Book a Consultation

Are you confused about bitcoin and blockchain companies? This article will provide you with a basic understanding of how this technology works.

Where Did Bitcoin Come From?

In 2009, a person or an organization called Satoshi Nakamoto published an anonymous whitepaper. It introduced a new way to send and receive money without a middleman. This concept was called bitcoin. Because bitcoin is based on cryptography, it was dubbed cryptocurrency.

Bitcoin was initially used only for financial transactions. However, researchers soon discovered that the technology supporting bitcoin may have other applications that could revolutionize our financial system.

How Does Blockchain Work?

To explain the blockchain concept, a parking garage analogy is useful. A city has one large, centrally located parking garage with a 200-car capacity. The garage is privately owned and used only for parking. Several disadvantages are associated with this paradigm.

The garage is centrally located, so a hefty fee is charged to park there. After all, the garage owners had to construct the building on prime real estate, and are responsible for the upkeep and maintenance of the property.

Your car is not 100 percent safe in this garage. Thieves could conceivably get inside and damage or steal your automobile. Since all the parking spaces are already being rented, additional vehicles must seek parking elsewhere.

There’s an alternative to centralized parking. Let’s pretend that this city has 200 homes. Each home has two garages, but only one garage is ever used. That means there are 200 decentralized unused parking spaces currently available.

Imagine that the people who live in the 200 homes collectively decide to rent out all of those empty garages, and they agree to follow certain rules. Now we have solved the problem of providing parking for 200 cars in our city without having to build a central public parking garage.

Several advantages are associated with this arrangement: the homeowners aren’t paying extra for an additional garage because it was included with the house, no capital was invested to build the garages, there is no central parking garage to maintain, and the cost to homeowners of renting out the extra parking space is minimal.

As the city grows, all new homes are built with one extra parking space. Thus, available parking spaces are always on the increase.

Unlike with central public parking, each private garage is protected by its own key lock. Instead of getting access to all of the cars in a parking garage, thieves can only access one garage and one vehicle if they manage to break in.

This parking garage example more or less explains the basic technology of bitcoin, blockchain, and blockchain companies.

How Parking Garages Translate Into Blockchain Companies

Imagine that the centralized parking garage is a system like Google Cloud or Amazon Web Services. The decentralized parking in home garages represents a system like blockchain. Vehicles represent applications and data.

In our decentralized parking system, each car parks in the same garage every day. The lock and key pair for any given garage is created when a vehicle drives into and parks in a particular space.

Decentralized garages are numbered sequentially, and the lock and key pair of garage #2 is a function of the lock and key pair of garage #1. The lock and key pair of garage #2 is also based on the unique features of the car parked in garage #1. This lock and key system begins with garage #1 and continues through garage #200, and beyond, as new parking spaces are added to the existing network.

If vandals break into garage #49 and douse the vehicle with red paint, the features of that car change. A new lock and key pair must then be computed. Since the lock and key pair for garage #50 is a product of garage #49, the lock and key pair of garage #50 must change as well. So will the lock and key pair for every garage thereafter.

Calculating a lock and key pair takes a great deal of computing power. If it’s necessary to recompute any single lock and key pair because a thief has modified the features of a parked vehicle, it becomes a nearly impossible task to recompute all the other lock and key pairs.

All of the private garage owners initially agreed to follow certain rules. One of those rules involves checking for valid garages if one garage is violated. Garages are considered valid if you are able to confirm their lock and key pairs. If a lock and key pair has changed, all of the lock and key pairs following it become invalid and must change as well.

The process of validating a lock and key pair for any garage is fast and easy. It requires little computing power. However, generating a new lock and key pair requires a great deal of computing energy.

Because any lock and key pair depends on the previous lock and key pair, this system creates a chain of garages. In technical terms, these garages are called blocks. Because there are many blocks, they form what’s called a blockchain or, alternatively, a chain of blocks.

Hashes are like lock and key pairs, it’s a function that converts an input of letters and numbers into an encrypted output of a fixed length. They’re used by blockchain companies to connect the blocks in a blockchain. If the information in any hash has changed, all of the hashes that follow it must be recomputed. Computing a hash is as computer-intensive as calculating a lock and key pair. It’s almost impossible, so the network steps in and rules out any blocks that have been invalidated. In bitcoin, calculating the hash is called mining.

How Do Invalid Blocks Recover?

Computers in a blockchain network all have on file a complete blueprint of the original blockchain. If one block or a complete blockchain at one or more computers has changed, blockchain companies will automatically check that blockchain against their copy of the original chain.

Should a majority of computers or nodes within a group of blockchain companies conclude that a modified blockchain is invalid, that chain is then replaced with a valid chain from another blockchain network.

Blockchain companies are 51 percent vulnerable to attack. In other words, if more than 50 percent of nodes in blockchain companies are malicious or are showing a chain that’s been altered, then the entire network is likely to have been compromised.

Want further information about how blockchain companies work? Contact the Rebels today!