Blockchain - The Backbone of Digital Currencies
What is Blockchain?
Blockchain is literally just a chain of blocks, but not in the traditional sense of those words. When we say the words “block” and “chain” in this context, we are actually talking about digital information (the “block”) stored in a public database (the “chain”).
“Blocks” on the blockchain are made up of digital pieces of information. Specifically, they have three parts:
- Blocks store information about transactions like the date, time, and dollar amount of your most recent purchases, transfer of funds to another person, etc.
- Blocks store information about who is participating in transactions. A block for a purchase would record your name along with who you sent it to. Instead of using your actual name, your purchase is recorded without any identifying information using a unique “digital signature,” sort of like a username.
- Blocks store information that distinguishes them from other blocks. Much like you and I have names to distinguish us from one another, each block stores a unique code called a “hash” that allows us to tell it apart from every other block. Let’s say you send a friend $100, and an hour later, you send them another $100. Even though the details of your new transaction would look nearly identical to your earlier purchase, we can still tell the blocks apart because of their unique codes.
While the block in the example above is being used to store a single transfer, the reality is a little different. A single block on the blockchain can actually store up to 1 MB of data. Depending on the size of the transactions, that means a single block can house a few thousand transactions under one roof.
How Blockchain Works
When a block stores new data it is added to the blockchain. Blockchain, as its name suggests, consists of multiple blocks strung together. In order for a block to be added to the blockchain, however, four things must happen:
- A transaction must occur. Let’s continue with the example of sending your friend money. After sending some money, you decide to send more
- That transaction must be verified. After making that purchase, your transaction must be verified. With other public records of information, like the Securities Exchange Commission, Wikipedia, or your local library, there’s someone in charge of vetting new data entries. With blockchain, however, that job is left up to a network of computers. These networks often consist of thousands (or in the case of Bitcoin, many millions) of computers spread across the globe. When you send your transaction, the network of computers rushes to check that your transaction happened in the way you said it did. That is, they confirm the details of the transaction, including the transaction’s time, dollar amount, and participants.
- That transaction must be stored in a block. After your transaction has been verified as accurate, it gets the green light. The transaction’s dollar amount, your digital signature, and your friend’s digital signature are all stored in a block. There, the transaction will likely join hundreds, or thousands, of others like it.
- That block must be given a hash. Not unlike an angel earning its wings, once all of a block’s transactions have been verified, it must be given a unique, identifying code called a hash. The block is also given the hash of the most recent block added to the blockchain. Once hashed, the block can be added to the blockchain.
When that new block is added to the blockchain, it becomes publicly available for anyone to view — even you. If you take a look at Bitcoin’s blockchain, you will see that you have access to transaction data, along with information about when (“Time”), where (“Height”), and by who (“Relayed By”) the block was added to the blockchain.
Is Blockchain Secure?
Blockchain technology accounts for the issues of security and trust in several ways. First, new blocks are always stored linearly and chronologically. That is, they are always added to the “end” of the blockchain. If you look at Bitcoin’s blockchain, you’ll see that each block has a position on the chain, called a “height.” As of August 31, 2019, the block’s height had topped 592,517.
After a block has been added to the end of the blockchain, it is very difficult to go back and alter the contents of the block. That’s because each block contains its own hash, along with the hash of the block before it. Hash codes are created by a math function that turns digital information into a string of numbers and letters. If that information is edited in any way, the hash code changes as well.
Here’s why that’s important to security. Let’s say a hacker attempts to edit your transaction with your friend so that you actually have to pay more. As soon as they edit the dollar amount of your transaction, the block’s hash will change. The next block in the chain will still contain the old hash, and the hacker would need to update that block in order to cover their tracks. However, doing so would change that block’s hash. And the next, and so on.
In order to change a single block, then, a hacker would need to change every single block after it on the blockchain. Recalculating all those hashes would take an enormous and improbable amount of computing power. In other words, once a block is added to the blockchain it becomes very difficult to edit and impossible to delete.
To address the issue of trust, blockchain networks have implemented tests for computers that want to join and add blocks to the chain. The tests, called “consensus models,” require users to “prove” themselves before they can participate in a blockchain network. One of the most common examples employed by Bitcoin is called “proof of work.”
In the proof of work system, computers must “prove” that they have done “work” by solving a complex computational math problem. If a computer solves one of these problems, they become eligible to add a block to the blockchain. But the process of adding blocks to the blockchain, what the cryptocurrency world calls “mining,” is not easy. In fact, according to the blockchain news site BlockExplorer, the odds of solving one of these problems on the Bitcoin network were about 1 in 5.8 trillion in February 2019. To solve complex math problems at those odds, computers must run programs that cost them significant amounts of power and energy (read: money).
