Blockchains are a relatively new technology that allows the safe storage of information. Most commonly, blockchains store records of cryptocurrency transactions. The revolutionary aspect of blockchains is that they are incredibly secure without the need for third-party oversight.
If you purchase a cryptocurrency on an exchange, you have used a blockchain. In simplest terms, blockchains are ledgers that allow the public to see every transaction. The information that makes up the chain is kept in digital “blocks,” which cannot be altered once they reach their data limit.
Once the block is filled, it is linked to previous blocks on the chain. It receives a timestamp and becomes a permanent part of the blockchain. As more and more blocks get added to the chain, the older blocks become more and more secure.
What secures a blockchain?
So why is a blockchain more secure than other data storage systems? The reason is that the ledger itself is a public record that any one actor cannot alter. If one company owns all the forms of a transaction, then all that data can be lost if one thing goes wrong. However, a blockchain distributes the knowledge of transactions or contracts across multiple nodes. In the case of most cryptocurrencies, millions of nodes keep a record of every single transaction occurring on the network. So, if someone wants to change the ledger, it will immediately get corrected by the millions of other nodes cross-referencing each other simultaneously. For this reason, blockchains are precious technology for currency, legal contracts, inventory or other indispensable assets.
When it comes to spending cryptocurrency on a blockchain, everyone in the world has access to the records. Even if you do not own any currency on the chain, you can still look up transactions. However, only the nodes in the chain update and confirm transactions. This transparency means that every transaction can be tracked, and every cryptocurrency that exists is publicly known. Even if you lose the passphrase that gives you access to your cryptocurrency, you can still see the record of its previous transactions. If a trading site is hacked and currency is stolen, the stolen currency can still be traced. Once the thief spends or moves the money, it can be traced on the blockchain. That makes it very hard for illicit activity to occur if someone is willing to trace the transactions.
Even though the transactions are public records, the people who spend cryptocurrency are still anonymous. The transactions are encrypted using a public-private key. However, because the transactions are public, you could feasibly ascertain the identity of someone if you were willing to sift through the blockchain and connect purchases to someone’s spending patterns. This is not an easy task because millions of transactions occur every day.
Blockchains represent a nearly impenetrable way to keep track of digital contracts. The larger a blockchain, the more secure it becomes. As long as you keep your passcode in a safe space, you do not have to worry about someone stealing your cryptocurrency or digital asset.