What is Blockchain Technology?
Blockchain technology is another way for data to be stored. Normally, with typical databases, data is stored in tables.
A database is basically a collection of information that is organized in a way that is easily retrievable. You can have large and small databases.
An example of a large database would be like the cloud. Do you ever store pictures or videos on your Google drive or iCloud? Basically, there’s no real cloud that just holds your information in thin air 😅.
The way it works is, there are these really huge physical rooms filled with computers that Apple or Google would own, that hold your information in the “cloud”.
The way that they hold your information is typically in a table format (think Google Sheets).
When it comes to blockchain technology, it organizes the information into chunks (which they call blocks). Each block has a limit to the amount of information it can hold, so when it fills up, the blockchain technology creates a new block, and will refer to the one before it using a chain.
The way that the blocks refer to the previous one is by using what’s called a hash. Which you can think of as a fingerprint (or identity). It is a long and different formation of letters or numbers that identify each block of data.
Some benefits of blockchain technology are:
- It increases and enables trust between two parties that don’t have a prior relationship
- It’s secure, the decentralized nature and the cryptographic algorithm protects information from being hacked or tampered with
- It helps with traceability of data because each block is time stamped as to when it occurred, and since not only one person owns the blockchain, the date can’t be changed
A popular way blockchain technology is used today is through cryptocurrencies. An example of a cryptocurrency is bitcoin.
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What is Cryptocurrency?
Cryptocurrency is digital money that takes the form of a “coin” or a “token” that is created and stored on a blockchain.
Depending on the cryptocurrency, they can be used for different purposes. For example, ethereum is popularly used for buying and selling NFTs.
The “crypto” part of cryptocurrencies refers to the cryptographic algorithms that enable the creation, processing, and transacting of these digital currencies.
Cryptographic algorithms are a secure way to encrypt and decrypt information.
Cryptocurrencies are designed to be free from government control. They are built on a blockchain, which is used as a decentralized ledger.
To understand what decentralized means, let’s look at an example of a centralized ledger. A bank would be an example of a centralized ledger.
They are in sole control of listing all transactions (like bank statements). Let’s say you owe the bank money, they can fine you and take it out of your account without your consent.
In terms of a decentralized ledger, a blockchain is powered by not only one entity, but by all the computers that help run the blockchain. This means that the history of digital assets are unalterable (unchangeable) and they are transparent for everyone to see.
Use cases of Cryptocurrencies
Have you noticed that some cryptocurrencies are worth a lot (like bitcoin and ethereum) but some coins have very little value 🤓?
This is because of the use cases of the cryptocurrency itself. For instance, 1 ETH (ethereum) is worth $2797.87 USD currently.
One factor that helps the value of ethereum is that it is used one the of the largest marketplaces to buy and sell NFTs (Opensea.io).
When you need a certain cryptocurrency to do something you want, you’ll inevitably purchase that specific cryptocurrency.
And the more popular that activity is, the more people are buying the currency, and the more people buy the currency, the more the value of the coin increases.
Different cryptocurrencies are built for different purposes. In the case of ETH, it enables something that is called smart contracts. This is a program that is run on the ethereum blockchain.
NFTs are powered by these smart contracts, which allow the transferring and verifying of ownership of the NFTs. NFTs are unreplicatable and show publicly the owner of the NFT.
They can be used in many scenarios, one being to sell real estate 🏡. You can tokenize a property as an NFT, and then sell that to the buyer. This can help take out intermediaries and make the process much faster.
Takeaways
- Cryptocurrencies use blockchain technology
- Blockchain technology is a secure way to store data that can be decentralized
- Cryptocurrencies are decentralized, which makes it secure to use, cuts out intermediaries, and enables people in countries who don’t have access to bank accounts and banking systems to have a easier way to make transactions
- Cryptocurrencies have different use cases depending on the coin, like ETH can be used for NFTs (however, it’s not the only cryptocurrency that NFTs are bought and sold with)
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