What is the blockchain technology behind bitcoin?

Massive surges in the value of bitcoin have people buzzing about blockchain technology, the power of cryptocurrencies, which might seem unnecessarily mysterious.

According to Investopedia, it isn’t as complicated as it might seem. Blockchain, the technology that powers bitcoin, is just a system to record transactions.

Unlike traditional record keeping, blockchain doesn’t use a third party, such as a credit card company, to validate these transactions. Instead, it uses thousands of computers spread out across the globe.

The technology does this by making copies of the entire blockchain that are downloaded by all nodes participating in the system. Each copy contains a record of every transaction that has ever been made, which addresses were involved, and when it happened. Once data is added to the blockchain, it cannot be changed and thus serves as an excellent record of account backed up securely across a decentralized network. As new transactions occur, every computer gets to work verifying them and adding them as a block to the existing chain, giving the technology its name. These new blocks are added to the chain about once every ten minutes and newly minted bitcoin are given to these users, or miners, as a reward for helping the blockchain progress. This process takes more computing power and energy to complete over time as the number of existing bitcoins starts to approach the maximum total allowed.

As the Harvard Business Review explains, many people are excited about blockchain because of the potential it holds for a variety of industries in markets. It can serve as an open, distributed ledger that any two groups can use to verify transactions with a permanent record of events. Any of these transactions could be searched for, validated, and shared when necessary and could dramatically reduce the number of human resources required to handle the data. As an example, it currently takes microseconds to execute a typical stock trade online, and it needs little or no action on the part of a human. Settling the new ownership of the stock, however, can take days as both parties must consult their individual ledgers, verify the terms of the sale, and finally record the transaction. Using blockchain in this situation could expedite the process and cut out the inefficient middlemen.

The blockchain is still in its early stages of adoption, and there is still a lot of potential for this technology to make a significant impact on a variety of markets. Only time will tell how quickly and how big that effect will become.