What are blocks?

In very simple terms, a block, which is part of the blockchain, is a data file that records any type of transaction on the network. Data is stored permanently on the block and becomes part of the chain and impossible to tamper with. For example, if you buy two bitcoins, the transaction is recorded in a block along with your private key. The private key is your digital signature and links the transaction to you. It is now forever recorded in one block that on that date, you bought two bitcoins.

If you want to buy something with one bitcoin, you will need to provide your private key. A bitcoin miner will use your key to track the last transaction linked to you and can verify that you have two bitcoins. When you use one bitcoin, that transaction is recorded in a new block and linked to your last transaction with a series of characters. In this way, all your transactions are audited on the network.

What are hashes?

One of the reasons the blockchain is so popular is because the information on it, although distributed, is highly encrypted. Data on the blockchain is encrypted by creating a hash. An algorithm is required to create a hash, and it acts by taking the transaction information and converting it to a series of numbers and letters. Hashes are always of the same length.

On the surface, a hash does not make sense to anyone. This is where miners come in. Miners have the special skill set and the resources to decipher a hash and verify the transaction. Miners get paid in bitcoins that are generated every time they deliver a service.

What are nodes?

The blockchain and cryptocurrency have become synonymous with being decentralised. Decentralisation forms the entire basis of the transparency and the security of the system. But, even a decentralised system requires a support system to give it some form and structure. This support system comes in the form of nodes.

Nodes are focal points of activity distributed all over the blockchain network. It is at nodes that blockchain copies are maintained, transactions are sometimes processed, and records are kept. Nodes consist of individuals that are connected to the system via their own device. Each cryptocurrency has its own set of nodes to keep track of its coins.