Blockchain Technology - What It Is and Why It Is Used for Cryptocurrencies

Blockchain technology

Blockchain Technology: What is It and Why Do They Use It in Cryptocurrencies?

The definition of cryptocurrency and everything connected to it is usually complicated and staying beyond the average user’s understanding. Mostly, the complexity is connected with the understanding of blockchain technology functioning principles and its use for cryptocurrency markets. For today, this technology is among the main tech innovations of the whole world. With it, it is possible to make significant changes and improvements in control and management of finance procedures, stocks, bonds, etc.

In this article, you’ll know what the blockchain system in cryptocurrency is, how it functions and what its main advantages are.

Blockchain Technology: What’s That Simply Put?

Simply put, blockchain is the system for quick, safe and open transferring of digital data (money, intellectual property, etc.). The technology consists of the chain of blocks creating the database together. At the same time, the devices storing this distributed data do not have the common server. Every block is the certain note including the link to the previous nod and a time stamp. The number of blocks in the database grows regularly.

The point of blockchain is that digital records unite into a block, and then complicated algorithmic laws connect them into the single chronological chain. Every new block is positioned at the very end of the chain. It is impossible to change the position or switch cells: the system denies the operation due to the lack of correlation between the time stamp and the structure.

Short History Guide

The blockchain principle was offered by the founder of Bitcoin, one of the most popular cryptocurrencies – Satoshi Nakamoto, back in 2008. Its realization began in 2009 to register transactions initiated in the Bitcoin currency. The introduction of such a system allowed excluding the third party (main server, central bank or other authority institutions) from the turnover chain of digital coins.       

Key Advantages of Blockchain

The Blockchain platform is the universal instrument to create different databases. Its advantages are:

  • As mentioned earlier, blockchain does not have the main server to store data. All the recordings are stored by every participant, and at the same time, no person or group have the complete network credentials. Still, all participants have copies of the distributed register, and nobody has the right to change it on their own. This is how blockchain guarantees safety and transparency of all payment procedures.
  • 100% transparency. Every user has the access to all data and transactions initiated inside the platform at a random moment. To check all transactions, it is enough to enter the address to the search line of the “Explorer” folder. After that, the user will see all operations initiated and completed with the participation of the required company.
  • It is impossible to change data entered into the blockchain. That is why it is easy to disclose any data falsifications.
  • All the data in blockchain is stored in the encrypted shape. The participant can see all transactions, but they can’t identify the sender or recipient without knowing the address and unique access key.

Blockchain in Cryptocurrencies: How It Works, Algorithm

In the field of cryptographic currencies, the blockchain technology allows dividing digital assets between system participants (single miners and large companies) honestly and transparently.

When the data is placed on the platform by one participant, the other one gains the access to it with their unique signature. The technology is built in the following way: when the user passes the unique signature of crypto key, they also pass the valuables stored in the particular block of the entire chain. The key opens that block and allows using everything stored in it. Cryptocurrency is expressed via valuable records possible to access them with the key. When the key is passed, the data in all blocks gets changed and the process is visible to every participant.

This functional algorithm allows initiating transactions on a platform in the open and honest way, without involving banks or other financial institutions. The risk estimation between money operation counteragents is called trust. In the world of digital coins, trust means the confirmation of the participant’s personality and permission to use digital assets. Authentication guarantees the personality authenticity, and authorization allows making any changes. Such network distribution allows lowering the risk of an error or a bug to occur. The right shape of every payment operation confirms the user’s authorization.

The blockchain technology is relatively new. This gives her the push towards rapid development, and at the same time makes it face various mistakes. For the majority of people, the blockchain still remains complicated and unknown. That’s normal for any innovation. But many new players appear on the market even nowadays, trying to use this technology in their activity. New blockchain projects will be based on its three main advantages: safety, security and full transparency.

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