What is blockchain?
Blockchain is the core technology behind bitcoin and thousands of cryptocurrencies and has promising potential beyond digital currencies.
A blockchain is a public digital ledger of transactions that records information in a way that makes it difficult to hack or alter. The technology allows a secure way for individuals to deal directly with each other, without an intermediary like a government, bank or other third party.
The growing list of records, called blocks, is linked together using cryptography. Each transaction is independently verified by peer-to-peer computer networks, time-stamped and added to a growing chain of data. Once recorded, the data cannot be altered.
While popularized with the growing use of bitcoin, ethereum and other cryptocurrencies, blockchain technology has promising applications for legal contracts, property sales, medical records and any other industry that needs to authorize and record a series of actions or transactions.
How does blockchain work?
- The purchase and sale of bitcoin is entered and transmitted to a network of powerful computers, known as nodes.
- This network of thousands of nodes around the world vie to confirm the transaction using computer algorithms. This is known as bitcoin mining. The miner who first successfully completes a new block is rewarded with bitcoin for their work. These rewards are paid for by network fees, which are passed on to the buyer and seller. The fees can rise or fall depending on the volume of transactions.
- After the purchase is cryptographically confirmed, the sale is added to a block on the distributed ledger. The majority of the network must then confirm the sale, in a process known as “proof of work.”
- The block is permanently chained to all previous blocks of bitcoin transactions, using a cryptographic fingerprint known as a hash, and the sale is complete.
The concept of blockchain technology first appeared in academic papers dating back to 1982, in a dissertation discussing “the design of a distributed computer system that can be established, maintained, and trusted by mutually suspicious groups.” But it was a 2008 paper by the pseudonymous Satoshi Nakamoto titled “Bitcoin: A Peer-to-Peer Electronic Cash System” that brought an academic theory into real-world use.