Bitcoin uses a public and distributed “accounting system” or “ledger” known as the blockchain. Blockchain technology is possibly the greatest innovation Bitcoin offers. Countless companies and service providers, especially from the financial sector, are showing interest in the technology and are even toying with the idea of using it for themselves.
What is a blockchain?
A blockchain is a decentralized, immutable and continuously growing database. A key strength of blockchain technology is its ability to securely distribute information. The information is distributed across multiple nodes or computers, which is why blockchain technology is often called “distributed ledger technology.”
The database is not stored and controlled in one place, as is the case with centralized providers, but by several thousand computers simultaneously. If you want to change the database, you would have to modify every single copy on every computer.
In addition, the Bitcoin network checks the accuracy of all data at certain intervals.
Blockchain and blocks
The records that are added to a blockchain become “blocks.” Since these blocks are cryptographically chained together, it becomes difficult to manipulate these records and is almost impossible. It would take enormous computing power to manipulate the blocks.
In Bitcoin, a block is created every ten minutes and it is chained to the previous block. Processing these records is called mining. And this chaining creates a chain of blocks, i.e. a blockchain.
What data does a block contain?
The Bitcoin blockchain mostly contains transaction data from various transfers, a timestamp and a hash of the previous block.
What problem does Bitcoin and blockchain technology solve?
In the real world, it is easy to prove whether a thing belongs to you or not. It becomes more difficult when the thing is digital. Example:
I own a digital dog and I want to give it to you. So I send the digital dog to you. But how can you be sure that the digital dog belongs only to you? And can you be sure that I didn’t send the digital dog as an email attachment to Anna before? I may have also copied or posted the digital dog online several times. With digital things, it becomes harder to prove that something is mine or yours.
That’s why you need an accounting system. So I buy a book that is now the general ledger for digital transactions and write in that general ledger that I give you a digital dog on 08/02/18. But now someone would have to manage this general ledger. If you would give me this ledger, I could change the ledger at any time. If I gave you the book, you could change this book. We would have to trust each other that both sides would be honest forever. Also, someone could steal our ledger and sign in as the owner of the digital dog.
That’s why we need a ledger that doesn’t require trust, is decentralized, secure, and protected from forgery and tampering. And that is exactly what Bitcoin has achieved, with the blockchain as a decentralized ledger recording all digital transactions in a tamper-proof manner.
Why use blockchain technology?
The decentralized digital ledger is at the heart of Bitcoin, and many companies are showing significant interest in blockchain technology. This technology could improve the entire financial system. On the one hand, it could minimize administrative costs for one’s account, and on the other, the blockchain automatically records all transaction data, which could greatly simplify accounting.
But not only the exchange of a bitcoin can be logged. Digital goods can also be logged. Smart contracts (“smart contracts”) can be implemented with blockchain technology, as is already the case with Ethereum.
Blockchain.info is not the Bitcoin Blockchain
The Blockchain.info website offers various data regarding the Bitcoin Blockchain. On the homepage of the website, the currently found Bitcoin blocks are displayed, as well as the latest transactions that are made on the Bitcoin network. Additionally, the search function can be used to search for the Bitcoin block height, a Bitcoin address, block hash, transaction hash, hash260 or the IPv4 address.
Bitcoin Block Explorer
However, this website is not the official Bitcoin Blockchain, it only maps the official Bitcoin Blockchain. That is why websites that map data on the Bitcoin Blockchain are called Bitcoin Block Explorer. These help with research and provide various statistics: Number of Bitcoins in circulation, Number of transactions, Difficulty and much more.
The website Blockchain.info also offers a blockchain wallet. This is by no means an official Bitcoin wallet, it is just an online wallet provided by the Blockchain.info company.
However, there is a high security risk with web wallets. Be sure to choose better Bitcoin wallet for storing larger amounts of money.
Disadvantage of a Blockchain
Unlike centralized databases, blockchain technology requires constant computing power. Unlike centralized databases, blockchain technology requires constant computing power or some sort of working power from multiple (decentralized) sources to ensure security and timeliness.