Words like Blockchain, ICO, cryptocurrency and smart contracts are creating a lot of buzz, yet may seem somewhat misunderstood at times. But fear not, they are not rocket science. The blockchain technology is actually a combination of three basic and proven in time practices – cryptography, P2P networking and a framework, called protocol, to combine the two together. Blockchain explained? There’s some more, so let’s start!
Cryptocurrencies, also known as crypto coins, are based on blockchain technology. Each of them starts its journey as an Initial Coin Offering, or ICO. Simply put, ICOs guarantee a minimum amount of money for a project to fulfill its goals (usually written in a coin’s project and mission statement, called the whitepaper).
How does blockchain work?
First, we need to give the blockchain a definition:
The blockchain is a decentralized, digital, accessible to all ledger of every cryptocurrency transaction to date. It gives the opportunity to keep track of every change in the transaction history. It’s distributed evenly, across all clients in the node. It offers a secure, up-to-date, decentralized verification method for running transactions.
In other words, blockchain is also often summarized as a distributed ledger. It eliminates the need to have a central authority that controls the processes and prevent manipulation, as it a ledger of all transactions or contracts, keeping the information in a decentralized manner – across different location and people. This is believed to be the blockchain feature that revolutionizes the financial industry.
The first pillar of the blockchain – the cryptographic keys, can be explained very simply – like a double padlock. Imagine a transaction being run across the globe with someone you won’t ever see – how can you be sure that the transaction will happen? Simply by exchanging keys to each other’s padlock.
You hold your unique key (called ‘Private Key’), while the other party holds its own. But you both share a public key, which initiates the transaction. Only a combination of both sides’ private and public keys can be used as a contract between the sides. This is why such contracts are called ‘smart contracts’.
But smart contracts aren’t enough – there is still the need to verify and approve such a transaction, which happens with the help of an almost 40-years-old technology – the Peer-to-Peer /P2P/ network.
Each transaction must be proven to be valid by as many users as possible, reaching an agreement (also known as consensus) that the transaction is valid. This can’t happen manually, so a framework, called protocol is being used to calculate the validity of each deal.
These calculations are big and need a lot of power. This is where the P2P networks take action – it distributes the load of the transactions, grouped in nodes, to a series of users, called miners. These miners offer their CPU or GPU power to the network.
After a transaction or a node has been calculated and proven to be valid, creating a new timestamped block. This way miners have the power to chain a block with another block with the latest transaction information, hence a blockchain that is updated at all times. In return for their work, the miners receive an award, usually in a particular coin, which they can exchange for other cryptocurrencies or fiat assets.
The protocol ensures all the information required to run and validate a transaction – the private/public key contract, the exact time of the agreement and database-orientated information, is sent in the correct way to the miners, mined properly and ensures the final result.
The protocol contains rules, commands and verification checkpoint to either approve or disapprove a given transaction over the blockchain. The protocol also includes the safety mechanisms of the blockchain against cyber attacks – everyone in each node has the same database and transaction information at the same time.
If a change occurs – everyone receives an “update” about it. But if a node is being attacked, it can reach a single user, without wiping off the entire node, which means all the data can be reaccessed in a matter of milliseconds. The protocol ensures that the synchronized nodes can act as a “transaction mechanism” to prevent double spending, transaction , and other malicious attacks.
The three pillars of a modern blockchain give users the ability to send and receive virtually any amount and/or type of cryptocurrency in a matter of seconds, using well-known and proven in time methods and consensus algorithms. This is why more and more investors are putting their money not in the coin itself, but in the blockchain behind it – in the form of buying an ICO.
If you are passionate about transforming the world through blockchain technology, you have creative and innovative ideas and are interested in launching your own coin, our company, Cryptoken Media, can help you organize an ICO campaign and crowdfund your project.
Cryptoken Media is a marketing agency specializing in organizing ICOs and other crypto related events. Our goal is to ensure the success of our customers, by organizing highly effective marketing campaigns to build their favorable reputation, attract a loyal customer base and, of course, raise the funds needed for their projects.
If you are interested in starting an ICO, we can help you through the process of getting your name on the map. Cryptoken Media will help your brand by organizing a smart and highly effective marketing campaign, employing a wide variety of marketing strategies and advertisement.