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by Phil Birss
3 min read
What is blockchain and cryptocurrency?
Author: Phil Birss
Posted in Technology on 12th May 2018 4:58 pm
Turn on the news and you will likely hear something around cryptocurrency and blockchain. It seems like the world is a buzz with what these new technologies will mean for us, how much they are worth and whether they will become the new norm in finance. But many of don’t really understand what is means by the terms ‘blockchain’ and ‘cryptocurrency’.
In this article we walk through what is meant by each of these terms and why they are so exciting.
On the surface of it blockchain is a very simple and very smart concept that has huge potential. But dig a little deeper and it can all become very technical and a bit confusing.
Blockchain, in the form it is currently known, is a system that was originally designed to facilitate the sending, receiving and storage of the Bitcoin cryptocurrency. However, the application of blockchain goes far beyond this and is seen as a revolutionary way to store information.
As the name might suggest, blockchains are made up of blocks. These blocks are made up of information including the specific data it is being used for. It will also include a ‘hash’ which is a series of numbers and letters which the block can be identified by, these hashes will change if the contents of the block is changed meaning it is easy to ensure no data has been tampered with. It will also contain the hash of the previous block. This is how the block becomes a chain and ensures security, if any block is changed then the chain becomes broken.
Finally, unlike traditional databases, blockchains ensure that all information is legitimate through the use of a peer to peer (P2P) network. This works by allowing anyone who wants to join a network to host the blockchain on their own computer. Each host verifies the other, so in order to ‘hack’ and change a chain you would need to do so on every block on every host in the network. Therefore, the bigger the network the more secure it is.
This method of storing and verifying information is important as it can massively increase security. Not only is this beneficial for use with financial transactions but charitable organisations also hope the technology will be able to help those in less developed countries. This is due to the importance of official documents and the current issues with these going missing. For example, where paper copies or copies hosted on singles storage devices can easily go missing, important documents stored on a blockchain system is almost impossible to lose or be tampered with.
The technology behind blockchain is very important in facilitating cryptocurrency. Again this is a subject that can get very complicated, although on the surface it is quite a simple concept.
Traditionally money is exchanged in one of two ways, either through the physical exchange of coins and notes or digitally through a third party such as PayPal or your bank. In most cases this is fine, but what if that third party isn’t trustworthy and is ‘duplicating’ your money or what if their database gets hacked and the record of your transaction goes missing or are altered?
This is where cryptocurrency comes in, hosted by blockchain technology it allows you to spread the potential point of failure across hundreds, thousands or millions of peers rather than one single third party. In this case the blockchains host the information about the transactions, proving who owns that cryptocurrency and who they purchased it from.
In this article we have cleared up what is meant by blockchain and cryptocurrency. Clearly they are smart technologies that have the ability to revolutionise finance as well as a number of other areas where secure data is key.
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