Overview
Block Chain is the technology that powers Bitcoin. It gets its name due to the fact that it organizes its data (in this case a ledger, see below) in blocks of information that are linked together in sequential order.
The blockchain was created as a way to eliminate the need for a trusted third party in transactions. As an example, when a person spends money on a credit card, the bank acts as a trusted third party between the purchaser and the product vendor.
The block creates way to record transactions between two parties in a secure, robust, and authenticated manner without relying on a trusted third party and also maintaining the anoymity of the parties involved.
Consensus
The block chain protocol is dependent on a method of creating consensus called, "proof of work". That is, the network is composed of a set of computing resources, called "miners", which do the necessary work to append new transactions to the block chain. This is accomplished by solving a complex cryptographic problem, which is hard to solve and easy to verify.
Miners do the work of appending blocks to the block chain by solving these problems, and they are rewarded for their work with Bitcoin.
User Authentication
The blockchain depends on public/private key encryption to authenticate users and transactions. (see also encryption)
Each user on the block chain must have a public/private key. The public key is made public to the blockchain. When a user executes a transaction, the transaction is signed with the users private key, and in this way, the block chain is able to verify the source of the transaction.
Because a users private key is the only way to prove that the user owns the account linked to that key, if the key is lost, the crypto currency in the account is also lost.
Uses of the Block Chain
- Digital Ledger for use with crypto currencies
- Maintain a record of the title of some asset
- Chain of custody tracking - the block chain can be used to create a secure, open and transparent tracking of the chain of custody of some goods or items.