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What is a Blockchain?

2017-08-17T10:22:03+00:00

The term 'Blockchain' is included in the Accounting edition of the Financial Dictionary. Get yours now on amazon in ebook or paperback format. Read more here...

Blockchain refers to a technology that serves as a means of structuring and storing data. As such it is the ultimate foundation of the revolutionary crypto-currencies such as Bitcoin and Ether. The true breakthrough in coding capability permits participants to share digital ledgers back and forth over a computer network. Its genius and appeal lies in the fact that it does not require a central authority to run or oversee it. Since there is no meddling central authority like a central bank or boss to the system, no one party can interfere with the financial records.

In other words, the straight math makes sure that all the parties who participate are honest with each other. Blockchain is made up of concatenated transactions blocks. Nowadays, the technology has become so important and offers so many future possibilities for real world applications that over forty of the world’s biggest and most important financial firms are experimenting with uses for it.

Blockchains are also public record ledgers of all transactions in a crypto-currency which have ever taken place. For this reason, the chain is always expanding as every new record adds additional completed blocks to it. These become a part of the blockchain via a chronological and linear fashioned order. Every participating node receives a copy of this blockchain as it is updated. Nodes are computers which share a Bitcoin network connection that utilizes the system to validate and relay such transactions which were performed in it. The chain comes as an auto download once a computer network joins up to the Bitcoin network. This chain maintains full information on all balances and appropriate addresses from the very first transaction ever all the way to the latest one which has been performed utilizing the block.

In the end, it is this blockchain that represents the primary technological advance offered by Bitcoin. It amounts to the proof and record of every transaction performed using the network. The blocks represent the current record in the chain that will ultimately record all or at least some of the recent transaction. After it is finished, this block will join the chain as part and parcel of the current and permanent database. Once a block is spoken for, a new block will become generated. Myriads of such blocks exist in the chain. They are linked one to another, much like a physical chain, in their correct chronological and linear order. Each block contains the hash of the prior block in it.

It is always helpful to consider a real world example to better understand a somewhat complex concept like this one. Traditional banking is a solid analogy. This blockchain is much like a complete history of banking records and transactions. Bitcoin transactions must be chronologically entered in the blockchain as real world banking transactions are at financial institutions. Such blocks are something like the statements recording individual bank accounts and banking transactions.

The protocol of Bitcoin is based upon all nodes in the system sharing the blockchain’s database. A complete and unaltered copy of the chain will include records of all the transactions in Bitcoin which have ever been executed. This delivers useful insights into the quantity of value that a specific address owned at any time in the past.

The problem with the ever growing nature of the chain is that it has become so very large with over a decade of increasing size that synchronization and storage have become serious issues. These days, the average time of a new block appearing on the chain amounts to only ten minutes. Mining, the process of unlocking new BTC, is adding the majority of new blocks to the chain these days.

The term 'Blockchain' is included in the Accounting edition of the Financial Dictionary. You can get your copy on amazon in Kindle or Paperback version. See more details here.