Bitcoin relies on a distributed ledger system called a blockchain. The blockchain is perhaps the most powerful innovation associated with Bitcoin, as countless industries from financial services to health care have begun to consider how the technology can be harnessed to their advantage. So it’s worth asking: What is a blockchain?
The essential power of blockchain technology lies in its ability to distribute information. Because it is distributed across all the nodes or individual computers that make up the system, the term “blockchain technology” is often interchanged with “distributed ledger technology.” Rather than being held in a single location that can be infiltrated or controlled by one party, the blockchain’s database is hosted by many (in Bitcoin’s case, tens of thousands) computers at the same time.
The blockchain network automatically verifies itself at regular intervals, creating a self-auditing system to ensure the accuracy of the data it holds. These groups of data are called “blocks,” and because the blocks are linked together in an encrypted manner, the pieces of data are hidden and harder to manipulate. Changing any data on the blockchain requires a lot of computing power.
A significant disadvantage of blockchain compared to other types of databases is that this distributed setup requires continuous computing power from many different sources to keep up.
Like bitcoin, the invention of blockchain as we understand it now is often credited to an individual or group with the name Satoshi Nakamoto. But the idea of mutually distributed ledgers actually dates back to a 1976 research paper called “New Directions in Cryptography.” For years, the concept was seen as insecure and overly complex, but when it was finally paired with Bitcoin, the security and distribution advantages of the technology became clear.
Now, companies like Microsoft and Deloitte are developing new uses for blockchain, believing that its decentralized and verifiable nature gives it great potential beyond digital currencies.
Only time will tell how far blockchain technology will go. If it is any indication now, it will be widely used.
