Nowadays, a term that seems to be thrown around more and more is ‘blockchain’. But what is the blockchain? How does it work?
In this article, we’re going to be talking from the perspective of cryptocurrency on the blockchain, specifically Bitcoin. This is because many of the people reading this will first discover the whole concept of blockchains due to the rise in the number of online casinos that are accepting cryptocurrencies. However, blockchains aren’t just related to cryptocurrencies (despite being their main use) – lots of services can use a blockchain, for example, the sharing of images, files, etc. You’ll see what we mean as we go on.
What is a blockchain?
Perhaps the simplest way to look at a blockchain is to see it as a ledger. A blockchain is essentially a record of certain data. For example, the original blockchain was designed to keep a record of all Bitcoin transactions.
The thing that most people find hard to wrap their heads around is the fact that a blockchain is decentralized. There is no single place where the blockchain ledger is stored. It is stored in many different places in a peer-to-peer system. So, for instance, you couldn’t just go find ‘the’ Bitcoin ledger, because that ledger has been repeated millions of times. All the linked computers for Bitcoin will have the same version of that ledger – you’ll understand why as we explain how blockchain technology works.
How does blockchain technology work?
So, let’s say you own some Bitcoin. You want to use that money to gamble at online casinos that accept Bitcoin. Fun, right? Well, how does that Bitcoin get from you to the online casino, using the blockchain? Well, the process is quite complicated, but it can be broken down into a few steps, although do bear in mind that there is a lot of work going on behind the scenes here, and some rather complicated code.
Remember, we are talking about blockchain technology with reference to Bitcoin here. However, the process discussed here is almost the same in every other instance of blockchain technology. It is just easier if we explain from the perspective of a cryptocurrency as this is when the vast majority of people will be interacting with the blockchain.
- When you own Bitcoin, you will have a digital wallet. Your digital wallet is a special key associated only with you. Nobody on this planet can, or ever will, have the same digital wallet key that you have.
- Your Bitcoin wallet address (known as a key) is public, although due to the way Bitcoin works, nobody will know the identity of the person holding that address.
- The Bitcoin ledger contains a log of how much each Bitcoin wallet is worth. When you send Bitcoin over the blockchain, you are essentially moving the number from your Bitcoin wallet to the recipient’s Bitcoin wallet.
- So, back to sending to the online casino. Let’s say that you have some Bitcoin in your wallet. When you send Bitcoin over the blockchain, you’ll need to know the wallet address of the recipient – again, this is public information. You’ll also need to state exactly how much you wish to send.
- Before the transaction is confirmed, you’ll have to digitally sign the transaction with your private key to let the network know that the transaction is authorized by you and that you are verifying the transaction (nobody can see your private key).
- Once the transaction has started, it will be sent to the Bitcoin network. The transaction will then sit in something called the mempool, which is essentially a waiting area for Bitcoin transactions.
- The transaction will wait until Bitcoin miners grab the transaction and mine a new block with the transaction information. This is a fairly quick process, but it isn’t instant.
- When a new block is mined with your transaction information, the Bitcoin blockchain (ie the ledger) gets updated with the new values of both your Bitcoin wallet and the Bitcoin wallet of the receiving casino. Your transaction is now confirmed, and in the ledger of the Bitcoin blockchain, you no longer own the Bitcoin but somebody else does.
So, the Bitcoin will now be with the online casino and you can gamble with it.
Once a transaction is confirmed on the blockchain, it may not be changed. In fact, it is impossible to change it. Each transaction is assigned a number that is generated using an algorithm, and all the places that ‘store’ the Bitcoin ledger will keep tabs to ensure that the blockchain is not changed.
Finally, it is worth noting why it is called a blockchain. This is because the ledger is essentially a collection of blocks of data. These blocks are then linked together by the shared data (the unique numbers we discussed previously for each transaction will link them).
To summarize…
Seems confusing? Yes. We don’t blame you for being a little puzzled. Cryptocurrency, like trading on the forex market, is only simple if you immerse yourself in it. To most of us, it still seems complex. Books have been written about how blockchain technology works, and even the experts get confused sometimes. We have tried to sum it up as best we can, but even then, we have barely scratched the surface of blockchain technology.
Luckily, you do not need to understand how it works to take advantage of it. If you are using Bitcoin through an online casino, for instance, you just need to know that the blockchain is keeping a record of your transactions. That’s it. You don’t need to know the complexities behind everything. All you need to do is enjoy yourself!