You must be aware that there are about 1800 digital coins/cryptocurrencies (coins/tokens) in action, each with its own purpose/utility and value. But do you wonder how they all work? What is the framework? What rules do they all follow? How do they do what they do?
Well, thats where Blockchain comes in. Think of blockchain as the world where all cryptocurrencies live. Following rules of that world and running under that specific structure. Just as a single programming language can be used by many developers to create thousands of programs, Blockchain can be used as a framework to house thousands of coins and tokens, each performing specific, varied functions of their own.
On breaking down the word Blockchain we get the 2 basic modules of what the technology is about.
- Block– can be defined as a script generated by the program that creates a new coin or a new unit. These units contain crucial information about transactions and addresses associated to those transactions. When a block is created new coins are generated. Miners who validate and verify transactions taking place over the blockchain earn cryptocurrencies as a reward for offering this service.
- Chain– is the link of transactions that go on over the network. Thousands of transactions take place every day over the blockchain and all these transactions can be traced from origin to destination.
Blockchain works on a distributed ledger system.
For example: If there are a 1000 users mining bitcoin (validating transactions that go on the blockchain- each user refered to as a Node) each and every one of them will hold a copy of the ledger (transaction records). Every time a new transaction takes place and verified it is automatically updated in all 1000 ledgers simultaneously. Hence, the system cannot be hacked or manipulated for ones advantage. This is the power of decentralization. The first miner connected to the blockchain (known as Node) who validates and records a new transaction taking place on the blockchain gets a reward in the form of that specific cryptocurrency. That is how Bitcoin miners create their own Bitcoins instead of buying them.
Here are some basic differences between a Bitcoin Block and an Ethereum Block
|BITCOIN BLOCK||ETHEREUM BLOCK|
|Size of each Block||1 MB||Capped by ‘*gas*’|
|Currency Cap||21 Million||100 Million|
|Transactions per Second||4||15|
|Hardware needed||*ASIC Miner||*GPU Miner|
|Time per Block||10 Minutes||15 Seconds|
|Coin generation Time||12.5 every 10 min (75/hr)||3 every 15 sec (750/hr)|
*Gas– Gas is the execution fee for every operation made on Ethereum, represented in Ether. Every transaction has a user specified gas amount. Miners have the option to refuse processing transactions which fall below a certain gas limit.
*ASIC Miner– Application Specific Integrated Circuit. Hardware that can be used a single coin
*GPU Miner- Graphic Processing Unit. Hardware that is capable of mining many different coins and Miners can switch their choice at the click of a button.
By now you must have understood the basic concept of a blockchain. But does that mean all coins work on the same blockchain framework?
A certain blockchain technology may support numerous Currencies or tokens!
Take Ethereum, for example. Using the Ethereum blockchain any ICO can create, launch and distribute their ECR20 tokens under Ethereums infrastructure.
This is the biggest difference between a Digital currency and a platform. While both can be used as a store of value, a digital currency has its own ecosystem that cannot be shared or cloned by another currency or sub currency originating out of it. A platform is exactly what it says. It is not only its own independent currency but also acts as a foundation to let many sub currencies originate out of its own infrastructure and framework.
Hopefully, this article has given you a clear understanding of blockchain technology and its use in the world of Cryptocurrencies.