After the serious economic crisis that hit the economies of the great powers in 2008, the world began to look for ways to support itself to avoid a new fall in world markets. This is how the following year, one of the most influential technologies of this century is developed.
Perhaps the most remembered of that moment are the cryptocurrencies, those digital currencies that are so commercial today, but what is really important is the technology that supports them; the Blockchain. Also known as Blockchain, this is the foundation of all crypto trading today.
In this article we are going to tell you everything you need to know about Blockchain technology and its main characteristics, so that you fully understand all this digital environment in which cryptos operate.
What is Blockchain and what is this cryptographic technology for?
Blockchain technology is a joint database in which information is grouped into encrypted blocks, which in turn are linked to other previous blocks in the system. This link is what gives it the name “chain”, since all the sets are connected to each other, and to modify one of them, it is necessary to do the same with all subsequent ones, which gives it an unchangeable and 100% transparent character.
This, in addition, allows operations to be verified and recorded over time without the need for a certifying entity, which makes it a completely decentralized technology. That is why it allows the creation of, for example, world economic systems that do not require the participation of banking or government institutions, with users having control of the entire system.
Do you understand now its importance? Because the great world economic crises are largely due to the mismanagement of systems by regulatory entities, this technology is developed that allows us to get rid of all of them, creating a huge P2P exchange network (person to person), in which everything is based on the trust of users in the system itself.
What are the characteristics of Blockchain technology?
This technology can be seen as a simple database, but the reality is that it is much more than that. Its unique characteristics have not been seen in any other created so far, and it is these that have earned the trust of millions of people around the world, who invest their money in the various projects that are supported by it:
The consensus in the blockchain refers to the fact that in order to modify it, or fork it (create a new chain), general consensus of all nodes (user) of the network is necessary. This makes it virtually impossible for someone to take unilateral actions independently, as I will need the support of more than half of the members of the chain.
These consensuses are not impossible to achieve, but when they are achieved they are done with the intention of modifying the way in which the entire chain works, and not to tweak or eliminate a particular transaction. This is one of the main bases of the transparency that characterizes this database.
Cannot be modified
This is related to the previous point. When modifying a transaction, all those that were made later are automatically altered, so that everyone would notice something like that. Besides that, the cryptographic method used (Hashing) makes it almost impossible to decrypt a block for modification.
Being such a cumbersome operation, for which in addition you need to have powers superior to those of the other members (which are only obtained with consensus), it is considered practically impossible to modify a block in the chain unilaterally.
It is decentralized
Perhaps the most striking thing about this is that it is a decentralized database. That is, it does not require the supervision (or control) of any government or financial entity such as banks.. This allows the creation of all kinds of P2P systems, in which the member users have full control over their behavior.
By creating a block that is automatically linked to all the subsequently created blocks, a unique transparency is achieved, since modifying one will modify all the others. This is an aspect that takes network security to another level. In addition to this, the hashing that is used to encrypt the transactions is almost impossible to crack.
Types of blockchains How is their classification and operation?
Since their birth more than a decade ago, blockchains have evolved enormously, so we can identify various types of them, which have special characteristics that differentiate them from the others:
According to access to data
The first way to classify blockchains is according to the way in which users access their data. In this sense, two types can be defined; public and private.
Public chains are those in which all network users can review, verify and make sure of each and every one of the transactions carried out in them. These are transparent, since everything is free for the public, and obeys consensus rules to be modified. This is the chain that is used for Bitcoin and other cryptocurrencies.
Private chains, for their part, are totally different, and lose transparency in a certain way since the transaction data is exclusively accessible to certain entities that comprise it.. In them, aspects such as consensus are left aside, since the “administrators” have total freedom to modify the chain, so they are usually centralized. An example of this would be the Petro, a Venezuelan cryptocurrency backed by oil and centralized by the government of that country.
According to permits
The next known strings are those that depend on permissions, and these can be classified as: permissionless and permissionless blockchain. They are mainly related to the creation or encryption of the blocks.
