4 "The Bitcoin blockchain"

4 "The Bitcoin blockchain"

Let's talk about the blockchain. When you get started with Bitcoin, you come across this term quickly, and it is essential to understand at least the fundamentals of it.

Blockchain technology is an essential part of the Bitcoin network. There is no need to understand the nitty-gritty, but you should at least get the concept. Mostly because there is a lot of misinformation online about it. For instance, many people make the strange statement that they believe in blockchain technology but not in bitcoin. These two are not mutually exclusive. Meaning, they cannot operate without each other.

So let's start with what blockchain technology is. It makes it possible to exchange information with other parties without having to trust a third party. Money was created to be able to trade worldwide and with everyone. To trade with regular money, however, one has to deal with several limitations. One of the most significant restrictions is the banks. To send money from one party to another, one must trust the banks that execute the transaction. In this transaction, the bank is a necessary third party you have to trust. It often also requires substantial transaction costs, and it takes up to a few days before they have their money. Add to that the fact that there is a risk that it is simple to freeze bank accounts.

The name blockchain originates from the meaning of the word. Let's take a ledger. In the pre-internet world, this is a book where you keep track of money in and out. At its core, blockchain is essentially a digital version of this. With the addition that new information to be added is in blocks, and all these are connected. They form a chain, a blockchain. Think of it as a massive spreadsheet.

The Bitcoin blockchain is maintained on a network of computers. Combined, they operate as the largest computer in the world. This means no one person, group, or company owns the system. When a new block is added, it gets stored on all the computers (the participants) in the network. It is important to note that a block can never be removed. This ensures a high degree of transparency and trust.

The Bitcoin blockchain is also public. Meaning everyone can track back every transaction ever made. This debunks the argument that Bitcoin is used by criminals. As with the US dollar, there will always be some criminals using it. But if you want to fully anonymous, it is still better to used cash money over bitcoin. Bitcoin isn't anonymous, just because you can track every transaction.

This doesn't mean I can type in a name on a website and look up who they paid. A bit part of bitcoin is also its privacy. The identity of each blockchain participant is hidden behind a unique address. This address is similar to an email address but consists of a series of random letters and numbers that are cryptographically generated. It is possible to see the activities of each of these addresses separately, but only if you know the address. Everyone can create as many addresses as he or she wants, and of course, this increases privacy.

To add a transaction to the blockchain, it is encrypted and verified using cryptographic calculations. Because the information is encrypted, automatically checked by the network, and can be viewed by everyone, there is no doubt about its correctness.

To operate a computer that runs the Bitcoin blockchain. It costs power, hardware investments and they have maintenance costs. As a reward for maintaining and running the Bitcoin blockchain, they get bitcoin in return. New bitcoin is automatically sent every 10 minutes.

And for those of you listening to this that are knee-deep into the Bitcoin blockchain. I know I've made some shortcuts, but my goal is to explain and educate more people. It took me long enough to understand it. That's why I've simplified some things.