These 4 concepts will help you understand Blockchain

If you have heard of bitcoin, you will know that it is a cryptocurrency. And when you hear about cryptocurrency, chances are you know it’s a type of digital currency. It has no physical form or tangibility.

A similar term called cryptography is also read, heard and used when we try to look for information about bitcoin. It may sound a bit technical, but bitcoin and other digital assets run on blockchain technology driven by the notion of cryptography.

If anyone wants to learn why bitcoin or other cryptocurrencies are fluctuating, they need to know the basics of the underlying concepts of blockchain. In this blog we will talk about the four concepts that make blockchain and cryptocurrency possible.

The four principles are:

Decentralized management: Blockchain consists of two very simple and easy-to-understand terms, block and chain. A block is nothing more than a set of transaction data. Then, several blocks of transaction data are connected sequentially to form a chain. Imagine that this is a physical ledger where students’ records are registered, and one page is linked to another page to create an entire ledger.

Blockchain works with the basic concept of ‘decentralized management’. Wait, what? Unlike a bank, which has the sole authority to maintain and generate the bank statement, the blockchain does not have a leader, a party, a country or a group as its authority. It is public and the management is distributed. Therefore, the basic concept of blockchain is that it is decentralized.

Distributed ledger: The only difference between a bank transaction and a blockchain transaction is the visibility of the data, records and information stored on the block. Blockchain is a public ledger and not a private one, which means that every transaction registered on it becomes visible to everyone. You may think that if the data is published and the general ledger distributed, there is a good chance that the data will be tempered and used, your money may be stolen, or that someone knows how many assets you have. However, there is nothing that you think. A centralized ledger is more prone to data loss, security breaches, tampering and cyber attacks than a distributed ledger. Attacking a single authority is more unlimited than attacking multiple nodes (servers, systems or powerful computers). Every transaction detail on a distributed ledger is secured using the concept of cryptography.

Cryptography: Cryptography is a completely new concept in the world of computer technology. As the Internet grew in the early 1990’s, data, files, and public information transfer became faster and easier. There was a great need to secure the network, communication modes and information transfer. That’s why cryptography was created to make the entire Internet more secure. Cryptography works with the concept of keys. It is like a code that the sender of the information only shares with the data recipient. Those with this private key can “unlock” the encrypted data and get the information. Generally in cryptography, the generation of a private key involves complex codes in binary form (only 1 and 0) that form very long strings (say 256 characters long), making it virtually impossible to guess. Cryptocurrency holders generally have a private key that enables them to execute an outgoing transaction. Therefore, blockchain-supported currencies are called cryptocurrencies.

Game theory (mining): When we hear about the term bitcoin, a person that comes to mind is Elon Musk. He, in 2021, twitret that Bitcoin and cryptocurrencies are good ideas, but they can not be promoted at the expense of the environment. This is because bitcoin and other cryptocurrencies involve mining. However, it is not the same as gold or diamond mining.

Mining in the realm of cryptocurrencies refers to the validation of transactions. Those who validate transactions are called miners. Since millions of transactions occur daily, not one person or limited human group can validate each transaction. An ordinary computer can also not be used for mining. Therefore, hardware and software specifications are required in a computer to validate transactions faster. This process uses a lot of electrical energy, which is more than sufficient to power many third world countries.

Mining is one of the core concepts of blockchain, as it is one of the most crucial aspects that provides security for the transactions and supports all three of the above concepts. Mining is important because it confirms new transactions and prevents double consumption from bad players in the blockchain. Mining is painstakingly difficult. But if you want to know which are the ten best cryptocurrencies that are easiest to extract, you can find the blog article here.

At present, the miners perform the transaction processing free of charge. However, they have an incentive. It is usually the newly created coins on the relevant blockchain that are rewarded to the caregivers. As we see the price of crypto increase, we will also have more miners trying to extract the cryptocurrencies, which strengthens the transaction processing.