The Blockchain – The Decentralized Power Behind Bitcoins

The blockchain is the public ledger that allows Bitcoins to be safely and securely distributed.


This is how it works:


Every Bitcoin has its own digital signature, in other words, its own unique DNA. This is similar to the serial numbers that appear on paper currency. The Bitcoins are then stored in electronic ‘compartments’, or ‘addresses’, with each having its own unique identity. The blockchain is used to record which address owns which Bitcoins. This address database is updated each time a transfer takes place between two parties. Hence, the network allows for all types of payment processing where users can transfer digital currencies directly to each other, with the security of all transactions being recorded on a public ledger.

Until the launch of Bitcoins, all previous digital currencies were based on a central issuer who created new ones as well as operated the transaction network. Bitcoin, on the other hand, offered the use of the blockchain, as a public ledger that can be operated on anyone’s computer to confirm Bitcoin transactions. Every time Bitcoins are transferred from one address to another, the transaction is sent to the network for confirmation. Every computer that is operating a blockchain then receives notification of a new transaction taking place. Upon confirmation that the sender truly owns the Bitcoins he is sending, the blockchain updates itself to register the new owners of the transferred Bitcoins.

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This constant updating ensures that Bitcoin network users do not “double spend” any Bitcoins. If so, such transactions would be rejected by the blockchain. While forms or digital currencies existed before Bitcoins, they were unable to operate without a centralized system to prevent double spending.
Among the innovations of Satoshi Nakamoto’s Bitcoin, was the advent of the blockcahin which could finally provide the ability to produce a decentralized digital currency without vulnerability of double spending.

From a technological perspective, a blockchain is a transaction database shared by all nodes participating in a Bitcoin-based protocol. Every transaction ever executed in any given currency is permanently recorded. With this information, one can find out how much was stored in every address at any point in history.

Every block contains a hash of the previous block. This allows for a chain of blocks to be created from the genesis block to the most recent block. Each block is guaranteed to appear after the previous block in chronological order. Otherwise, the previous block’s hash would simply not be known. This is a valuable security feature in trading Bitcoins, and, in fact, it is one of the greatest successes of Bitcoins.

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