The blockchain is an ingenious technological invention behind cryptocurrency based on public key cryptography, invented by an anonymous person or a group of people going by pseudonym Satoshi Nakamoto.
Essentially it is an incorruptible distributed digital ledger of economic transactions, hosted by numerous Internet nodes, located globally. The block chain (now called blockchain) is a series of linked and timestamped data records, forming the “chain”.
The technology requires both, the sending and the receiving party to poses a pair of cryptographic keys. An unpredictable (typically large and random) number is used to begin generation of an acceptable pair of keys suitable for use by an asymmetric key algorithm. In an asymmetric key encryption scheme, anyone can encrypt messages using the public key, but only the holder of the paired private key can decrypt. As its name suggests, the public key is disclosed to everyone. Needles to say, the private key must not be disclosed to the public.
To create a transaction, the initiating party creates a hash of the previous transaction which is recorded in the ledger and the public key of the receiving party is used by the signer, along with the private key of the signer to encrypt the record. This mechanism, along with the distributed nature of the chain and the requirement that the record be confirmed by multiple nodes, brings everyone to the highest degree of accountability.
Interestingly, the blockchain technology is not actually limited to cryptocurrencies only, but is so versatile that it can be used to record anything of value. It literally opened the pandora’s box of all kinds of new industries based on it. It opened up a new future that was unimaginable just a decade ago.
Some of the characteristics of blockchain that make it so valuable are:
- It is not controlled by any single entity.
- It has no single point of failure.
- Transactions recorded are transparent and verified by multiple nodes (though the transaction information may be opaque, thanks to additional advancements in technology)
- The ledger is virtually incorruptible as the attacker would essentially have to use incredible amount of computing power in order to take control of the whole network and be able to change any data.