Blockchain: Securing Cryptocurrencies like Bitcoin

Bitcoin is the largest traded cryptocurrency in the world. What cryptocurrency basically means is that it is a digital currency that makes use of encryption for generating money and for verifying transaction. The particular transaction is added to a public ledger commonly known as ‘Transaction Block Chain’ and new coins are generated by a method called mining.

In this digital era, cryptocurrencies in general and Bitcoin (being the largest and first cryptocurrency) in particular have gained a lot of popularity. The future of bitcoin as a crypto currency does not seem to be bleak as it holds great prospect, just like other precious commodities such as oil.

What does Blockchain entail?

Like the name indicates, a blockchain is a chain of blocks that contain information. This technique was originally described in 1991 by a group of researchers and was originally intended to timestamp digital documents so that it’s not possible to backdate them or to tamper with them, almost like a notary.

However, it went by mostly unused until it was adopted by Satoshi Nakamoto in 2009 to create a digital crypto-currency, Bitcoin. Blockchain is an important reason behind bitcoins’s rapid success. However, there is need for a commonly agreed communication procedure among different blockchains as it will pave the way for further growth for blockchain technology.

A blockchain is a distributed ledger that is completely open to anyone. They have an interesting property; once some data has been recorded inside a blockchain, it becomes very difficult to change it. So how does that work? How Blockchain helps securing Bitcoin transactions?

How does Blockchain work?

Well for that let’s take a closer look at a block. Each block contains some data, the hash of the block and the hash of the previous block. The data that is stored inside the block depends on the type of blockchain. The Bitcoin blockchain for example stores the details about a transaction, such as the sender, the receiver and the amount of coins.

A block also has a hash. You can compare a hash to a fingerprint. It identifies a block and all of its contents and it’s always unique, just as a fingerprint. Once a block is created, its hash is being calculated and changing something inside the block will cause the hash to change. So in other words: hashes are very useful when you want to detect changes to blocks. If the fingerprint of a block changes, it no longer is the same block.

The third element inside each block is the hash of the previous block. This effectively creates a chain of blocks and it’s this technique that makes a blockchain so secure. In Bitcoin’s case, it takes about ten minutes to calculate the required proof of work and add a new block to the chain. This mechanism makes it very hard to tamper with the blocks because if you tamper with one block you need to recalculate the proof of work for all the following blocks.