- Which do not require permissions are those in which any member of the chain can act as a node to apply the hashing that encrypts each transaction. For this, the figure of insentive tokens is created, in such a way that users who are encouraged to help in this task receive them as a reward for their collaboration.
- The chains with permissions are those in which the blocks are encrypted by a select group of users with the, worth the redundancy, necessary permissions to perform this task. In these, the figure of the incentive token is not necessary.
Hybrid chains are those that have characteristics of the two previous models. In this sense we have chains such as Bitcoin Cash or Ethereum Classic, which are considered as public chains without permits, as well as private chains without permits.
According to state change model
State change refers to the way in which a transaction changes from its entry or exit state. The most popular are the so-called outbound chains, in which With each transaction an expense is generated that is used to “finance” subsequent incoming transactions to be created when performing a transaction in the future. This model is used, for example, by Bitcoin.
Finally we have the side chains, which are those that are used to confirm transactions of a central blockchain.
Hashing in the Blockchain How are the blocks encrypted within the network?
The blocks in the blockchain are encrypted with a hash function, which consists of assigning a number hexadecimal to a transaction. This number is unique, and it is a way of identifying the input data of each of the transactions carried out. In the world of cryptocurrency mining, every 10 minutes a new block must be created with a transaction, so the “miners” compete to decipher the correct hash of each one to register it on the blockchain.
The hash is an older function than the blockchain itself, it is an algorithm widely used in the past, and its application in this technology is largely what allows to guarantee the security of the network, since in case it is want to modify a block, the hexadecimal value will have to be decrypted again, with input data identical to what was used the first time.
Cryptocurrencies are nothing more than currencies that are used to exchange or trade goods and services on a blockchain. Using a strong cryptographic technique, it is able to transparently record transactions, as well as the number of units of each crypto.
By using cryptography and a transparent and unchangeable database like blockchain, a new decentralized economic system is achieved, in which the value of each currency is not determined by any government or bank, but because of the confidence and the volume of money that enters its market.
A special feature of these coins is that they are limited, and unless there is consensus, this number cannot be expanded. In this way, the more people enter to invest in them, the more value they will gain and vice versa..
What are the most used cryptocurrencies?
After the first Bitcoin bull market occurred in 2011, new cryptocurrencies were born anchored to it, thus forming what is known as altcoins, which would be the most used cryptocurrencies with the highest market value.
These would be the following:
- Bitcoin: the first cryptocurrency developed in 2009 by an anonymous user named Satoshi Nakamoto. It cost up to $ 20,000 USD in January 2018.
- Litecoin: the second oldest crypto after BTC. It is the token of an open source software project with technical aspects identical to those of bitcoin.
- Ethereum: These are the tokens of a decentralized application which in turn allows the creation of other apps of the same nature, which work on a public blockchain. It is the cryptocurrency with the highest value after BTC.
What is an ICO?
An ICO or Initial Coin Offer (initial coin offer), is nothing more than the pre-sale of the tokens or cryptocurrencies of a new blockchain project. These would be the lowest value at which these currencies can be acquired in the market before their launch., since later as investors are added, the price will rise.
ICOs are a great way to get ahead of other investors. In a way it is like buying the shares of a company, and once the company is successful these shares will increase in value considerably. The most famous ICO is possibly that of Bitcoin in 2009, when it started costing just a few cents on the dollar and 7 years later it reached up to $ 20,000 USD.
What are the most interesting uses of blockchain technology beyond cryptocurrencies?
Although the main use that is given to this technology is that of cryptocurrencies, it must be said that it is so versatile and practical that It can also be used for tasks such as the following:
- Consortium R3.
- Property registration.
- Payments in the real world.
- Cloud storage.
- Digital identity.
- Public / government services.
- Social security and health.
- Authorship management.
Now you know everything about this revolutionary technology that changed the way we do business and may continue to change things in the near future, since we have barely exploited 20% of its real potential.
If you have any questions, leave them in the comments, we will answer you as soon as possible, and it will surely be of great help to more members of the community. Thank you! 😉