Blockchain Basics: Deconstructing the Tech Behind Cryptocurrencies
Tags: blockchain, web3, beginners, programming
Published: 2023-06-05 17:22:49

In January 2009, amidst the worst recession the world had seen at the time, [Satoshi Nakamoto](https://www.investopedia.com/terms/s/satoshi-nakamoto.asp), a pseudonymous creator, released an application of a previously theoretical concept: a new currency on the internet that didn't rely on any banks to keep track of accounts.

This currency was decentralized, meaning it was not controlled by any single entity. Instead, it was maintained by a network of computers all over the world. This made it more secure and transparent than traditional currencies.

The technology that made this possible was called blockchain. It is the foundation of cryptocurrencies like Bitcoin and Ether.

In this article, I will explain how blockchain works and how it can be used to create a more secure and transparent financial system.

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![Bank vs. Blockchain](https://dev-to-uploads.s3.amazonaws.com/uploads/articles/fk94s650cqqevyzsgfbw.png)


## How is cryptocurrency different? 

In traditional finance, transactions are verified and recorded by a central authority, such as a bank. This means that the central authority has control over the money supply and can track all transactions.

Cryptocurrency, on the other hand, is a decentralized digital currency that uses blockchain to verify and record transactions. Blockchain is a distributed ledger that is maintained by a network of computers all over the world. This means that there is no central authority and no single point of failure.

Imagine you're at a social gathering with a group of people, and one person confidently announces that they have a million dollars in their bank account. In a traditional financial system, you would have no way to independently confirm this claim unless you had direct access to their bank records. You would essentially have to take their word for it.

Now, let's imagine a different scenario where both of you are part of a cryptocurrency network. In this decentralized system, you can actually verify the validity of their claim. This is because cryptocurrencies operate on blockchain, which publicly and securely, records all transactions.

So, if this person wants to send you 100 coins as a demonstration, you and others on the network can examine the blockchain's public ledger to validate whether they genuinely have the funds they claim to be sending. This transparency allows for verification by consensus, reducing the need for blind trust.

This is just one of the ways in which cryptocurrency differs from traditional finance. The technology offers a level of transparency and accountability that empowers individuals to verify transactions without relying solely on trust or centralized authorities.

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How does blockchain work? Let's take a look at some of the key components of a blockchain network.

##The Block 

![The Block](https://dev-to-uploads.s3.amazonaws.com/uploads/articles/gnacdyn6h7tztnolt2po.png)

From a data structure perspective, a block is an abstract container that holds an encrypted collection of network transactions along with other data.

Some key components of each block:
* **Hash of the previous block**: This is a unique identifier for the previous block in the chain. It ensures a secure cryptographic link between blocks.
* **Merkle root**: This is a binary hash tree that produces a digital fingerprint of the entire set of transactions in the block. This is used to quickly verify the contents of the block without having to re-hash all the transactions.
* **Nonce** (short for _number only used once_): This is a random number that is used to generate the block's hash. The nonce is changed until the hash meets a certain criteria, making it very hard to tamper with. 
* **Timestamp**: This ensures the blocks are ordered chronologically. 
* **Transaction data**: This is the data that is being stored in the block. This can include information such as the sender, receiver, amount, and time of the transaction.

![Inside the Block Image](https://dev-to-uploads.s3.amazonaws.com/uploads/articles/xbd3sadvidf8357tpasl.png)

Everyone that is on the blockchain network can access the blocks and view the transactions that have taken place. This transparency is one of the key benefits of using blockchain technology.

If you're interested to learn more about blocks here are some cool links: 
* [The first ever block created on the Bitcoin network: "The Genesis Block" ](https://www.coindesk.com/tech/2023/01/03/the-genesis-block-the-first-bitcoin-block/)
* [Block visualizer starting at Genesis](https://www.blockchain.com/explorer/blocks/btc/000000000019d6689c085ae165831e934ff763ae46a2a6c172b3f1b60a8ce26f)
* [An API to view block details with its hash](https://developers.cryptoapis.io/technical-documentation/api/blockchain-data/unified-endpoints/get-block-details-by-block-hash)


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How do you get on a blockchain network? This brings us to the next component. 

## The Node

![The Node](https://dev-to-uploads.s3.amazonaws.com/uploads/articles/nsykfa4dj69odtwzxsgb.png)

A node is a computer or server that is connected to a blockchain network. Nodes are responsible for storing the blockchain data, validating transactions, and relaying information to other nodes.

To become a node in a crypto network, you need to:
1. **Install the blockchain software of your interest on your computer**. The software will allow you to connect to the network and participate in its operations.
2. **Sync your node with the blockchain network**. This will ensure that your node has the latest blockchain data.
3. **Start participating** in the network by validating transactions and relaying information to other nodes. You can do this by running the blockchain software and connecting to the network.

Once you have the node running, you will be able to view the blockchain data, validate transactions, and earn rewards for validating transactions.

Here are some links to get started with popular blockchain software:
* [Geth by Ethereum](https://geth.ethereum.org/)
* [Installing Geth] (https://geth.ethereum.org/docs/getting-started/installing-geth)
* [Bitcoin Core] (https://blockgeeks.com/install-bitcoin-core/)

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Can any node add to the Bitcoin blockchain? How are blocks added? How exactly does the blockchain enable transparency and security among participants? This brings us to the next key component of the blockchain.

##The Chain

![The Blockchain](https://dev-to-uploads.s3.amazonaws.com/uploads/articles/irsld2vzqvipsfgs15uo.png)

The blockchain is a back-linked list of chronologically ordered blocks. Each block is linked to the previous block through a cryptographic hash, enabling the verification of transactions.

### How are blocks added to this chain? 
To maintain the security and transparency, blocks are added through a **consensus mechanism**. This means that a majority of participants in the network must agree that a block is valid before it can be added to the chain.

There are many different consensus mechanisms, but the two most common ones are **Proof-of-Work** and **Proof-of-Stake**.

For more on consensus mechanisms, check out the second part in this series, ["Consensus Mechanisms: How Blockchains Reach Agreements"](https://dev.to/shreyashenoy/consensus-mechanisms-how-blockchains-reach-agreement-cl4)

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Overall, blockchain is promising technology with the potential to revolutionize the financial system. It is still in its early stages of development, but it is already being used by a wide range of businesses and organizations. 

Here's an overview of the concepts covered in this series:

![Article Contents](https://dev-to-uploads.s3.amazonaws.com/uploads/articles/uj5l2eiiskiw89ghrmji.png)

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Web3 is a new decentralized internet that is built on blockchain technology, and it is still in its early stages of development. However, there are already a lot of cool developments happening in web3, such as decentralized finance (DeFi), non-fungible tokens (NFTs), and decentralized autonomous organizations (DAOs).

If you are interested in learning more about blockchain technology and web3, follow me on [dev.to](https://dev.to/shreyashenoy) and [Twitter](https://twitter.com/scatterbrain248). I would be happy to answer any questions you have.