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“Blockchain” technology provides the underlying technical base for all cryptocurrencies. A blockchain is an eternal, continuous list that records every single transaction between users of a cryptocurrency. Individual segments of the continuous blockchain records are called “blocks” and usually refer to a complete list of transactions. Every time a user sells or transfers a “coin” (an individual unit of cryptocurrency), the blockchain logs and records that transaction. Thus, the blockchain contains the payment and transaction history of every single coin in circulation and every user who once owned a coin.
The blockchain acts as a bank ledger for cryptocurrencies. However, blockchain technology differs from a bank ledger because no central authority monitors and verifies each transaction. Instead of an authorized bank or government agency monitoring transactions, the blockchain makes accounting publicly available. The blockchain is instantly replicated and stored on thousands of computers (“nodes”) around the world as cryptocurrency transactions occur. At any time, any user around the world can access and view the entire blockchain ledger.
In addition to recording every transaction, the blockchain also verifies and records every transaction between cryptocurrency users. When users buy or sell cryptocurrencies, the blockchain verifies the transaction and records the transaction in a block. Once the block is complete, the transaction data is “hashed” (encrypted) into a series of letters and numbers by a predetermined mathematical function. This deterministic function will produce the same result every time the same input (eg transaction data) is used. Even the smallest change, a single digit, would result in the function producing a completely different hash. When a block of transactions is completed, the next block begins with the hash formula created by the previous block. Thus, the blockchain creates a link between each part of the ledger. This ensures that users cannot change the record of past transactions.
Due to the mathematical connection between each part of the blockchain, users cannot retroactively apply transaction information without changing the record of blockchain transactions stored on every node around the world. If a previous transaction is changed – even by a single digit – it would not only change the hash produced by that block but trickle down through every block that follows the changed transaction. If a single transaction changes, the underlying mathematical formula would produce a new result that would permanently change every future block in the blockchain. Since every node around the world simultaneously updates and stores the blockchain ledger, users would notice any retroactive changes to a specific block. The mathematical
the formula allows blockchain technology to act as its own insurance against theft or fraudulent transactions.
Blockchain technology’s decentralized network allows cryptocurrency users to build trust with other users even though they may not know each other. Any user who buys or sells a cryptocurrency can verify the legitimacy of the coin because no single user can manipulate the past transaction history of each coin. As a result, cryptocurrencies create value for users because users can verify that the coins they bought or sold have value and legitimacy.