Bitcoin and Blockchain are among the most debated topics online today. However what actually the bitcoin is and what is blockchain means, are remain elusive for many persons.
In simple, Bitcoin is a peer to peer electronic cash system that makes online payments to be transferred directly, without an intermediary like central bank. While common online transaction is stored and saved in the banks’ server in the network, the Bitcoin transaction are not stored in any central server.
“Blockchain is to Bitcoin, what the internet is to email. A big electronic system, on top of which you can build applications. Currency is just one.” — Sally Davies, Financial Times Reporter
You must have known about the torrent files. The torrent application doesn’t download your movie file from a central server or a single computer, instead, it connects to the other people like you in its network, search who has the file and download those from their computers. The torrent application get the different piece of the file from different computers in the network. When any person gone off, the download does not stop because there are other people in the network who can share the file.
The inventor of the Bitcoin, Satoshi Nakamoto had adopted the same concept to store the transaction in a decentralized way. No single entity, administrator have control over it.
When a transaction is maid it is cryptographically put in a block along with other transactions that made in the last 10 minutes, and sent through out network around the world. The specially active members, called Miner, who have downloaded the the Bitcoin Software in their computers with high levels of computing power, receive the transaction notification. The Miners compete to validate the transactions by solving very complex hash coded problems. The first Miner who solve the problem and there by validate the transaction gets rewarded in Bitcoins made out of thin air.
Once validated the block is timestamped and added to the Blockchain containing the older blocks. This chain of blocks act as the ledger of the transaction. The entire chain of blocks continually updated across the globe so that every ledger in the network is the same.
Every ten minutes transactions are grouped together into a block and linked back to the previous blocks. This process makes a continuous blockchain with confirmed transactions without human intervention.
Bitcoins are stored within the Blockchain that act like a ledger or database. But instead of the database being stored on a private server — as for the case with a bank it is distributed across a public network. Distributed nature of it has made it hacker proof. Every block in the chain are linked to each other with cryptography code. Each block in the chain have the hash of the preceding block, therefore changing a single block require recreating of all blocks in the entire chain, redoing the whole work they contain. That is made it tamper proof.