Hello Hivers, hope you all are doing fine. Like me, it might be the case that most of us joined this platform after getting curious about cryptocurrency and finding ways to earn it online. If not, never mind but I got to know this way only.
Anyways, after getting here I started wandering a lot about cryptocurrency and how it works and hence got to know the technology behind it while exploring more and more about our virtual currency. I am dedicating this article to a basic understanding of BLOCKCHAIN(the tech behind crypto) and I will also write about how it supports virtual or crypto currency. I will try to keep it simple as possible for it to be sensible enough for a non tech guy.
Basic terminology regarding blockchain:
Transaction:- In this article, transaction refers to payment in crypto from one individual to another.
Algorithm :- It is a set of instructions which can be coded into a programming language to achieve some goal. Like an algorithm to print sum of 2 and 2.
Hash:- A hash is a piece of code which is used to generate unique fixed size value from arbitrary value. In case of a transaction, transaction details like sender, receiver and date of payment can be arbitrary values and a combo of digits and character like "dfhajdfh1237234jdghajdfhjadsfhj" can be hash code for it.
BLOCKCHAIN:
As the name specifies, it is a chain of blocks. Chain represents a connection over here which is between the participating blocks in it. Now, what are these blocks we are talking of? First of all, these blocks are logical units and not something physical. They store some data(transactions in case of cryptocurrencies) and thus represent some memory(say some KB or MB). Nature of stored data depends on the use case of blockchain. In case of cryptocurrencies like bitcoin or bitcoin cash, this data is details of transactions like who is the sender of amount, who received it and time on which it is received.
Features of Blockchain Technology:
Connection between blocks :- Each block containing data is linked to each other in a unique way in this tech. Every block stores two unique codes which help them to form the chain relation. These unique codes are called hash codes. You may consider these hash codes as some random unique combination of characters and numbers like badkfjadf12123asdadjh1238. One of this hash code is calculated with the help of data stored on the current block while the other code is of the previous block. The hash code generated with the help of data on the block changes every time the data on that block is changed. Just so you know, this hash code is generated with the help of hashing algorithms(these are some set of instructions written in a programming language which produces a random unique combo when given some input data like in case of transaction, details of that transaction are used to generate the hash code). Example of hashing algorithm : SHA-256.
Use of two hash codes on a block :- If you are thinking that why are there two hash codes on every block, they are to ensure that a block once included in the chain can't be tampered. Each time data on a block changes, a unique hash code is generated but since every block stores hash of its previous block, the new hash of previous block and the hash stored by next block mismatches which makes all the blocks ahead of that faulty block invalid(because if you try to change the hash on next block, it will lead to hash mismatch on its succeeding block). This makes blockchain tamper proof.
Thus, cryptocurrencies implement block chain technology for transaction records and in case of bitcoin transactions, blockchain is also defined as a decentralized(no central authority to monitor) ledger(an account book containing summarized info of debit and credit). A transaction once registered in the form of a block can't be tampered and all of this is ensured without a centralized monitoring system thus providing a whole new payment standard to crypto.
Meaning of decentralization in a transaction :-
I have used a word decentralization in the para above. To explain it, we will take a transaction example in which three guys pay fourth guy an amount of 5 dollars each.
Suppose, there are four guys A, B, C, D.
A has 20 dollars, B has 20 dollars, C has 10 dollars and they all owe D, 5 dollars each. Now when they pay him with the money, they pay one by one and each time a block is generated which stores the amount paid, amount left with the payer and the amount receiver has now. After three separate transactions, D has 15 dollars while A has 15, B has 15 and C has 5 dollars. All of this was registered sequentially on a block and interconnected by the way of hash codes. Every payer has a copy of this chain which is called decentralization and thus they can see the entire transaction on their level. If one of them tries to make an invalid transaction now like if C tries to pay 10 more dollars to A, he can't as everyone has a copy of the chain of transactions that took place and thus it can be verified that it is an invalid transaction as C doesn't have enough funds. This method in which everyone has their own copy of entire transaction is what we call decentralization.
A topic of curiosity : how are bitcoins generated?
Everyone knows that the currency of general use i.e. paper notes are printed by the central bank of countries. But unlike these general currencies, a virtual currency like bitcoin is generated by the miners. Miners is a term given to those people who participate in generation of bitcoins or other cryptocurrencies. They are called miners in analogy to how gold is obtained when miners do mining. Miners have their own hardware on which they perform crypto mining and how they do it is described below:-
Whenever transactions in cryptocurrency like bitcoin are made like if you get an upvote on this platform, it will be a transaction in crypto and crypto miners look out for these transactions, validate them and then they form the blocks of these transactions on their hardware using algorithms. Now suppose, there are six transactions namely A, B, C, D, E and F and two mines form blocks with transactions A, B, C and A, E, F respectively then only one block will be chosen to be the part of the chain and this is decided with the help of either "proof of work" or "proof of stake". You can read about both of these online.
After selection of a block to be added to the blockchain, miner whose block is chosen is rewarded in bitcoin and also, he/she collects the transaction fee of the transactions on his added block in the form of bitcoin. This is how bitcoin is mined or generated.
So basically crypto generation occurs when a miner is rewarded for setting up bunch of transactions into the block and when he/she is being selected to put his/her block on chain.
The value of bitcoin is based on demand and supply principle.
I hope you all enjoyed the article and do ask your queries if you have any and do like and subscribe if you liked the content and information. Please comment if there's something confusing or seemingly inappropriate.