What is a blockchain?

Blockchain formation: The main chain (black) consists of the longest series of blocks from the genesis block (green) to the current block. Orphan blocks (purple) exist outside the main chain. Source: Wikipedia

A blockchain is a database with a growing list of records, called blocks, which are linked together using cryptography. Each new block contains a cryptographic hash of the previous block, a timestamp and the payload transaction data. A major advantage to a public blockchain is that by its design it is resistant to the modification of data, making it an immutable ledger. A goal of blockchain is that of decentralization; not having a single point of failure and not being controlled by any single entity.

For an in-depth explanation of blockchain technology read the BlockGeeks.com “What is Blockchain” step-by-step guide.

What is bitcoin?

  • bitcoinBitcoin$37,658.00-3.36%
  • litecoinLitecoin$149.00-1.91%
  • bitcoin-cashBitcoin Cash$502.16-2.80%

Bitcoin was the first widely adopted application of blockchain technology. It was developed by a person or persons known as Sakatoshi Nakamoto in 2008. Sakatoshi’s stated vision, in response to the recent global financial crisis, was to provide a decentralized, trustless form of digital cash. Blockchain technology allowed Bitcoin to solve the double-spend problem that had plagued efforts to create decentralized digital currency up to that point.

What is Proof of Work (PoW)?

The blockchain that powers Bitcoin is based off a proof-of-work (PoW) algorithm. Blockchains that relay on PoW algorithms require a distributed network of computers solving increasingly complex cryptographic puzzles, in a process referred to as mining. Mining on a PoW blockchain accomplishes two main purposes; To confirm the legitimacy of a transaction on the network (to avoid double-spending) and to create new supply by rewarding the miners for their effort. Bitcoin has a hard cap of 21 million supply which is all the Bitcoin that will ever be mined (created).

When sending a transaction on a PoW blockchain the following steps occur:

  1. Transactions are bundled together into a ‘block.’
  2. Miners verify the transactions within the block to determine legitimacy.
  3. Verifying the transaction involves solving a mathematical puzzle.
  4. A reward is given to the first miner who solves the problems within a block.
  5. When completed the verified transaction is then stored on the public blockchain

For more information on the Proof-of-Work concept explained refer to Cointelegraph’s Proof-of-Work guide.

What is a hard fork?

Bitcoin Cash

Often when there is a major change to a PoW blockchain a hard fork is required. The issue may be technical in nature or a disagreement between the development community regarding the direction of the project. A hard fork results in a split of the blockchain into two separate concurrently running chains. The first major instance of this occurring was in 2017 when Bitcoin forked into two competing projects; Bitcoin and BitcoinCash. In 2018 BitcoinCash again hard forked into two competing versions; BitcoinCash and BitcoinCashSV.

For more information on hard forks in cryptocurrency see the “Understanding Hard Forks in Cryptocurrency” guide from CryptocurrencyFacts.com.

What is Proof of Stake (PoS)?

Litecoin PoW Blockchain

Proof of work based blockchains operate on hash rate (sometime called hash power); the computation power of all the devices mining on the platform. A 51% attack can occur on a PoW blockchain when a single entity controls over 51% of the hashing power. Recently Ethereum Classic (ETC), a hard fork of the Ethereum project, was succsefully hit with a 51% attack, allowing the attackers to double-spend on the network.

Ethereum migrating to PoS

The Ethereum blockchain is a PoW blockchain created for the purpose of Smart Contracts and Distributed applications (DApps). Ethereum is currently in the process of attempting to move from a PoW based blockchain to one based off Proof of Stake (PoS). In a proof of stake based blockchain those who stake their tokens to special staking wallets will receive a reward in place of mining. PoS based blockchains are not affected by 51% attacks. PoS blockchains that have copied code from PoW may however be susceptible to what is known as a “Fake Stake” attack.

What is Consensus Protocol?

Ripple’s XRP token uses a consensus protcol

The XRP token used by Ripple uses a protocol that is neither PoW or PoS based. The XRP ledger is based off a consensus protocol. XRP is a distributed ledger technology that does not use a traditional blockchain. In the XRP protocol transactions are confirmed by validators running the consensus protocol. Validators do not receive a financial incentive for their work such as with miners (PoW) or stakers (PoS), however they are conferred voting rights that allow them to help steer changes made to the protocol in the future.

The consensus protocol used by XRP is not subject to hard forks or 51% attacks. Consensus has a high amount of transactions per second. It uses a fraction of the electricity required of PoW based blockchains. Another potential issue with PoW is that a majority of the hash power of Bitcoin and Ethereum is controlled by handful of mining pools based in china. Although there have been previous concerns about XRPs centralization, Ripple controls a decreasing percentage of the current validators.

How to purchase digital assets

For those living in the United States, Coinbase is one of the easiest platforms to get started purchasing digital assets. You can use USD fiat to purchase BTC, ETH, LTC, BCH XRP. XRP can also be purchased with USD fiat in the United States at Uphold.com and can be exchanged for BTC and ETH at Binance. A tutorial for purchasing XRP on Uphold can be found here.

Tutorial to purchase Bitcoin on Coinbase

Note: DigitalAssetInfo.net is not a financial advisor. All information is for entertainment purposes only and does not constitute financial advice.