Blockchain technology is a relatively newly developed decentralized technology. Blockchain technology is used in numerous industries and processes. Among others, it has served as the backbone of cryptocurrency transactions and mining. Cryptocurrency has revolutionized the existing financial system.
It is a digitalized and decentralized technology created for the purpose of maintaining records of transactions that take place over peer-to-peer networks. Blockchain technology is not controlled by any single entity and can be accessed from anywhere across the globe. The data is stored in an inter-connected decentralized system which increases security and transparency. Blockchain technology finds its application in different areas such as settling trades, transactions, voting, healthcare, and the like.
The Latest Form of Currency
A form of digital currency that is created and stored in the blockchain is known as cryptocurrency. Encryption techniques help in the creation of cryptocurrency units and in the verification of transactions made with these units. Cryptocurrency works on blockchain technology and its supply is not controlled by any central authority. As it is a decentralized and easily accessible system, cryptocurrency can be accessed from anywhere in the world. One of the first cryptocurrencies to be developed is bitcoin and since its inception, it has only skyrocketed to popularity. To learn more about cryptocurrencies like Bitcoins, visit register now.
Nexus Between Cryptocurrency Transactions and Blockchain Technology
A cryptocurrency transaction has to go through numerous steps before becoming a part of the blockchain. The nexus between blockchain technology and cryptocurrency transactions can be better understood through the various steps involved in the transaction.
- Authentication: Although blockchain technology is not controlled by any central authority, all transactions have to be authenticated. Cryptographic keys aid in this process. The cryptographic keys refer to a string of data that aids in the identification of the user and gives access to his wallet or account. A public and a private key are allotted to each user. The combination of a public and private key creates a secure digital identity necessary for the authentication of users.
- Authorisation: Authorisation is the second step before the transaction is added to the blockchain. In the case of a public blockchain, the decision to add a transaction to the blockchain is taken collectively by consensus. This means that the majority of the computers in the network (nodes) must agree that the transaction is valid and the owners of the nodes are incentivized in the process, better known as “proof of work”.
- Proof of Work: In this process, the owners of the computers in the network are required to solve a mathematical problem to add a block in the chain. This process of solving a complex mathematical problem is known as mining and the miners are incentivized for their work in cryptocurrency. This mathematical problem may be solved only by the trial-and-error method and requires substantial computing power and a large amount of energy. More and more computers join to try and solve the problem with the growth of the blockchain. However, large organizations that boast of greater computational capacity and energy availability are at an advantage in this process and therefore, the process of mining becomes concentrated in the hands of a few.
- Proof of Stake: Subsequently, the “proof of stake” method of validation has been adopted by blockchain networks. In this process, the participant must have a stake in the blockchain in order to select, verify, and validate cryptocurrency transactions. A considerable amount of power is also saved in this process as the step of mining is obliterated from the process. Nowadays, “smart contracts” have been developed in blockchain technologies to automatically execute transactions once all conditions have been met.
It is evident that the entire process of cryptocurrency transactions is dependent on blockchain technology. The nexus between cryptocurrency transactions and blockchain technology is constantly developing, thereby paving the way for more secure, fast, and hassle-free cryptocurrency transactions.
*Photos by Roger Brown