What Is Blockchain Technology And How Does It Work?
Blockchain technology (web 3.0) is a decentralized internet infrastructure. The current internet infrastructure (web 1.0 and web 2.0) is a centralized network.
The decentralized blockchain network is much more secure than a centralized network because it cannot be hacked. The reason a decentralized network cannot be hacked is because all of the servers (nodes) on the network verify the content against one another within the network. (See image above)
If one of the servers’ info on the network does not match all of the servers, it’s “block” of information is not accepted on the blockchain. In other words you would need to hack almost all of the servers on the network simultaneously to compromise the information.
Why Is It Called “‘Block’chain”?
All of the servers on the network verify timestamped “blocks” of information. If all of the servers agree on the information on a given block it is timestamped and added to the “blockchain”. You cannot change old blocks because each block builds upon one another. Each block is “chained” together with a mathematical fingerprint encryption called a “hash”. As a result, information on a blockchain network it is very secure.
New blocks are created and added to the blockchain as little as 5 seconds to 10 minutes. The Ethereum network adds new blocks every 15 seconds, where the Bitcoin network adds a new block every 10 minutes.
Where Do Tokens Come From In A Blockchain Network?
For each Blockchain System that is created there is a token with a fixed quantity created. Until the blockchain system is integrated or tied to a physical asset the tokens have no real-life value. Most tokens are built on Ethereum. Ethereum is a coin and the currencies built on Ethereum are called Tokens. The blocks on Ethereum are programmable. The tokens built on Ethereum are completely price dependent and are truly separate currencies.
The Bitcoin blockchain network is simply a public ledger of bitcoin balances for users. People are rewarded Bitcoins or fractions of them when they create a new block that all the servers (nodes) verify as correct. This is called Bitcoin mining. Bitcoin mining requires massive amounts of CPU power. Earning Bitcoin for creating the next block gives an incentive for companies to continually verify and create the next block on the Bitcoin blockchain network.
Other blockchain networks and tokens gain value by performing real-life functions and automated processes for specific business models and commodities. Ethereum for instance is tied to ether gas. Furthermore, Ethereum has programmable protocols that give the ability to create other tokens on top of it’s platform. Thus giving Ethereum more practical value.