When we talk about a cryptocurrency, it is almost inevitable to talk about the blockchain. It is a vital part for the proper functioning of them, from their transactions to their valuation. Here we explain why.
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Definition of a blockchain, what is it?
A blockchain is a record of activity of operations with a currency, shared and verified by several nodes that maintain its integrity. These nodes perform operations and surveillance in exchange for receiving a portion of the transactions for their work-
What does a blockchain have to do with a cryptocurrency?
You have to imagine a blockchain as an accounting book with all the transactions that have taken place regarding a currency. The cryptocurrencies, which are the tokkens or units that are handled in said blockhain; they are stored in wallets, which can be hot or cold depending on what state they are in, and those wallets can be stored in the cloud or on a physical device.
By their very nature, the files that contain the cryptocurrencies of a blockchain They cannot be manipulated without its approval.. It is not that they are immutable, but that their mutation needs to be approved.
Why are blockchains important in a cryptocurrency?
The idea of making all transactions validated by independent nodes but united with all, is to make it very difficult to carry out a fraudulent transaction that has not been monitored. It is a principle very similar to that used in the paper vote in elections: If everyone involved is at odds and has something to gain by verifying transactions if it goes well, everyone is going to see that it goes well.
Is there only one blockchain?
No, there are numerous blockchains and there is no one size fits all. A blockchain is a way of referring to a digital ledger record that is stored across numerous nodes. to ensure that transactions are valid. Their tokens are what we refer to as cryptocurrencies, since they are more or less finite elements that move between users, and the people who use them give them a certain monetary value.
What does it mean for a blockchain to work through Proof of Work?
It means that the blockchain uses an algorithm based on proof of work, in which users do complex math operations in order to guarantee the transactions. A mining rig is made up of hardware with a high hash rate in order to mine blocks of cryptocurrency and receive tokens as rewards. This is why large cryptocurrency mining operations take place in industrial warehouses. They are spaces capable of housing large amounts of motherboards and rigs for mining, with many graphics and processors mining cryptocurrencies.
Therefore, it is not uncommon for large massive cryptocurrency mining operations with Proof of Work are made in countries where electricity is very cheap or is subsidized. Sometimes they have even been installed in power plants to dedicate all their energy to mining. China is one of the countries in the latter case, and thus the country has become a mining center in itself. There have even been cases where small mining operations have been found tapping street lights to avoid paying for electricity.
Bitcoin is one of the most important Proof of Work blockchains, because it has been able to sell itself and has been one of the first to reach high profitability values to interest miners and investors.
What is a Proof of Stake blockchain?
A blockchain that uses Proof of Stake, has by definition that it makes use of a transaction validation algorithm in which users put their tokens at stake as collateral for a transaction. The idea of these blockchains is that they demonstrate having an interest in making the transactions valid.
Normally, in a proof of stake blockchain, all users who want to enter must sign a contract buying tokens, and then buy tokens that make surety to start trading. This wants the parties to be involved in the welfare of the transactions. By having a considerable amount of token placed as part of the contract and guarantee, it is expected that the possibility of losing the investment exists if a fraudulent transaction is carried out.
Can a transaction be returned on a blockchain?
Because it is a decentralized system and operated by multiple independent nodes, returning a transaction implies that most people are willing to revert the blockchain to a previous state. The most normal thing is that they do not agree if it is necessary to reverse operations, since that would imply losing mining benefits. If this persists, it is possible that many users decide to generate a split called "fork"and with it, a new blockchain with its own cryptocurrency with independent value.
What is a fork of a blockchain?
The definition of a blockchain fork is when nodes split due to a management change or any reason that divides its users. At the time of the fork, a number of users will create a new blockchain from the moment in which they have been divided, keeping their corresponding tokens.
An example of a fork in a blockchain was the passage of Ethreum to Proof of Stake. Since many people did not want to lose the investment of their mining rigs and graphics cards, they decided to create their own blockchain called Ethereum Classic. It continues to operate in Proof of Work. In this case, an Ethereum fork was created, which gave rise to that Ethereum Classic, which did not you have to follow the directions of the Ethereum blockchain and does not share your assessment or your updates.
What makes one special compared to others?
Generally, a cryptocurrency or blockchain usually has a technological project behind it that supports it, and that attracts investors. Some blockchains may also have certain smart contracts and allow data to be stored on it. As a result, the NFT, among other things with promises that an artist would receive a part of the money from the transaction each time one is made in the form of royalties, or that NFTs would serve many games at once.
How is a currency exchange made in cryptocurrencies?
To make a currency exchange between cryptocurrencies, or with fiat money, what happens is that a pointer is generated in the blockchain that indicates that those tokens involved in the transaction have been exchanged to another blockchain, the transaction has already been completed. what blockchain they have gone.
It is not that those tokens have disappeared. It is available for someone to buy with money or with other cryptocurrencies, but they are not assigned to any user of it.
Can transactions be consulted?
Yes, or at least in the case of many. It is a myth that cryptocurrency transactions are undetectable, but they do not tell who a wallet belongs to. It is possible to follow transactions with cryptocurrencies, since they are all registered in a blockchain, and all operations are registered.
Can a blockchain change its algorithm?
Yes. It is possible that a blockchain decides to change its mining algorithm, for whatever reasons. That will involve all the miners who are in charge of maintaining it, and they can decide if the change is made. If a sufficient majority decides to change, the change will be effected, and those who don't want to change can join and form a fork that keeps the original algorithm.
This happened with the Ethereum Merge, which is what the process in which they would go from Proof of Work to Proof of Stake was called. Several miners did not want to lose their investment in hardware and rigs, and created an Ethereum fork called Ethereum Classic, which still uses Proof of Stake, although its value is not the same as regular Ethereum.
