The fundamental technology behind Cryptocurrencies
Introduction: Blockchain technology is one of the most revolutionary advances in the digital age and is causing seismic shifts in various sectors. It has opened up new ways to deal with the issues of intellectual property and financial transactions in this highly digitized and globalized world in the wake of this devastating pandemic.
Popular usage of this new technology is in the field of Cryptocurrency. Bitcoins, Dogecoins, Ethereum are some of the most popular cryptocurrencies in the world today, with their own conventions and luminaries like SpaceX and Tesla CEO Elon Musk and tech legend Bill Gates weighing in the conversation.
Cryptocurrencies are also a store of value. Trading platforms like website for Bitcoin evolution have made trading easy and accessible to new traders. In this blog, we will look closely at how this exciting new technology works and how it is giving rise to a currency that might change the financial sector forever.
- Mechanism of Blockchain technology: Blockchain is essentially a digital ledger designed in a way that makes it impossible to alter its recorded history. It is also known as Distributed Ledger Technology or DLT, which means that this technology uses decentralization in order to increase security. This means that the ledger is not stored in a single location but across a vast number of computers making it impervious to cyber-attacks.
Another term that has gained popularity in association with bitcoins is Cryptographic Hashing and it is important to understand what it means and what it contributes to Blockchain technology. To cut the long story short, Hashing enables the conversion of data and form a text string that has a character of its own. It is a mathematical process that is easy to execute but near impossible to reverse. Like making an egg poach. Easy enough to make, but would be quite a challenge to undo.
- Key Constituents of Blockchain technology: There are three main components of a Blockchain – Blocks, Nonce, and the Hash. Every block is constitutive of previous information and at the same time produces a template for the next in the series.
The completed Block remains as a permanent record of the past interactions, while the new transactions are recorded and stored in the current block.
Nonce stands for ‘Numbers only used once’.The Nonce is the number that has to be solved in order to generate a new block. It is encrypted, and the miners are required to compute the right hashed number.
Finally, Hash, which is basically a mathematical function that can encrypt data of arbitrary length into an output of fixed length. Hence irrespective of the size of the initial data its unique hash must be of the same size. As mentioned before Hashing cannot be reverse-engineered. This also allows a way for authenticating data, provided one knows its hash because if the function is used on the same data then the hash will be identical. Hashing is one of the most essential aspects of Cryptocurrency.
- Usage of Blockchain in Cryptocurrency: As we know that Blockchain is the innovative technology on which Cryptocurrency is built. In traditional finances, transactions across the globe are mediated by banks or governments, the process of which is opaque, time-consuming, and convoluted. The fundamental reason for this is that all banks or corporations must have one centralized ledger of all the transactions that they are mediating.
However, since Cryptocurrency uses Blockchain technology it allows a record of every transaction ever made not in a centralized ledger but in a decentralized manner across a vast number of computers using the Blocks as means of keeping a permanent record.
This decentralization allows more speed along with more security. The key feature is the distributed ledger. With increasing cases of ransomware, like Colonial Pipelines and JBS Food, a unified ledger is always vulnerable to hacking and extortion. Blockchain technology that provides security against these cybercrimes will dominate the digital age.
Conclusion: In a world where traditional means of business are becoming increasingly obsolete, Cryptocurrency using the Blockchain, although still at a nascent stage, shows adaptability and security. A mode of currency based on technology and outside government and corporation oversight is the 21st Century Promise. Hope this could shed some light on the confusing world of Cryptocurrency.