Bitcoin and other cryptocurrencies represent a complex system that is based on the technology called blockchain.
The blockchain is a public distributed ledger. Because everyone can access the bitcoin ledger, the cryptocurrency has an incredible level of transparency. The ledger has information about all the bitcoin transactions that have occurred since the inception of technology in 2009. Information about every new transaction is added to the ledger and stays there forever. Just like cryptocurrencies, blockchain is a decentralized technology. This means that there is no central point of authority and no one can erase entries from the ledger or bring the system down.
In the word “blockchain,” the word “block” refers to pages in the ledger. The original block was the first page of the ledger. Every new block in the chain contains information about the previous block of the network. This information is known as has, which is a combination of letters and numbers that may seem random to a naked eye.
The Genesis Block
The first block appeared on the network in 2009. It was called the Genesis Block. All transactions that occurred on the network since then have been added to the ledger and the information about them is present in various blocks. Any transaction that occurs in the bitcoin network can be traced through these blocks all the way back to 2009, to the Genesis Block.
Since each new page of the ledger contains information about previous pages, the size of the ledger keeps increasing. This is exactly what is happening with the size of the blockchain. New data about new transactions are added to the blockchain and its size keeps growing.
Bitcoin is a fully transparent currency and its blockchain is an open ledger, which means that it contains information about all the transactions that happened in the past and will contain information about all current and future transactions.
Being fully transparent, blockchain technology is an opportunity for the financial system to be fully transparent, too.
Most of the financial institutions in the world, including big banks and the governments are scared of this level of transparency. This is something they had never experienced or had to deal with in the past. Many governments would prefer not to disclose all the numbers and statistics, yet blockchain technology and cryptocurrencies offer full transparency in this regard.
From a financial point of view, the bitcoin blockchain is a full financial database of all bitcoin transactions. Every computer that constantly runs bitcoin software has a full copy of all the transactions that have occurred on the bitcoin network since its inception in 2009.
Every new block of the blockchain on the bitcoin network is generated in a certain moment of time and it added to the ledger in chronological order. Otherwise, there would be no way to build a chain because there would be no way to identify the blocks on the network. Furthermore, past blocks can’t accept changes. Changing a past block would mean that all the following blocks would need to change, which is simply impossible. The bitcoin network doesn’t have and will never have this kind of functionality.
Because of this transparency, it is possible to have a detailed analysis of all information about bitcoins and their spending, from how long people are holding on to their coins to what services and products they buy and how often. This kind of analysis is called blockchain analysis. It started to emerge as a trend in 2014.
What is really interesting is that there are a lot of coins on the network that either have never been traded or haven’t been traded in years. Some people believe that many of these coins belong to Satoshi Nakamoto, the creator of bitcoin. Others think that there have been a lot of users in the early years of bitcoin who have bought some coins and forgot about them just like a person could forget about hiding a money bill in his or her home. It is also possible that some people have lost their private key, which essentially makes their wallets unspendable.
Uses of blockchain technology outside the world of cryptocurrencies
The technology of blockchain can be useful in a number of fields, from tracking packages to creating copyrights to storing health records to fighting online piracy and counterfeit products in the real world.
While currently most of the blockchain applications deal with the financial world, there is no way to tell what people will apply it to in the future because the potential of the technology is virtually unlimited.
The idea behind all the applications of blockchain technology is similar to the idea behind cryptocurrencies and bitcoin. This idea is full transparency and putting people in power of their data and information without having to rely on centralized third-party companies and governments.
Blockchain applications can be created using most popular programming languages such as Ruby, Perl, and PHP.