What is blockchain technology and what is its relationship to digital currencies?

What is blockchain technology and what is its relationship to digital currencies?

 Blockchain technology has attracted wide attention in recent years, and has brought a qualitative shift in the digital economy, due to the protection it provides; as the information stored in this technology cannot be hacked or tampered with. In this article, we will learn about this technology and its mechanism of operation and its wide range of uses.

Blockchain: For storing digital currencies securely, away from hacking and tampering.

Blockchain (or block chains) can be defined as a technology for storing and exchanging information in a decentralized manner; it prevents data from being tampered with, hacked or falsified. Its use is particularly prevalent in digital currencies and related technologies, such as smart contracts, and non-fungible tokens.

How does a blockchain work?

The basic principle of blockchain technology is that it does not store data on a central server and distributes it among network members. Instead, it creates blocks or copies of a set of data and the current changes, such as transactions in the case of digital currencies.

What are the most important elements of a blockchain?

Blockchain network consists of several basic elements, which can be explained as follows:


Each block contains information related to the current changes in the data, and - in the case of digital currencies - each block contains, for example, the latest transfers and current changes in user balances, in addition to other information to confirm the validity of the block.


One-way hash function, each block contains its own hash and the hash of the previous block to maintain the sequence of blocks. The hash is created through a mechanism called "consensus mechanism", it has two main types:

Proof of Work (PoW)

According to this mechanism, the person who wants to create a new block and validate the transactions within it, will spend a lot of computational energy to create the hash of the block. The number of attempts the computer takes are included in the basic block information as proof that enough computational energy has been spent to create it, this is the method used in Bitcoin and many other currencies. The user who performs this task usually receives rewards in the form of new currencies created with each new block or rewards for transactions that are verified through the block.

Proof of Stake (PoS):

According to this mechanism, the person who wants to create a new block and validate the transactions within it, will have to prove that he has a certain amount of digital assets (stakes) in the network, and the reward will be based on the number of assets he has.

It's worth noting that these are the most common and basic elements of a blockchain network and different blockchain networks may have slight variations in the implementation of these elements.

Blockchain uses in various fields

Blockchain has many uses, as follows:

Digital currencies are considered the main driving force behind the existence of digital currencies today. Blockchain technology is the one that has been relied upon since the creation of Bitcoin, the first digital currency. It provides several benefits such as: the elimination of the need for intermediaries or central authorities to manage payments and transfers, a high level of security due to its tamper-proof nature, and the prevention of double spending.

Smart contracts are self-executing contracts that allow agreements between parties without the need for a third party to enforce them. They are the main driving force behind the emergence of many new blockchain applications such as decentralized applications, and blockchain-based games. Decentralized applications are applications that operate according to the rules set for them on the blockchain, and do not require a central server like traditional applications, and can not be changed after being loaded on the blockchain.

Non-fungible tokens (NFTs) are a means of recording ownership of digital files and works, and trading them without the need for a central authority to recognize the ownership of these assets.

What are the advantages of blockchain technology?

Blockchain technology has many features that make it attractive for various applications as an alternative to traditional centralized methods. Some of the most important advantages include: Security in the absence of a central server, making a blockchain almost invulnerable to attacks, and mining operations make the amount of computational power required to hack it very high, making any attempt to hack it unlikely to succeed in overcoming the network as a whole in terms of computational power. Low costs, relying on blockchain leads to reducing many costs related to data protection, management and storage. Decentralized structure allows a new way to provide content, software and financial transactions without relying on large companies, and facilitates transparency and speed in various transactions.

What are the disadvantages of blockchain technology?

Despite its advantages and benefits, blockchain technology has been subject to several criticisms that revolve around several main ideas, including: Energy consumption and environmental impact, using blockchain technology, especially in digital currencies, requires large amounts of energy, especially for mining operations, which makes mining companies head to countries with low energy prices, which usually rely heavily on fossil fuels with high carbon emissions, in addition to electronic waste. Immutability, once blockchain rules are issued, they cannot be modified or canceled any of its transactions, which makes it difficult to fix the vulnerabilities in the design of blockchain and its programming or the smart contracts built on it.

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