Table of Contents

9. Blockchain and Digital Technologies

9.1 What is a blockchain and how does it work?

Explanation of the issue 

The term blockchain is encountered more and more frequently today. It is usually associated with Bitcoin or other cryptocurrencies. In fact, however, the application area of blockchain technology extends far beyond this. It can be used wherever information needs to be documented permanently, transparently, and as immutably as possible.

But what exactly is a blockchain? How does it work? And why is this technology becoming increasingly important for modern collector coins and collector medals?

 

Answer

A blockchain is a special form of a so-called Distributed Ledger. This is a database whose contents are not stored centrally on a single computer or server, but simultaneously exist on numerous interconnected computers. All participants generally have the same database. This creates a decentralized system that operates without a central controlling authority.

The term blockchain literally means "block chain." In the Bitcoin blockchain, new transactions are first collected and then stored together in a new block. In addition to this information, each block also contains a cryptographic fingerprint (hash) of the immediately preceding block. In simple terms, a blockchain can be imagined as a continuous digital ledger, where each new entry is permanently linked to all previous entries. In this way, all blocks are permanently connected to each other, forming a continuous chain.

If someone tries to subsequently change information in an already stored block, its cryptographic fingerprint automatically changes as well. As a result, all subsequent blocks no longer match this manipulated block, and the blockchain becomes inconsistent. To successfully carry out such a manipulation, therefore, not only the affected block but also all subsequent blocks and their copies would have to be changed simultaneously on a large number of independent computers and accepted by the respective consensus mechanism. Since public blockchains like Bitcoin are continuously expanded with new blocks, such a manipulation is considered practically impossible with currently available technologies.

Contrary to common assumption, a blockchain does not store Bitcoin or other digital assets themselves. Instead, it documents information about their allocation and transfer. Bitcoin exists exclusively digitally. Therefore, no physical object is transferred in a Bitcoin transaction. The blockchain merely documents that the right of disposal over a specific Bitcoin unit has been transferred from one address to another. In principle, however, a blockchain can also document or permanently link information about physical assets.

The high security of a blockchain is based on several factors. These include modern cryptographic methods, the chaining of individual blocks, the respective consensus mechanism, and decentralized storage on numerous independent computers. Together, these properties make the blockchain one of the most tamper-proof digital systems known today.

Blockchain or other Distributed Ledger Technologies are also partly used in the development of Central Bank Digital Currencies (CBDCs). The technology used, however, depends on the respective project. Today, blockchain technology is by no means exclusively used for cryptocurrencies. It is increasingly being applied to digital identities, supply chains, proofs of ownership, authenticity certificates, documentation, and many other areas where information needs to be stored permanently and transparently.

 

Explanation

A blockchain differs from traditional databases particularly in the following characteristics:

• decentralized storage on many independent computers,
• cryptographic chaining of all blocks,
• consensus mechanisms for the joint validation of new information,
• high resistance to manipulation,
• transparent and traceable history,
• permanent documentation of information,
• no central controlling authority required.

Blockchain also opens up new possibilities for modern collector coins and medals. For example, digital authenticity proofs, proofs of ownership, or provenance documentation can be permanently linked to a physical collector's item.

At Satoshi Silver, this technology already plays an important role today. For example, with our Bitcoin coin medals, we transfer a Bitcoin amount for each collector's item to the so-called Bitcoin Genesis Wallet, whose address has existed since the Genesis Block of the Bitcoin network. Although the collector does not have access to this amount, the associated transaction hash becomes part of the product and its documentation. This creates a permanently traceable and publicly verifiable connection between the collector's item and a specific Bitcoin transaction. The included transaction hash makes it possible to trace this transaction at any time via a public blockchain explorer. Thus, independent of Satoshi Silver, one can always verify that this transaction actually took place. This connection creates a permanently verifiable proof that the associated Bitcoin transaction already existed at the time the collector's item was issued. This increases traceability and can contribute an additional layer to authentication.

We also use blockchain technologies in the Cyber Creatures of Xyntania universe. There, among other things, we use NFTs to link digital content with physical collectibles and to connect physical and digital collecting worlds.

We are convinced that blockchain technologies will play an increasingly important role for high-quality collectibles in the future and open up new possibilities for connecting physical and digital collecting worlds.

 

Blockchain is not the same as Bitcoin.

Bitcoin is the best-known application of blockchain technology. However, blockchain itself is a versatile technology that can be used for numerous different applications – far beyond cryptocurrencies.

Anyone dealing with high-quality collector coins and medals today will encounter blockchain more and more frequently in the future – for example, in the form of digital authenticity certificates, NFTs, provenance documentation, or other applications that connect physical and digital collector worlds.

A basic understanding of blockchain technology therefore not only helps in understanding Bitcoin, but also in better classifying future developments in the field of modern collectibles.

This article is part of the Satoshi Silver Academy – a knowledge platform all about modern coins, medals, blockchain technology, and high-quality collectibles.