What is BLOCKCHAIN? The best explanation of blockchain technology

Blockchain explained in plain English

Understanding how blockchain works and identifying myths about its powers are the first steps to developing blockchain technologies.

Blockchain is an algorithm and distributed data structure for managing electronic cash without a central administrator among people who know nothing about one another. Originally designed for the crypto-currency Bitcoin, the blockchain architecture was driven by a radical rejection of at (government-guaranteed) money and bank-controlled payments.

Blockchain is a special instance of Distributed Ledger Technologies (DLTs), almost all of which have emerged in Bitcoin’s wake.

HOW DOES BLOCKCHAIN WORK?

Blockchain is a Distributed Ledger Technology (DLT) that was invented to support the Bitcoin cryptocurrency. Bitcoin was motivated by an extreme rejection of government-guaranteed money and bank-controlled payments. The developer of Bitcoin, Satoshi Nakamoto envisioned people spending money without friction, intermediaries, regulation or the need to know or trust other parties.

Technically, the original blockchain is separable from Bitcoin, but this report will show that the blockchain design is so specific to Bitcoin that it’s not a good fit for much else.

The central problem in electronic cash is Double Spend. Because pure electronic money is just data, nothing stops a currency holder from trying to spend it twice. Blockchain solves the Double Spend problem without a digital reserve fund or similar form of umpire.

Blockchain monitors and verifies Bitcoin transactions by calling upon a decentralized network of volunteer-run nodes to, in effect, vote on the order in which transactions occur. The network’s algorithm ensures that each transaction is unique.

Video created by the Centre of International Governance Innovation.

Many people think of blockchain as the technology that powers Bitcoin while this was its original purpose blockchain is capable of so much more despite the sound of the word there’s not just one blockchain blockchain is shorthand for a whole suite of distributed ledger technologies that can be programmed to record and track

Anything of value from financial transactions to medical records or even land titles you might be thinking we already have processes in place to track data what’s so special about blockchain let’s break down the reasons why blockchain technology stands to revolutionize the way we interact with each other reason number one the way it

Tracks and stores data block chain stores information in batches called blocks that are linked together in a chronological fashion to form a continuous line metaphorically a chain of blocks if you make a change to the information recorded in a particular block you don’t rewrite it instead the

Change is stored in a new block showing that X changed to Y at a particular date and time sound familiar that’s because blockchain is based on the centuries-old method of the general financial ledger it’s a non-destructive way to track data changes over time here’s one example let’s say there was a dispute between

Ann and her brother Steve over who owns a piece of land that’s been in the family for years because blockchain technology uses the ledger method there is an entry in the ledger showing that Adam first owned the property in 1900 when Adam sold the property to Dave in 1930 a new entry was

Made in the ledger and so on every change of ownership of this property is represented by a new entry in the ledger right up until Ann bought it from their father in 2007 and is the current owner and we can see that history in the ledger now here’s where things get really interesting

Unlike the age old ledger method originally a book then a database files stored on a single system blockchain was designed to be decentralized and distributed across a large network of computers this decentralizing of information reduces the ability for data tampering and brings us to the second factor that makes blockchain unique it

Creates trust in the data before a block can be added to the chain a few things have to happen first a cryptographic puzzle must be solved thus creating the block the computer that solves the puzzle shares the solution to all of the other computers on the network this is

Called proof of work the network will then verify this proof of work and if correct the block will be added to the chain the combination of these complex math puzzles and verification by many computers ensures that we can trust each and every block on the chain because the

Network does the trust-building for us we now have the opportunity to interact directly with our data in real time and that brings us to the third reason blockchain technology is such a game-changer no more intermediaries currently when doing business with one another we don’t show the other person our financial or

Business records instead we rely on trusted intermediaries such as a bank or lawyer to view our records and keep that information confidential these intermediaries build trust between the parties and are able to verify for example that yes and is the rightful owner of this land this approach limits exposure and risk

But also adds another step to the exchange which means more time and money spent if anne’s land title information was stored in a blockchain she could cut out the middleman her lawyer who would ordinarily confirm her information with Steve as we now know all blocks added to the chain have been

Verified to be true and can’t be tampered with so an can simply show Steve her land title information secured on the blockchain and would save considerable time and money by cutting out the middleman this type of trusted peer-to-peer interaction with our data can revolutionize the way we access verify

And transact with one another and because blockchain is a type of technology and not a single network it can be implemented in many different ways some block chains can be completely public and open to everyone to view and access others can be closed to a select group of authorized users such as your

Company a group of banks or government agencies and there are hybrid public private blockchains too in some those with private access can see all the data while the public can see only selections in others everyone can see all the data but only some people have access to add

New data a government for example could use a hybrid system to record the boundaries of Anne’s property and the fact that she owns it while keeping her personal information private or it could allow everyone to view property records but reserved to itself the exclusive right to update them it is the

Combination of all these factors decentralizing of the data building trust in the data and allowing us to interact directly with one another and the data that gives blockchain technology the potential to underpin many of the ways we interact with one another but much like the rise of the

Internet this technology will bring with it all kinds of complex policy questions around governance international law security and economics here at the Center for international governance innovation we seek to bring trusted research that will equip policymakers with the information they need to advance blockchain innovations enabling economies to flourish in this new

Digital economy learn more about our work on blockchain technology by visiting our website and social media channels you