LONDON: Much has been said about the revolutionary potential of the blockchain technology. Besides its current use as the backbone to verify and record digital transactions of Bitcoin, the blockchain technology has also been touted as the technology that can replace expensive accounting and payment networks in the financial industry, prevent money laundering and improve transparency in book-keeping in just about any industry.
But, what exactly is a “blockchain”?
In short, a blockchain is a digital, decentralised, public ledger that records all information within the network of blocks. However, what does all that really mean? So let’s start by breaking down that sentence.
First, a blockchain is “digital”. What this means is that the blockchain is a virtual chain of information. Digital information is stored, generated and processed electronically.
Second, the blockchain is a “decentralised, public ledger”. This characteristic is one that makes the blockchain technology so exciting. Traditional banks use a centralised ledger system to keep track of transactions and accounts. The banks control the data that is stored and in turn have to spend money to ensure that the data is checked and that each transaction matches its records.
Blockchain, on the other hand, is an entirely different form of storing data. No master database controls the information of records. Instead many individual computers store and authenticate each transaction and record it in the blockchain network. It lacks a single point of control and is therefore described as being “decentralised” in nature.
How does it work?
In essence, a blockchain is a network of blocks that each hold information. For example, in the case of Bitcoin, each block records information on recent transactions of the currency. Once a block is completed, it goes into the blockchain and remains there as a permanent part of the database. As more transactions take place, more blocks get created, and more information is stored within the blockchain.
The blocks of information are connected to each other within the blockchain in a linear and chronological order, making it impossible to delete or fabricate, without messing up the sequence and alerting all the computers of the fraud.
The Foolish bottom line
Contrary to popular belief, blockchain technology is not that new of an idea. It was in fact, first described way back in 1991. However, only recently in 2008 did blockchain finally become conceptualised and put into use through the invention of Bitcoin.
Hopefully, this article has provided you with a brief description of this new and exciting technology.