Proof of work does not make attacks by hackers impossible, but it does make them somewhat useless. If a hacker wanted to coordinate an attack on the blockchain, they would need to solve complex computational math problems at 1 in 5.8 trillion odds just like everyone else. The cost of organizing such an attack would almost certainly outweigh the benefits.
Blockchain vs. Bitcoin
The goal of blockchain is to allow digital information to be recorded and distributed, but not edited. That concept can be difficult to wrap our heads around without seeing the technology in action, so let’s take a look at how the earliest application of blockchain technology actually works.
Blockchain technology was first outlined in 1991 by Stuart Haber and W. Scott Stornetta, two researchers who wanted to implement a system where document timestamps could not be tampered with. But it wasn’t until almost two decades later, with the launch of Bitcoin in January 2009, that blockchain had its first real-world application.
The Bitcoin protocol is built on the blockchain. In a research paper introducing the digital currency, Bitcoin’s pseudonymous creator Satoshi Nakamoto referred to it as “a new electronic cash system that’s fully peer-to-peer, with no trusted third party.”
Here’s how it works:
You have all these people, all over the world, who have Bitcoin. According to a 2017 study by the Cambridge Centre for Alternative Finance, the number may be as many as 5.9 million. Let’s say one of those 5.9 million people wants to spend their Bitcoin on groceries. This is where the blockchain comes in.
When it comes to printed money, the use of printed currency is regulated and verified by a central authority, usually a bank or government — but Bitcoin is not controlled by anyone. Instead, transactions made in Bitcoin are verified by a network of computers.
When one person pays another for goods using Bitcoin, computers on the Bitcoin network race to verify the transaction. In order to do so, users run a program on their computers and try to solve a complex mathematical problem, called a “hash.” When a computer solves the problem by “hashing” a block, its algorithmic work will have also verified the block’s transactions. The completed transaction is publicly recorded and stored as a block on the blockchain, at which point it becomes unalterable. In the case of Bitcoin, and most other blockchains, computers that successfully verify blocks are rewarded for their labor with cryptocurrency. (For a more detailed explanation of verification, see: What is Bitcoin Mining?)
Although transactions are publicly recorded on the blockchain, user data is not — or, at least not in full. In order to conduct transactions on the Bitcoin network, participants must run a program called a “wallet.” Each wallet consists of two unique and distinct cryptographic keys: a public key and a private key. The public key is the location where transactions are deposited to and withdrawn from. This is also the key that appears on the blockchain ledger as the user’s digital signature.
Even if a user receives a payment in Bitcoins to their public key, they will not be able to withdraw them with the private counterpart. A user’s public key is a shortened version of their private key, created through a complicated mathematical algorithm. However, due to the complexity of this equation, it is almost impossible to reverse the process and generate a private key from a public key. For this reason, blockchain technology is considered confidential.
Public and Private Key Basics
Here’s the “Explain it Like I’m 5” version: You can think of a public key as a school locker and the private key as the locker combination. Teachers, students, and even your crush can insert letters and notes through the opening in your locker. However, the only person that can retrieve the contents of the locker is the one that has the unique key. It should be noted, however, that while school locker combinations are kept in the principal’s office, there is no central database that keeps track of a blockchain network’s private keys. If a user misplaces their private key, they will lose access to their Bitcoin wallet.
In the Bitcoin network, the blockchain is not only shared and maintained by a public network of users—but it is also agreed upon. When users join the network, their connected computer receives a copy of the blockchain that is updated whenever a new block of transactions is added. But what if, through human error or the efforts of a hacker, one user’s copy of the blockchain manipulated to be different from every other copy of the blockchain?
The blockchain protocol discourages the existence of multiple blockchains through a process called “consensus.” In the presence of multiple, differing copies of the blockchain, the consensus protocol will adopt the longest chain available. More users on a blockchain mean that blocks can be added to the end of the chain quicker. By that logic, the blockchain of record will always be the one that most users trust. The consensus protocol is one of blockchain technology’s greatest strengths but also allows for one of its greatest weaknesses.
Theoretically, it is possible for a hacker to take advantage of the majority rule in what is referred to as a 51% attack. Here’s how it would happen. Let’s say that there are 5 million computers on the Bitcoin network, a gross understatement for sure but an easy enough number to divide. In order to achieve a majority on the network, a hacker would need to control at least 2.5 million and one of those computers. In doing so, an attacker or group of attackers could interfere with the process of recording new transactions. They could send a transaction — and then reverse it, making it appear as though they still had the coin they just spent. This vulnerability, known as double-spending, is the digital equivalent of a perfect counterfeit and would enable users to spend their Bitcoins twice.
