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Everything you need to know about Blockchain

·3-min read
(Getty Images)

From how it works, to how to start investing

What is Blockchain?

A blockchain is the foundation of any cryptoasset. Cryptoassets are digital assets, often currencies, smart contracts, or decentralised apps, independent of any third-party entity – and a blockchain is the decentralised digital ledger (where many computers and people have access to the data) that allows people to do this. It’s this technology that underpins several cryptoassets, including Bitcoin and Ethereum, which can both be invested in on eToro.

A blockchain is independent of any third parties, such as governments, central banks or national reserves, and allows encrypted data to be transferred securely. It’s nearly impossible to duplicate, or counterfeit data on a blockchain, as records of transactions and data are securely linked together to prevent hacking. Because transactions are based on cryptographic proof, there’s no need to use a third-party financial institution, such as a bank to verify the trade.

Blockchain technology was first introduced in 1991 by two researchers who wanted a system where document timestamps couldn’t be tampered with. It didn’t really take off until 2009 when Bitcoin launched, and blockchain technology was able to show off its first real-world application.

How does Blockchain work?

The goal of a blockchain is for digital information to be recorded and distributed, but not edited. In order to do this, the information in the database is distributed and constantly reconciled by the computers – called nodes, miners, or peers – in the network. In other words, the computers create and maintain their blockchain by validating and transmitting entries – or the data that is the movement of cryptoassets - from one party to another.

Each time period of transactions is kept in a ‘block’, and these blocks are kept in a general ledger – known as a blockchain.

Is Blockchain safe?

Because blockchains are stored on different computers, one change would be obvious as it would be different from the blockchains held by others. This means it’s a great way of keeping records and transactions secure and unhackable. It’s also ideal for verifying contracts, accounting for inventory, and using as an enhanced security for business and financial transactions.

How do people use Blockchain?

There are around 10,000 cryptosystems running on blockchains, including the first and largest crypto by market capitalisation, bitcoin (BTC); ether (ETH) which currently is the second largest cryptoasset by market capitalisation; and Cardano (ADA); one of the fastest growing cryptos. All of these are available to invest in on eToro. Blockchain is also a reliable way of storing data about other transactions too, and companies such as Pfizer, AIG, Siemens and Unilever all use blockchain technology. It’s also being incorporated by banks, who are using the tech to streamline fund transfers and allow investors to track their money in real-time.

How can I use blockchain to invest?

eToro’s cryptoasset offering includes more than 40 different coins that investors can buy, hold or sell. eToro also provides staking rewards for Cardano and Tron. For more exposure to cryptoassets, take a look at eToro’s CryptoPortfolio, which aggregates a diversified portfolio with exposure to selected cryptos. Managed by eToro’s investment committee, it offers several options for people wishing to invest in the crypto market.

 

For more information on cryptoassets and how to trade them, visit eToro.

 

Disclaimer: Investing in stock markets and cryptoassets involves the risk of loss.

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