What is the Blockchain?

Arguably the most exciting aspect to come from the cryptocurrency revolution is the Blockchain. The Bitcoin blockchain is a public ledger of all the transactions ever made on the Bitcoin network and a record of who owns the coins. When a transaction is made, it is placed in a queue called the ‘mempool’, where it waits to be placed into the next ‘block’ in the blockchain.

These blocks of transactions are confirmed by large computer networks in either a ‘pool’ operation (called a P2Pool), or as a single, large operation run by a company. The computers and operations who confirm transactions are known as ‘miners’ who compete to solve a series of complex computations. Computational power is consumed to cycle through random combinations of numbers to solve an equation known as a ‘hash’. When the computer network produces a number that matches the hash, they are awarded the opportunity to confirm the block. Once the block is confirmed, the transactions waiting in the mempool are placed into the block and the owner of the computer network who confirmed the block is rewarded in bitcoins for their work. Read more about in our Blockchain Technology blog.

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Blockchain Consensus

Confirming transactions is known as ‘Proof of Work’ and is the computational power of the processors used to solve the hash and confirm the block. In electrical engineering, ‘work’ can be defined as electrical energy, which is represented as power and uses the unit of watts. This is important to know, even for cryptocurrency beginners, as it confirms that ‘work’ is being consumed for the operation, security and integrity of the Bitcoin network, thus adding to the system’s overall ‘value’.

A piggy bank with a coin going into it, symbolizing the secure nature of Bitcoin and the blockchain in relation to cryptocurrency assets

This entire process is known as mining, and it is essential to ensure operation and security of Bitcoin and other public blockchain protocols, such as Ethereum. The point of using an energy intensive process such as mining is a requirement for Bitcoin’s Proof of Work consensus algorithm, which is a major part of its security mechanism. We will explore Proof of Work and other consensus algorithms in future guides.

Blockchain Transactions

The blockchain is revolutionary because it solves a problem that until now has stopped digital currencies from working — the issue of double spending. Once a transaction has been made and a miner has added the transaction to the blockchain, it is immutable; it cannot be reversed, and the network reaches a consensus that the transaction itself is true and came from a trusted source on the network. The result is, the cryptocurrency coin (or part thereof) is now stored at a different address and belongs to someone else.

The other problem the blockchain solves is it provides a public record of all transactions, called a distributed ledger (DLT). This DLT allows transactions, contract logic, API calls and various other decision-making and governance to be verified in a trustless way, meaning the system has trust built into its core and all transactions are publicly verifiable. Imagine a bank allowing all of its transactions to be publicly available – it would never happen. And thus, you can see how revolutionary and ground-breaking the blockchain truly is.

The technology, innovation and economics behind blockchain is truly remarkable. Learn all about it in our series of Blockchain courses. If you are interested in learning more about blockchain projects in Australia, check out our Blockchain Australia blog!