The four essential components


We start with the digital chain of blocks, also called a blockchain. Blockchain is simply explained as a long series of blocks or electronic information devices linked together in a chain. These blocks make it possible to extract, create and use decentralized money. Inside a block, a lot of different information can be added. A common denominator is that they contain something about who sent, who received, and how much was sent. In other words, a transaction.

In addition, the block contains a revolutionary function, called hashes. These are two keys that act as signatures. One hash belongs to the previous block in the chain, and the other belongs to the new block. The only way a new block can be added to the chain (blockchain) is if the block is confirmed via the keys (hashes) of all the nodes/computers in the network.

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Nodes and users

For the blockchain to work, you must have a network of several nodes/computers. A node is a user in the blockchain network, ie a computer that performs tasks in the chain. The nodes in a blockchain, therefore, confirm new information and transactions that new blocks contain. They also have the task of adding new blocks to the chain. Active nodes compete (miners and stakers) to extract new blocks that can be used in the blockchain.

When a task is done, the new information is distributed to all other nodes in the network, which in turn update their documentation about the blockchain. The more nodes that are active in the network, the more decentralized, secure, and stable the blockchain becomes. This is because all the nodes in the network must confirm that the transaction that has taken place is in accordance with the official transaction book (explained below). Several computers must also be "cracked" for an attack on the blockchain to succeed. Such a decentralized network structure with many nodes creates a robust, secure, and stable network.

As mentioned above, the nodes need a common reference. A "transaction book" (ledger) is then used and is unique to each singular cryptocurrency. The function of the ledger is explained below the picture.

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The "transaction book" of a cryptocurrency

One of the things that make cryptocurrencies so special is that their transaction books (ledgers) are public and distributed. With central third parties such as banks and alike, these books are hidden and "secret". This allows you to have vulnerabilities that can be attacked and changed without anyone knowing about them.

A cryptocurrency has public books, which in practice means that all nodes in the network have access to the information in them.

The nodes can therefore easily confirm or reject new transactions on the chain. We now return to the hashes (keys) of the individual blocks. All nodes in the network that are to confirm transactions have access to all previous transactions and blocks. As mentioned, new blocks contain a signature from the block that came before them. If someone in the network tries to falsify a transaction, the nodes in the network will easily filter it out using the public transaction ledger. 

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Specific characteristics of cryptocurrencies

The last component that completes a cryptocurrency is the currency itself. Most cryptocurrencies are programmed in such a way that no more than a predetermined number of "coins/tokens" can be "printed". Bitcoin, for example, has a maximum number of 21 million Bitcoins that can be extracted. The cryptocurrencies that do not have a specific number of units, usually have a protocol that ensures that the extraction of the currency has to be performed over a specific amount of time. This ensures that the extraction of new "coins/tokens" corresponds to the value appreciation.

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