What is blockchain technology?
A blockchain is an open source list of transactions much like an online spreadsheet. It’s also decentralized, which means it is not stored in one place but on thousands of computers around the world.
The original blockchain was developed to support Bitcoin, but a blockchain can also be used for any type of transaction requiring trust.
Blockchains allow people who don’t know one another to safely transact. The most important function of a blockchain is to avoid duplicate transactions, such as “double spending” of digital currencies.
Transactions are added to a blockchain by “miners” who agree on the most recent batch of transactions before adding them to the blockchain.
Blockchain is essentially an online spreadsheet that anyone can view and that miners can verify and update.
“The Blockchain is the most important advance in technology since the Internet.”
Marc Andreessen, Investor and Internet Pioneer
How the bitcoin blockchain works
Miners create “blocks” by solving complex math problems using computing power.
The process of mining is basically the process of competing to solve the puzzle of the current block. Everything on the bitcoin blockchain happens anonymously. Proof of work is required to deter spam and fraud. Because miners must use significant computing power, solving the puzzle is their “proof of work.”
The miner who solves the puzzle first adds the next block to the blockchain and earns new bitcoins as a reward. Since each block is tied to a previous block, the collection of blocks forms a chain.
The blockchain is therefore a collection of blocks that are time-stamped. Each time stamp is public, universal, and cannot be modified or changed by anyone, which makes it very powerful because it can prove when something was created and identify it.
Some digital currencies use blockchain technology, and others have developed other types of decentralized ledgers.
What it looks like
- Removes the middleman
- So, for example, when making international transfers or payments, it reduces fees paid to a banking institution or third party.
- The blockchain limits fraud. Transactions are secure and protected and do not need to be monitored and overseen by another party. This makes it much easier to do business or make contracts peer to
- Blockchains like the bitcoin blockchain are not controlled by a single entity, which means they cannot be manipulated and are trusted by people who do not trust governments or financial institutions.
- Protocol value
- In technology, a protocol is a convention used to transfer data. Blockchains give value to the protocols rather than the applications that run on them. This encourages developers to create new and better protocols.
“It’s a mirage…the idea that it has some huge intrinsic value is just a joke.”
Warren Buffett on Bitcoin
Other Uses of Blockchain
|Smart Contracts||allow the creation of contracts that self-execute when certain conditions are met|
|Escrow Services||making sure items are paid for once delivered|
|Real Estate||to make sure a property can only be sold once and by the owner|
|Voting||blockchain technology can be used to prevent anyone from voting twice|
|Identity Verification||an ID on a blockchain cannot be tampered with or duplicated|
|File Sharing and Cloud Storage||anyone can lease free space on a PC to those needing extra storage for files|
|Music Distribution||artists can earn royalties every time their music is played|
|Decentralized Notary Services||documents can be time-stamped and recorded on a blockchain|
“Virgin Galactic is a bold entrepreneurial technology. It’s driving a revolution. And bitcoin is doing just the same when it comes to inventing a new currency.”
Richard Branson, Founder of Virgin
- Each block contains about 200 transactions.
- Imogen Heap is the first artist releasing her music through the bitcoin delivery platform.
- http://www.intelligenthq.com/wp-content/uploads/2015/05/how-the-bitcoin-block-chain-works-Infographic.jpg (picture)
“Digital currency managed by thousands of random users? What can go wrong?!”