A blockchain is a distributed ledger that stores every Bitcoin transaction that has ever transpired in its history. It began with “Bitcoin: A Peer-to-Peer Electronic Cash System,” a paper written by Satoshi Nakamoto. The code was released as open source in January 2009. The blockchain began shortly afterward when Satoshi Nakamoto “mined” the first Bitcoins. Satoshi Nakamoto disappeared from the public in April 2011.
Blockchain vs. Banking
We live in a world where banks and governments control every financial decision made. Banks charge a large fee for each transaction. The blockchain is a cheaper and more secure alternative to the current financial systems around the world. It is a completely decentralized and transparent currency. Thus, It does not have any central authority exercising control over it.
A rough idea of what a blockchain may look like, courtesy of Yevgeniy Brikman
Using the Hashcash proof-of-work algorithm, blockchain transactions are verified and secured at a lower cost than traditional banking. Bitcoin transactions are recorded by the blockchain miners, and each transaction charges a blockchain fee, also called a ‘miners’ fee.
The miners’ transaction fee, charged to users when performing bitcoin transactions, allows the sender to declare a priority level for the transaction. The lower the blockchain fee, the lower your transaction’s priority in the Bitcoin network. Miners collect the fee as a reward for maintaining the Bitcoin network.
Blockchain solved the “double spending” problem we have with the current financial systems. Each block is securely hashed—meaning it is rendered into a cryptographic hash key. Every transaction creates multiple hash outputs, which are assigned a Transaction Identifier (TXID). As every miner has a real-time copy of the blockchain at all times, transactions are compared against the latest version before being validated.
Miners compare the new TXID with the rest of the blockchain to verify available bitcoin then record the transaction to the blockchain. Hacking it is considered effectively impossible. Everything recorded to the Blockchain is made public and can be viewed on your internet browser via a “Blockchain Explorer”. So, anyone can view any transaction, but no one has the ability to know what accounts belong to who.
The blockchain is expected to be fast enough to power the internet and is going head-on with the major financial institutions of the banking world. Blockchains are now being developed by banks, industries, and governments worldwide. Future blockchain developments will change the way we do almost everything, making the world a more efficient place for everyone.