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Blockchain explained: a quick introduction to the buzzword.

Blockchain explained: a quick introduction to the buzzword.

Blockchain technology is the leading option for securing digital transactions, , but the term is often misunderstood. What is Blockchain, and how might it relate to you?

The term "Blockchain" gets thrown around a lot these days, often when used with cryptocurrencies, but that doesn't mean Blockchain is exactly that. Blockchain technology is the leading option for securing digital transactions. 

People often use the words blockchain and Bitcoin synonymously, but it is important to remember that Bitcoin is a digital currency and blockchain is a technology that enables the existence of Bitcoin. Although the concept and need of a computer system trusted by mutually suspicious groups has been discussed since the 1980s, the invention of the blockchain has truly raised the bar. 

An anonymous person or group named "Satoshi Nakamoto" invented blockchain while creating the mathematical foundation of Bitcoin. Inspired by the application of blockchain in cryptocurrencies such as Bitcoin, many are trying to use blockchain to add safety and functionality to several other fields, including financial services, video games, energy trading, supply chain, anti-counterfeiting, and healthcare.

Cryptography: the foundation of it all

Much of what has pushed bitcoin and blockchain to where it is comes from the field of "cryptography". 

Cryptography refers to the methods and studies relevant to enabling secure communication. Although this field has existed for thousands of years dating back as far as being used in Ancient Greece, cryptography has made tremendous progress in our technologically advanced era by achieving secure communication in the presence of malicious users. However, as malicious users may also be very smart and innovative, cryptographic methods need to always keep improving. 

In the digital age, we can see cryptographic methods being used all around us, such as when we set passwords to secure our spaces online, when we answer security questions, or while making financial transactions. Today cryptographic methods link and maintain the security of our world, much like they do blocks in blockchains.

So what is blockchain technology?

Blockchain, as the name suggests, is a chain of digital "blocks". 

Imagine a block that stores information about a number of transactions. Once the block is full and no more information can be added, you begin storing transaction information in a new block. However, as you add a new block you also add a cryptographic link, a "chain", between the old block and the new one. This link ensures that the new block contains enough information about the old block that if any malicious user modifies transactions in the old block, the old block would no longer match the new block and so wouldn’t fit into the chain. So a blockchain is a growing chain of blocks, with each new block securing the previous blocks.

A tremendous level of data security can be achieved by decentralisation because a blockchain is typically stored identically in many locations, called "nodes". All such nodes communicate within a network. 

Imagine a bank that has a list of transactions securely stored in its database. A malicious user who can modify the records in the bank’s database could cause havoc. However, when blockchain is used, even if a malicious user manages to modify transactions in a blockchain, the modifications would only be made locally at one node. Such a modification wouldn’t be accepted by the hundreds of other nodes storing the blockchain because the modification would have changed the information which links each new block to the preceding blocks.

How does blockchain work?

Blockchain technology is essentially a combination of several other technologies. The most important technologies being cryptography in our digital era, maintaining a shared ledger of transactions in a node-to-node network, and enough computation power to validate and store the whole blockchain.The node-to-node network comprises many users who authenticate each transaction by reaching a consensus with the rest of the users.

From a cryptographic standpoint, each user is allocated two keys, a public key and a private one. Users then use these two keys together to establish a secured identity which then allows them to authorise or make transactions.

Helping blockchain technology is the computational power many of us have access to. Between the computers you rely on regularly and the other devices with raw computing power out there, all of this helps not just for being able to store the blockchain, but also to share and validate it with other users over the internet. 

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This article was reviewed by Head of Content Leigh Stark before it was published as part of RateCity's Fact Check process.

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