Miners use expensive hardware to solve these complex math problems. Once they find a solution, it is verified by all other nodes (computers) on the network, and then the validated block is added to the blockchain. As Bitcoin transactions occur, they are grouped into blocks. These blocks are secured by cryptography (i.e. complex math problems) — specifically, all data within a block is run through a cryptographic hash function, which generates a unique signature for that block. Notably, each block’s signature is added to the subsequent block, allowing them to be linked in chronological order. This process is important for two reasons: First, when miners successfully solve the cryptographic puzzles, they are awarded Bitcoin as compensation — and this is the only way Bitcoin can be created. Second, by validating blocks and adding them to the blockchain, miners create a ledger of all past transactions.
Blockchain is the ingenious recordkeeping system behind decentralized cryptocurrencies like Bitcoin. To understand why that matters, it’s necessary to know how mining works. 1. Bitcoin is powered by blockchain
Image source: Getty Images Here are three reasons Bitcoin could double your money (and more).
So here’s the takeaway: Blockchain is a highly secure and self-governing database, both valuable qualities in a financial system. 2. Bitcoin benefits from scarcity As a result, the network would recognize the fraudulent change and reject it, reverting to its original state. In fact, in order to successfully hack the Bitcoin blockchain, an individual would need to control at least 51% of all computing power on the network. That’s virtually impossible.
If anyone attempted to alter information within an existing block (i.e. fabricate new Bitcoin), it would alter the output of the cryptographic hash function, changing the block’s signature. That means the new signature would no longer match the signature incorporated into the subsequent block. In other words, Bitcoin does not need to be (and cannot be) controlled by any central authority. There is no need for a central bank to issue new currency or keep records, because the network takes care of both by itself. This system is not only efficient, it’s also very secure.
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