcoin.
This distributed database is called a blockchain which allows for trustless transactions between multiple parties and is the underlying core of cryptocurrencies. The invention of the blockchain by Satoshi Nakamoto is considered unprecedented in the history of mankind. Once understanding the topic it may sound simple but it did not exist before Bitcoin.
Blockchain is a digital record
At its heart, a blockchain is a record of transactions, like a traditional ledger. These transactions can be any movement of money, goods or secure data. It’s designed to store information in a way that makes it virtually impossible to add, remove or change data without being detected by other users making it extremely secure, and since verification comes from the consensus of multiple users – it’s completely decentralized, essentially cutting out middle-men and authorities such as governments, credit cards or clearing houses.
Blockchain is a distributed ledger
Think of the blockchain as your debit card statements. You’re able to see every single chronological action that’s been recorded on your statement such as debits, transfers, and deposits. Each action that has occurred are those individual blocks that are added. On a larger scale, since the blockchain applies to everyone’s actions, think of the blockchain as a bank ledger, while each block is an individual’s bank statement.
Let’s start with a simple transaction that occurs between accounts
A simple transaction would be Account A will send 20 tokens to Account B. Accounts could represent a bank account, business, or your friend Bob.
Transactions are announced to the network, and queued to be added to a block.
The transaction is then put into a block which represent the ledger and each block is then chained to the previous block and so on. The ledger is a chain of blocks. Each block is created with a pointer to the previous block creating a blockchain.
The ledger is copied and distributed among nodes which are servers running on some sort of device.
But how are these blocks added to the blockchain?
The computer runs nodes that execute complicated mathematical equations to “form these blocks”. It’s tasked with validating and relaying each transaction before those new blocks are added.
Solving this mathematical equation is a “proof of work” system. The proof of work system is referred to as mining. The process involved in mining is generally very energy intensive that involves hundreds of computations and needs a lot of processing time and power. Miners are incentivized because they receive a reward of brand new Bitcoin for creating the next block.
Miners are investors that devote their time, energy and computer space in sorting out through the blocks. When the process in mining hits on the correct answers to the math problem, they will send their solutions to the network verifying the transaction.
Below are examples of what are known as mining rigs. Multiple graphics and processing power are used to solve these math equations.
A technology considered to be incorruptible
The blockchain allows people to know what is happening in the digital/cryptographic world. Transactions and transaction amounts can be traced to each blockchain address, but to identify who executed each action, is nearly impossible.