You would have no doubt heard of bitcoin and cryptocurrencies, and depending on which way you look at it it’s either the future of technology or a quick way to lose your life savings.
Ignoring the hype (the HODLing and get-rich-quick schemes) there is something worth explaining which underpins all of this. Whilst you may have heard of Bitcoin, a digital currency, you may not have heard of the technology which enables it; the blockchain.
So what is a blockchain and why should I care?
Blockchain is a big deal. But in order to understand why, we need to understand why it was created. In 2009 a mysterious figure by the name of Satoshi Nakamoto developed Bitcoin; a digital currency. Satoshi appears to have been motivated to create a currency free of central bank control. In order to do so Nakamoto perfected the distributed ledger.
The distributed what now?
A ledger, in financial terms, is a record of transactions; e.g. Jane paid Jill $40 at 1:25pm on Thursday. However, since the beginning of time ledgers have been required to be managed by an intermediary, someone both parties trust to prevent fraud or disagreements.
What the distributed ledger allows is the removal of this middleman through network consensus. So instead of having one party determine trust (which can easily allow fraud), the distributed ledger motivates an entire network of users to validate the information through a process called mining which rewards these ‘miners’ with the currency – providing them economic incentive to keep the network running. So when Joe pays Jim $20 at 3:24pm on Friday, this information is sent to the ledger to be verified and verified and verified until consensus is agreed by all parties.