Many people have confusion between blockchain technology and cryptocurrencies and they believe that blockchain and cryptocurrency are the same things. Well, the answer is no, Blockchain technology and cryptocurrency are two different things.
In other words, cryptocurrencies are the applications of blockchain. Let’s dive deep into the history and learn more about Blockchain technology and its application, and how they are different from the cryptocurrencies.
Back in 2008, when the whole world was going through a recession, and several citizens lost their jobs and went unemployed. a person or group of people named Satoshi Nakamoto came up with his white paper.
And he talked about the first cryptocurrency backed by the blockchain technology i.e. bitcoin. The title of the paper was, Bitcoin:
A peer to peer electronic cash system, as the same suggests, it talks about the cryptocurrency bitcoin and revolutionary electronic cash system. But how is it different from the current financial system and fiat currencies?
Unlike all other fiat currencies, like dollars, IND rupees, and many more, it is not available in the physical form and its value is not based on any reserve. It is a digital currency, stored in the form of a mathematical formula.
And if you want to make any transaction, you can simply do with the virtual wallet. If you want to know more about bitcoin, check out this link. If you and your friend own bitcoin, and you want to do a transaction, you can join the public blockchain of bitcoin and do the transaction.
Bitcoin and other cryptocurrencies are backed by blockchain technology. All the cryptocurrencies networks are based on blockchain. So what exactly is blockchain technology?
As the paper, by Satoshi Nakamoto’s name says, a peer to peer electronic cash system, here it refers to blockchain technology. Satoshi Nakamoto proposed blockchain technology in the paper.
Before we get into the technical definition of blockchain technology, let us understand with a basic example. Suppose you are reading a book, in which there are several pages and content on each page.
Now consider those content to be a set of transactions, pages to be blocks, and books to be blockchain.
Like in the book all the pages are in the sequential order, similarly, all the blocks are time-stamped and linked with each other. and these blocks make the blockchain.
Blockchain technology is a distributed ledger managed by a decentralized network that stores the transactions in the immutable.
It means that there is no central authority that manages the transactions, unlike banks, any data once stored in the blockchain cannot be changed.
In a blockchain network, everyone has a copy of the blockchain and it gets updated for everyone at the same time. Hence it is a distributed ledger system.
so, as earlier mentioned, all the data in the form of transactions stored in the blockchain are immutable. As the transactions stored in blockchain are hashed using several cryptographic methods.
All these transactions store in the block and each block links with the next block using the hash of the adjacent previous block.
So if any hacker tries to change the transactions in any block, it would need to change the hash of all blocks in order to match. If in case any data stored in block is changed the block hash, then the next block hash would not match with one, that was before making the change. Since in blockchain, hash of block is created by combining the hash of previous block and hash of transactions stored in block.
all the data stored in Blockchain is genuine, so in a blockchain network there are several nodes, who validate the transaction on solving the cryptographic puzzle also known as proof of work. It takes lots of computational power to validate transactions in a blockchain network. In order to verify transactions in blockchain, the nodes need to find the nonce in order to get a specific number of zeros in the hash of the transaction.
A cryptographic hash of each transaction is stored in a data structure called a Merkle tree. It is a kind of tree where each node consists of the hash of the transaction and the root node contains the hash. And the root node hash is the combination of hash of each transaction stored in the tree. Hence it is very difficult to perform a malicious activity in the blockchain.
Blockchain network consists of several nodes, where each node is interconnects with each other. Every node in blockchain technology has similar authority and is at the same level as all other nodes. There is no central authority in the blockchain network, and nodes verify each transaction by solving computational puzzles.
Since, now we have discussed blockchain technology and cryptocurrency, you might get the difference between the cryptocurrencies and blockchain technology. Blockchain technology is the underlying technology for cryptocurrencies. Hence, Satoshi Nakamoto named white paper A bitcoin: A peer to peer electronic cash system.
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