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The Fundamental Characteristics of Blockchain Technology

blockchain technology

Understanding blockchain technology is important to grasping the total concept of cryptocurrency in general. The blockchain can be thought of as an online peer-to-peer digital ledger that keeps track of cryptocurrency user balances by tracking & evaluating the transactions. In this sense, a blockchain is a database that records the flow of its native currency, for example Bitcoin. But what makes this digital ledger special?

Bitcoin’s blockchain is an immutable, decentralized and cryptographically secured database that uses proof-of-work consensus mechanism to keep the ecosystem in sync. Just what does all of that technological jargon mean though? Simply put, it means that the online ledger is encrypted and distributed among a peer-to-peer network, much like “torrent” technology, and that each connection to that system must be in sync. Let’s delve into more detail with each word broken down below…


The term “distributed” refers to the way in which computers access and maintain Bitcoin’s blockchain. Unlike most databases that rigidly control who can access the information within, any computer in the world can access Bitcoin’s blockchain. This feature of its blockchain is integral to bitcoin being used as a global currency. Since anyone anywhere can tap into Bitcoin’s blockchain to see the record of debits and credits between different accounts, it creates a system of global trust. Everything is transparent, so everyone is on a level playing field.


Cryptography is the study and practice of encoding security into communication methods. By creating a code that would need to be decrypted in order to determine the data it holds, it creates a secure communication. Only the system in which the code was created can decrypt the data, to ensure protection from tampering. Modern computer based cryptography is nearly impossible to break, with our current technology. Bitcoin and other cryptocurrencies use 256 bit encryption, much like SSL and other modern information safeguard technology. So for example; it would take millions of years at our current computing power, just to break one Bitcoin address!

Every transaction that is recorded into the blockchain must be cryptographically verified to ensure that people trying to send bitcoin actually own the bitcoin they’re trying to send. Cryptography also applies to how groups of transactions are added to Bitcoin’s blockchain. Transactions are not added one at a time, but instead in “blocks” that are “chained” together, hence the term blockchain. These processes of validating the transactions and forming the blocks allows the computers building Bitcoin’s blockchain to collaborate in an automated system of mathematical trust.


The peer-to-peer network that is comprised of participating computers known as nodes or miners is what makes the online ledger immutable. Due to its decentralized and duplicated nature, the ledger is both secure from tampering, as well as destruction. The participating node computers can cryptographically verify transactions, create new blocks and add to the ledger, creating this immutable database.

Also, the computers building Bitcoin’s blockchain can only do so in an append-only fashion. Which means that the data or information related to transactions can only be stored in the blockchain over time but can’t be erased—creating an audit trail that is impossible to alter.

Once information is confirmed in Bitcoin’s blockchain, it’s permanent and cannot be erased. This immutability feature of the data structure is rare in this digital era where information can easily be erased or altered, and it is this immutability that is one of the most useful and appreciated attributes of the blockchain.

Proof of work

Decentralization, immutability and cryptographic are the three most valuable characteristics of the blockchain, yet none of them are useful alone without a proof-of-work system. Proof-of-work ties together the concepts of a distributed, cryptographic, and immutable database, and is how the distributed computers agree on which group of transactions will be appended to the blockchain next.

In other words, the proof of work consensus looks after the way transactions are stored in blocks and how they are strung together to form the blockchain. The miners use this proof-of-work system to calculate and add the blocks of transactions to the blockchain, which is how transactions are ultimately confirmed – or “proven”. Each time miners add a block, they get paid with a reward of a percent of the cryptocurrency they are proving. This is why they choose to spend computing power and time to participate in the first place. Competition for a financial reward is a big part of what keeps the cryptocurrency blockchain secure and alive.

In Closing

The unique aspects of blockchain and cryptocurrency technology make it one of the most amazing and revolutionary technologies to come out in recent years. For finance and trade – the technology will forever alter the landscape. On the personal level, these technologies that are springing up from the blockchain will change how we interact with others in voluntary trade. Understanding these technologies will help you to utilize the power they represent.