What is a Blockchain?
Blockchain technology is commonly associated with Bitcoin and other cryptocurrencies, but that’s just the tip of the iceberg. Some people think blockchain could end up transforming a number of important industries, from health care to politics.
Bitcoin depends on a distributed ledger system known as the blockchain. This technology is possibly the most powerful innovation associated with Bitcoin, as countless industries from financial services to healthcare have begun contemplating how to leverage the technology for their own uses.
The essential power of this technology is its ability to distribute information. Because it is distributed across all of the nodes, or individual computers, that make up the system. A blockchain’s database isn’t held in a single location, which could be infiltrated or controlled by a single party, but rather it is hosted by numerous (in the case of Bitcoin, tens of thousands of) computers all at once.
Each “block” represents a number of transactional records, and the “chain” component links them all together with a hash function. As records are created, they are confirmed by a distributed network of computers and paired up with the previous entry in the chain, thereby creating a chain of blocks
Trust is a risk judgement between different parties, and in the digital world, determining trust often boils down to proving identity (authentication) and proving permissions (authorization).
Put more simply, we want to know, ‘Are you who you say you are?’ and ‘Should you be able to do what you are trying to do?’
In the case of blockchain technology, private key cryptography provides a powerful ownership tool that fulfills authentication requirements. Possession of a private key is ownership. It also spares a person from having to share more personal information than they would need to for an exchange, leaving them exposed to hackers.
Authentication is not enough. Authorization – having enough money, broadcasting the correct transaction type, etc – needs a distributed, peer-to-peer network as a starting point. A distributed network reduces the risk of centralized corruption or failure.
This distributed network must also be committed to the transaction network’s recordkeeping and security. Authorizing transactions is a result of the entire network applying the rules upon which it was designed (the blockchain’s protocol).