A blockchain is a digital record of transactions. The name comes from its structure, in which individual records, called blocks, are linked together in single list, called a chain. Blockchains are used for recording transactions made with cryptocurrencies, such as Bitcoin, and have many other applications.
Each transaction added to a blockchain is validated by multiple computers on the Internet. These systems, which are configured to monitor specific types of blockchain transactions, form a peer-to-peer network. They work together to ensure each transaction is valid before it is added to the blockchain. This decentralized network of computers ensures a single system cannot add invalid blocks to the chain.
When a new block is added to a blockchain, it is linked to the previous block using a cryptographic hash generated from the contents of the previous block. This ensures the chain is never broken and that each block is permanently recorded. It is also intentionally difficult to alter past transactions in blockchain since all the subsequent blocks must be altered first.
While blockchain is widely known for its use in cryptocurrencies such as Bitcoin, Litecoin, and Ether, the technology has several other uses. For example, it enables "smart contracts," which execute when certain conditions are met. This provides an automated escrow system for transactions between two parties. Blockchain can potentially be used to allow individuals to pay each other without a central clearing point, which is required for ACH and wire transfers. It has potential to greatly increase the efficiency of stock trading by allowing transactions to settle almost instantly instead of requiring three or more days for each transaction to clear.
Blockchain technology can also be used for non-financial purposes. For example, the InterPlanetary File System (IFPS) uses blockchain to decentralize file storage by linking files together over the Internet. Some digital signature platforms now use blockchain to record signatures and verify documents have been digitally signed. Blockchain can even be used to protect intellectual property by linking the distribution of content to the original source.
Updated: April 13, 2018