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What is blockchain in cryptocurrency

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Distributed Trust

The Blockchain is originally the data structure behind the Bitcoin network. It is best compared to a ledger. Ledgers underlie much of the infrastructure we rely on every day and are nothing more than lists that keep track of all data transactions. Many of the services and software we use rely on databases that function like ledgers. For example, money today is mainly found in databases; Ledgers at financial institutions in which all balance sheets and transactions are kept.

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But other registers also work in a similar way. Identity data, for example, is carefully maintained in databases. Other examples of data that are kept in databases are medical records and the business data of the Chamber of Commerce. Each entry is basically a line in a database maintained by a designated body.

Nowadays, these databases are updated in a central place, cut off from the outside world. For example, for Dutch domain names this is the SIDN and for patents this is RVO Nederland. There is a good reason that these databases are protected in a central location. The security of these systems is crucial. It is not desirable that secret patents can be viewed or that balances in bank accounts are adjusted just like that.

As a result, the use of these central databases and ledgers requires permission from the administrators. In turn, this again requires a sufficient degree of trust in the administrator that the data is properly maintained and accessible to stakeholders. It’s not just about trusting the administrator to be careful with the power to deny and allow access or edits to the data, but also trust that the agency will be there the next day. Gaining access to the data or being able to carry out a transaction sometimes depends on the views or beliefs of the data controller. This situation can sometimes lead to unpleasant situations,

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A disadvantage of centrally closed databases is that they cannot easily be connected to other systems without jeopardizing security. If we take banking systems, for example, then it is not easy with these types of ledgers to allow two parties to carry out a value transaction. Usually an intermediary is placed between the different systems that ensures sufficient trust and control so that the transaction can take place properly. This makes these systems expensive, slow and sometimes also susceptible to fraud.

One universal ledger

The blockchain is crucially different. The blockchain is decentralized and open. This means that there is no single entity or company that owns it, but that no one is the sole owner. It is a so-called peer-to-peer network where all participants of the network share ownership equally. And for this reason, it is an open network in which anyone who wishes can participate. Just like email and the internet belong to no one.

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Anyone can choose to use email or the internet and participate in the open and decentralized network by using it. Anyone can also build new applications on top of it, without the need for permission or other barriers to entry. The advantage of this open design is that, like the internet, the blockchain ledger cannot be cracked by hackers. If we compare blockchain with the internet, it makes possible for data in databases what the internet does for information.

Blockchain allows data to be more securely distributed across different databases while improving access. There are billions of websites on the internet that are easily accessible. The advantage of this decentralized model is that, just like on the web, data no longer has to accumulate in one central database, making it a target for thieves, but data can be spread over the internet while the accessibility remains the same, the increases reliability and improves security.

There are billions of websites on the internet that are easily accessible. The advantage of this decentralized model is that, just like on the web, data no longer has to accumulate in one central database, making it a target for thieves, but data can be spread over the internet while the accessibility remains the same, the increases reliability and improves security. There are billions of websites on the internet that are easily accessible.

The advantage of this decentralized model is that, just like on the web, data no longer has to accumulate in one central database, making it a target for thieves, but data can be spread over the internet while the accessibility remains the same, the increases reliability and improves security.

What is Blockchain?

To easily explain what a blockchain is, this form of data management can best be compared with a spreadsheet or an Excel worksheet. The universal ledger of the blockchain is nothing but a list like in a spreadsheet. An excel sheet that has been shared with everyone in the world. A list of data where everyone who participates gets an exact copy of that list and can see what’s in it.

Anyone with the spreadsheet can then also make changes to the database. And when a change is made in the spreadsheet, this change is immediately copied to all other copies of the list. As a result, everyone is always looking at the same list of data. Anywhere in the world, at any time.

People who use google drive know that these kind of spreadsheets already exist with the possibility to share the google sheets. However, there is one property that makes blockchains unique. And that is that on a blockchain, only new rules can be added at the bottom of the list. In fact, all a blockchain does with this is add new rows, which are automatically shared with everyone. It is not possible to make changes to previously added rules. The cryptographic software takes care of this, by combining all the computing power in the network to control the additions and reject changes.

Distributed Universal Ledger

For the Bitcoin blockchain this means that you cannot change a balance but only transfer an amount to someone else. So you can only make trades. A new transaction can only be added with a new line at the bottom of the list. The condition here is that only bitcoins can be sent that come from an older line in the list. This quality creates confidence. After all, no data, here bitcoins, can come out of nowhere because this condition means that an old line in the list must always be connected to the newer one.

Thousands of copies of the ledger, which are continuously compared, ensure that the bitcoin you are transferring is verifiably in your possession and that bitcoin comes from a previously verified line in the ledger.

When you have a universal ledger like the blockchain, you no longer need intermediaries to provide this trust. You only need a computer and internet access to the network. With open-source software it is then possible to make use of the reliability of the ledger.

Digital Transfer of Ownership

The special thing about blockchain technology is that for the first time it is possible not only to make a copy of data, but to transfer ownership of certain data. A participant in the network can make copies of all transactions and data in the database to their heart’s content.

But in order to be able to use a bitcoin to pay, he must be able to demonstrate that he is the owner and that he has previously received the bitcoin from someone else, completely in accordance with the rules.

The breakthrough is that, thanks to ‘distributed trust’, digital data cannot be usefully copied, but the ownership of assets can be transferred digitally reliably, without an intermediary. This property can hardly be overestimated.

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