Such an attack is extremely difficult to execute for a blockchain of Bitcoin’s scale, as it would require an attacker to gain control of millions of computers. When Bitcoin was first founded in 2009 and its users numbered in the dozens, it would have been easier for an attacker to control a majority of computational power in the network. This defining characteristic of blockchain has been flagged as one weakness for small cryptocurrencies. User fear of 51% attacks can actually limit monopolies from forming on the blockchain, hence the decentralized nature of Bitcoin.
Bitcoin - The Digital Gold of Cryptocurrency
What is Bitcoin?
Bitcoin is a digital currency created in January 2009. It follows the ideas set out in a white paper by the mysterious Satoshi Nakamoto, whose true identity has yet to be verified. Bitcoin offers the promise of lower transaction fees than traditional online payment mechanisms and is operated by a decentralized authority, unlike government-issued currencies.
There are no physical bitcoins, only balances kept on a public ledger in the cloud, that – along with all Bitcoin transactions – is verified by a massive amount of computing power. Bitcoins are not issued or backed by any banks or governments, nor are individual bitcoins valuable as a commodity. Despite it not being legal tender, Bitcoin charts high on popularity, and has triggered the launch of other virtual currencies collectively referred to as Altcoins.
How Bitcoin Works
Bitcoin is the first successful digital currencies to use peer-to-peer technology to facilitate instant payments by using a blockchain. The independent individuals and companies who own the governing computing power and participate in the Bitcoin network, also known as “miners,” are motivated by rewards (the release of new bitcoin) and transaction fees paid in bitcoin. These miners can be thought of as the decentralized authority enforcing the credibility of the Bitcoin network. New bitcoin is being released to the miners at a fixed, but periodically declining rate, such that the total supply of bitcoins approaches 21 million. One bitcoin is divisible to eight decimal places (100 millionths of one bitcoin), and this smallest unit is referred to as a Satoshi. If necessary, and if the participating miners accept the change, Bitcoin could eventually be made divisible to even more decimal places.
Bitcoin mining is the process through which bitcoins are released to come into circulation. Basically, it involves solving a computationally difficult puzzle to discover a new block, which is added to the blockchain and receiving a reward in the form of a few bitcoins. The block reward was 50 new bitcoins in 2009; it decreases every four years. As more and more bitcoins are created, the difficulty of the mining process – that is, the amount of computing power involved – increases. The mining difficulty began at 1.0 with Bitcoin’s debut back in 2009; at the end of the year, it was only 1.18. As of February 2019, the mining difficulty is over 6.06 billion. Once, an ordinary desktop computer sufficed for the mining process; now, to combat the difficulty level, miners must use faster hardware like Application-Specific Integrated Circuits (ASIC).
Who Invented Bitcoin?
The simple answer is that nobody knows. Satoshi Nakamoto is the name associated with the person or group of people who released the original Bitcoin white paper in 2008 and worked on the original Bitcoin software that was released in 2009, a year after the US economy went into a recession due to the housing market crisis. He embedded a string of text into block number 0 of the first mined block of bitcoin: “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.”
Bitcoin vs Fiat Currency
Fiat Currency, which is a currency that is not backed by anything but a government promise (The US dollar, the Euro, etc). This allows governments to print as much of the currency as they please using an inflationary model, which in turn devalues the currency already in circulation. Take a US dollar bill for example. Every year, the dollar is worth less and less, meaning you have less buying power than the year before, which is why prices for various things tend to increase over time, like the housing market or food in general. This is not sustainable; It has been shown throughout history that Fiat currencies always fail, because if you continue to print money, eventually, it becomes worthless. This is where Bitcoin shines. It is based on a deflationary model, which means every year less and less are made, until no more are created. This increases the buying power you have over time and give you direct control of your money, rather than the banking industry and government.
Receiving Bitcoins As a Form of Payment
Bitcoins can be accepted as a means of payment for products sold or services provided. If you have a brick and mortar store, just display a sign saying “Bitcoin Accepted Here” and many of your customers may well take you up on it; the transactions can be handled with the requisite hardware terminal or wallet address through QR codes and touch screen apps. An online business can easily accept bitcoins by just adding this payment option to the others it offers, like credit cards, PayPal, etc. Online payments will require a Bitcoin merchant tool (an external processor like Coinbase, CryptoCurrencyCheckout or a variety of website plugins).
