We live in a fast-moving world where advances in technology happen so rapidly that they can leave even people who are very dialed in on the news and what’s happening in the world feeling behind the curve. One recent area where this has come up for a lot of people is around cryptocurrency and the associated term - blockchain. So, we thought we would put together a very quick guide to help anyone get a handle on this relatively new term.
So, what the heck is a Blockchain?
We most often hear blockchain used in reference to cryptocurrency, so lets’ use that for our description. A blockchain is very much like an accounting ledger. A traditional physical accounting ledger might exist only on a person’s desk. Even in our digital world, it is easy to think of a digital version of a ledger as a software program on a single computer system. But, a blockchain is an accounting ledger that is distributed to users around the world.
Well, that sounds kind of terrible in some ways. We’ve always been taught that things you might record in an accounting ledger should be kept private, safe, and secure. Distributing it to users all over the place seems counterproductive. However, by having this official account ledger replicated to computer systems around the world means that in a certain way, it is actually much more secure.
Imagine that single ledger again. What if someone changed an entry in the only existing copy of the ledger. That might change a payment that had been received or some other financial transition. Having it change or disappear might be great for one party in the transaction but devastating for the other.
So, back to that distributed blockchain ledger. The idea is that no one can just go in and change it since it is synchronized across to many versions on different systems. If someone tried to change one record on one system, it would be spotted when it didn’t match up with all the others.
Who is in Control of this Virtual Ledger?
This is another big change. In normal financial situations and transactions, there would be someone in control of the ledger. Typically this would be a financial institution, like a bank. But, in the case of the blockchain, no central authority is in charge of controlling of monitoring these financial transactions.
But, if no one is monitoring… Actually, the idea is that everyone is monitoring.
Why is it called a Blockchain?
Think of each entry into the ledger as a ‘block’ and each block is linked or connected to the previous one, like links in a chain (get it - block chain). Each block is created using a strict set of cryptographic rules and each user (person or electronic wallet) has a specific public key for receiving money (like a username and password combination) and another unique key for spending money (again, like a password). In this way, the blockchain powers the cryptocurrency economy by facilitating transactions (the exchange of money (like Bitcoin) from one party to another. Every transaction includes cryptographic information called ‘hashes’ to validate that the sender actually owns the currency and then that the recipient can accept it.
So, think of the blockchain as this way of validating, securing, and recording transactions involving cryptocurrencies.
