Bitcoin is simply a virtual currency which uses blockchain as its backbone. Bitcoin is the first decentralized digital currency of the world, which is the result of the subprime crisis of 2008 and higher transaction fee charged by the banks and non-bank financial intermediaries. An online paper was issued by somebody named Satoshi Nakamoto in 2008 to generate some virtual currency which will not have any intermediary or any central authority.
A Bitcoin is a peer to peer network without any intermediary or regulatory body. Transaction in bitcoins is verified by network nodes and recorded in a public distributed ledger called block. Some of the most important features of bitcoin are security and anonymity while carrying out any transaction, and all that with almost no transaction fee or a negligible fee is charged by some variants of bitcoin.
The blockchain is the technology behind bitcoin, it is simply a collection of blocks attached to one another with SHA256 hash function. The hash or address of the previous block is in the address of next adjacent block and so on and forms a chain like structure in which data blocks are connected. A block is not just used for virtual currency, it has many more other functions also. A blockchain is used for the secure transfer of items like money, contracts etc without requiring any third party or intermediaries like banks or government. Once the data is recorded in the blockchain, it is difficult to change it. A blockchain is somewhat like this:
How Is Blockchain secure?
It is secure because the algorithm used in it to connect the blocks is the SHA256 hash function, which makes it difficult for hackers to change the data in the blocks. Let’s understand it with the figure,
Here the Block 1 doesn’t have any previous block, so the previous hash will be oooo. Now the Block 1 is connected to block 2, here block 2 will have its own hash in addition to hash the previous block i.e. block 1. In a similar way, block 3 will have the hash of itself in addition to the hash of block 2 and the chain continues in the same way and forms a blockchain.
Assume if anyone tries to change the data in block 2, its hash will change automatically. While as its hash was also in block 3, there will be a mismatch and the changes done will not be approved. Once data in a block is stored, it can’t be changed which makes it secure.