What is the blockchain?
The blockchain is a cryptographically-secured information chain used to provide a publicly available digital ledger for a decentralised, distributed network. It is most commonly used to underpin a cryptocurrency, though that is not its only use.
Each block of the chain is formed when a computer successfully solves a cryptographic puzzle. When a computer completes this task, which is known as ‘mining’, it broadcasts the solution to the network, which bundles up transactions to make a block, which is then added to the chain.
Although the earliest work on using cryptography to secure a chain of information blocks dates back to the early 1990s, the term blockchain comes from a white paper by Satoshi Nakamoto proposing the Bitcoin cryptocurrency.
Nakamoto, whose real identity has remained a secret, created a way to create a digital currency that solved the ‘double-spending’ problem without the need for an independent third party. All previous digital currencies had required a third party to verify transactions, because otherwise people would be able to spend the same money with two different vendors before either one was aware of the problem.
Bitcoin solved this by using the blockchain to verify transactions and make it virtually impossible for fraudulent transactions to occur without requiring a third party. Each block in the chain contains a cryptographic hash – a string of characters that forms a kind of digital fingerprint for data – of the previous block. The previous block contains the cryptographic hash of the one before that and so on, all the way back to the very first block.
This makes it practically impossible to alter a transaction once it has been added to the blockchain. Doing so would mean that the blocks either side would no longer be correct.
The chain forms a digital ledger, which each computer on the network holds a copy of and can access. The distributed and decentralised architecture further protects the system because fraudsters or hackers cannot target a central point. It also means that no single user can control the system, in the way that a central bank can influence a country’s economy. Every user is equally powerful since every user has equal access to the ledger.
Though the blockchain was designed to underpin a cryptocurrency there are lots of other uses for the technology. The Swedish Land Registry has tested blockchain technology as a way to make land sales faster and cheaper. Various companies are exploring the possibilities of blockchain-based smart contracts that can be executed or enforced without the need for human oversight.
This technology could play a major role in the future in how we manage ownership of property and assets and how our rights and responsibilities are managed by employers and governments.