The most recognizable face of the cryptocurrency space is Bitcoin. However, it isn’t possible to talk about what Bitcoin is or what it can do unless you understand blockchain, the technology over which Bitcoin functions. So, let’s put Bitcoin aside for right now and talk about blockchain.
Blockchain is a technology based on the oldest technology in the world: a ledger. The oldest artifact of writing in history is a ledger. Some academics have theorized that the need to know “who owed who how much” was the impetus for developing written language.
A ledger is a database for recording and totaling transactions. A beginning balance is entered, debits and credits are added, and then an end balance is produced. For most of history, a group’s ledger was kept by one person who was trusted to keep the numbers honest. With the advent of the computer and the internet, ledgers have become more accessible to many people, but a central entity retains control of the ledger. Users can add entries to the ledger, but the controlling entity retains the right to verify each transaction. Wikipedia is an interesting, non-financial example of this technology. On Wikipedia, users can submit additions or corrections to any of the entries, but Wikipedia only adds it to the site after the information has been verified.
There is a different kind of ledger that works backward. Instead of one location where information is maintained by a single entity, this ledger is kept and verified by every single user, often referred to as a node, on the network. When one user wants to add a transaction, each node verifies that the transaction meets certain criteria. Once a majority of the nodes on the network have verified the transaction, it gets added to the ledger. In this way, there isn’t one central entity controlling the information, but everyone can still trust that the ledger is correct. This is called a distributed ledger.
Blockchain is a distributed ledger, and now that you understand how a distributed ledger works, we can dig deeper into the blockchain.