What is the blockchain?

When is the last time you picked up a newspaper? Blockchain has the potential to revolutionize the way we interact with money the same way that the internet changed the way we get our daily news. The core purpose of the blockchain is to store information without a centralized owner of the data, a distributed database. The "block" in blockchain contains three things; the data, a hash, and the previous block's hash. These blocks are added to the blockchain when a miner solves a cryptographic math problem based on the previous block's hash. This math problem, also known as "proof of work", takes time and computational power to solve. Since computing power is not free, a reward is given to the miner that runs completes this verification. The "chain" refers to how the blocks are connected. By attaching the previous block's hash a linked list is created which is extremely efficient for a computer to traverse the references back to the genesis block also known as block zero or where it all began.

Decentralization is crucial in how blockchain technology works. Everyone that is part of the network receives the updated data (all of the recent transactions) with each new block created by the miners. Everyone's blockchain must match up before adding a new block to their own copy of the blockchain. This is called a "consensus". The peer-to-peer network coupled with the proof of work ensures that the information in the blockchain is accurate and secure from being tampered with. Miners also ensure that a coin cannot be part of two transactions from a single person simultaneously, also known as double-spending.

Security

When blocks of transactions are added to the end of the blockchain, it is extremely difficult to change this block record. This is the benefit of the "chain" in blockchain. Since each block is tied together with the previous block's "hash" along with a created timestamp the blocks become locked into place. Miners have to solve a cryptographic equation to confirm the block before it is added to the chain. Once a block is added, everyone gets the updated blockchain so changing a block would require the majority to agree to the change. A hacker would have to take over 51% of the entire network to change the data within the blockchain.

Since everyone gets a copy of the blockchain, also known as an open ledger, on-chain analysis is possible. On-chain analysis is pulling out patterns and what large investors are doing directly from the blockchain.

Privacy

While cryptocurrency has often been portrayed as a completely untraceable way to transfer money, this is not entirely accurate. Most crypto coins only store your public key (which does not contain any personally identifiable information) on the blockchain. However, if someone manages to track down your public key and tie it back to your identity, theoretically they can query the blockchain to find your transactions. If this is a concern to you, it is very easy to create as many wallets as you want. The more layers of abstraction (more wallets that your funds go through) the more private your transactions will be.

Utility

Smart contracts are the true revolution of cryptocurrency that is rarely mentioned in the mainstream conversation. What if every dollar in your bank account knew how to generate interest regardless of what bank account you stored it in? You might have heard the phrase "vote with your wallet", some blockchains have built-in voting mechanisms built directly into the currency to vote on features and how the contracts function!