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Lost in the jargon? Our bitcoin guides help you get up to speed with the latest terminology and basics to get you going in fast paced and ever-changing industry.

What Is a Blockchain?

Bitcoin depends on a distributed ledger system known as the blockchain. The blockchain 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. So it’s worth asking: What is a blockchain?

The essential power of blockchain technology is its ability to distribute information. Because it is distributed across all of the nodes, or individual computers, that make up the system, the term “blockchain technology” is often swapped with “distributed ledger technology.” 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.  

The blockchain network automatically verifies itself at certain intervals, creating a self-auditing system that guarantees the accuracy of the data it holds. Groups of this data are known as “blocks,” and as these blocks are cryptographically chained together, the pieces of data get buried and harder to manipulate. Altering any piece of data on the blockchain would require a huge amount of computing power.

One significant disadvantage of a blockchain, compared with other types of databases, is that this distributed setup requires constant computing power from several different sources to keep up.

Like Bitcoin, the invention of the blockchain as we understand it now is usually credited to the person or group that goes by the name of Satoshi Nakamoto. But actually, the idea of a mutual distributed ledger can be traced back to a 1976 research paper called “New Directions in Cryptography.” For many years the concept was seen as insecure and overly complicated, but when it was finally paired with Bitcoin, the technology’s security and distribution benefits became clear.

 

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