If one is to talk about blockchain, one then has to place it in a proper perspective for those that know nothing about it. Blockchain tech underpins Bitcoin, and other cryptocurrencies just like Internet underpins Google and other web browsers. This means that cryptocurrencies couldn’t exist without blockchain. However, this doesn’t mean that blockchain technology exists solely for Bitcoin and similar currencies, as it is a tech that sees use in other things as well.
What is blockchain technology?
Every online project requires a movement of data. This applies to everything from paying bills to creating 3D graphics content. The blockchain is the latest technology that offers a new way to do it. This tech replaces the conventional centralized computing where all data is held at one place before you move it with action to a decentralized form. This means that the info is spread over many (thousands upon thousands) nodes on the network, which are linked by cryptography. The transfer of data is secure as there isn’t any possibility of someone intercepting info. The whole exchange can’t happen until the entire network verifies and records the request.
It’s hard to imagine how exactly this decentralized database works, which is why very few people understand it to the point that they can explain it to others. The easiest way to understand it is to imagine spreadsheet and see info like that. Data is spread over thousands of computers, and it receives regular updates to keep it up to date. The blockchain is like one big database that performs increasingly tricky mathematical tasks and thus keeps info safe from anyone who would like to change it without permission. Anyone can check the validity of the data, but only those with authority can access it.
How does this relate to Bitcoin?
Bitcoin is a cryptocurrency that works thanks to the blockchain technology. It came into existence as the need for a better data transfer arose. Satoshi Nakamoto and a group known as cypherpunks came up with it as they weren’t satisfied with the approach to info, power, and privacy. They came up with a cryptographic network that allows people to transfer data without the need of a third party that acts as a middleman.
Now, the whole network becomes popular and thus the power it needed for maintenance increased. Bitcoin mining, as everyone knows it, is a blockchain that runs billions and billions of encryption procedures (hashes) every second to satisfy the maintenance needs. The processing power is enormous, and it comes at the cost of increasing electricity bills of all those that run encryption procedures. So, bitcoin, in reality, represents the value of the power one creates through mining.
Bitcoin is the original cryptocurrency that came into existence for the sake of rewarding those that create power to maintain the blockchain network Nakamoto started. Other cryptocurrencies arose in the following years and thus formed new systems that work on the same principle as the original. The only difference is that they require less power to run and therefore their value is lower than bitcoin.