Privacy and Bitcoin
Bitcoin is a great store of value, but it’s privacy features leaves a lot to be desired. Although your public address for your Bitcoin wallet may seem like random numbers and letters in a list of millions of other Bitcoin wallets, it is far from anonymous and private. Think of it like a bank account without a name attached. All of your transactions are recorded; amounts, dates, times, etc. Thus, your entire history is easily shown for the world to see. It has been proven that in most cases, government agencies can easily find out what wallet belongs to which person by a variety of methods they use. Bitcoin is no longer like dealing in cash, which is untraceable when given from person to person in a private setting. This is where anonymous currencies like PirateChain come in.
Pirate Chain - The Ultimate Privacy Coin
What is Pirate Chain?
Pirate Chain is a digital privacy currency created in August 29th 2018. The goal was simple: to create a completely anonymous cryptocurrency that is secure, untraceable and keep the identity of those who transact with it anonymous. Developers of various cryptocurrencies came together to create Pirate Chain to show the world that it’s not only possible, but also necessary. It has been proven by government agencies and chain analysts that Bitcoin, as well as all of the other “privacy” cryptocurrencies, can be traced and data can be taken from them in order to find out who uses these currencies, how much they spend and who they transact with. Pirate Chain, on the other hand, has none of these issues, as it uses military grade encryption and delayed proof of work to make it the most secure and anonymous cryptocurrency in the world!
How Pirate Chain Works
Written in the code of Pirate Chain is a vast treasure chest (pun intended) of cryptocurrency firsts, along with a secure way to prevent hostile attacks on the chain and keep user’s transaction data private. Pirate Chain does not leak any transaction meta data, allowing every transaction to stay private. Proof of this is given on the block explorer (the place where you can see the transactions that occur. All cryptocurrencies have one). When you view the block explorer, you will notice that transactions occur, but the addresses they are sent from are not there, the addresses they are sent to are not there, and the amount transacted is not shown, only the transaction fee. This is one of many proofs that show users that their data is safe and private.
Mining Pirate Chain works very similarly to how Bitcoin mining works (which was talked about in Part II of this series). The key difference between them is that Pirate Chain mining is private, not allowing anyone to see how much was mined per address on the block explorer. This allows users to feel confident that whether they are transacting with others, mining or purchasing things, no data is compromised. Nobody is able to see how much you have in your wallet or trace anything back to you. Simply put, it works exactly how privacy should work, what’s your is yours and not visible to anyone but you.
Who Created Pirate Chain?
Pirate Chain was created and is continuously developed by many people, including the lead developer of the Komodo Platform, Bitcoin contributors, ZCash developers and way more. All of which have contributed to Pirate Chain on their own time without any financial incentive aside from building the world’s most private and secure cryptocurrency. They believe that financial privacy is a human right that should not be infringed on. In fact, this message is so powerful and resonates among so many people, Pirate Chain has various developers of a wide variety of backgrounds (web developers, app developers, writers, store owners, streamers, etc) to help with adoption and bringing it to the mainstream.
Why do I need financial privacy?
Financial privacy has been constantly chipped away over the years, to a point where someone always knows how much money you have, what you spend it on, where you shop and so much more it makes you shudder just thinking about it. Even if you try to transact only in cash, you need a bank account to store it (unless you feel safe carrying all of your money with you, which is most likely not the case). Your right to privacy with these institutions is completely gone and your data is sold to the highest bidder.
Pirate Chain vs Bitcoin
Bitcoin, while used as a store of value, underperforms Pirate Chain in many aspects. First, Bitcoin uses a public ledger. This allows everyone to see who you transact with, how much you sent/received and when the transaction happened. Pirate Chain removes this information and doesn’t allow anyone to see it. Bitcoin is slow and can take hours to confirm, while Pirate takes a very small fraction of that time. Bitcoin has a large barrier of entry if you try to mine it; Pirate has a low bar of entry and you can even earn some if you tweet about them, help develop the ecosystem and take part in the community!
Can I actually use Pirate Chain to buy things?
Of course! There are many shops that already accept Pirate Chain as a form of payment, from Art, Services and Gift Cards, to Clothes, Software and more by the day! Various streamers, youtubers, and other social media users/content providers are accepting Pirate Chain as tips, donations and payments! Pirate Chain has laid down a massive foundation for it’s success and adoption, and as time goes on and people start realizing that their own financial privacy is more important than they thought, the more stores/services and people adopt Pirate Chain!