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Blockchain 101: What investors need to know

blockchain 101 for investorsThere’s been much news recently about Bitcoin and blockchain – from Bitcoin pricing at over $3,200 to blockchain being considered or implemented by 57 percent of large corporations.

However, since the technology has only been around since 2008, many people have only a vague idea of what blockchain actually does.

Have no fear! Today we’re delving into the emerging world of cryptocurrencies and super-secure records keeping with our 101 series all about blockchain.

What is blockchain?

Blockchain is essentially an incorruptible digital ledger of transactions. The blockchain database is a peer-to-peer network that uses proof-of-work to record a public transaction history. It provides a kind of checks and balances for transactions due to its transparency and incorruptibility.

How does it work?

A blockchain contains every transaction ever processed, allowing a user’s computer to verify the validity of each transaction. In terms of immutability, transactions within a blockchain are regularly verified, cleared, and stored in a “block” which is linked to the preceding block, thereby creating a “chain” – how “blockchain” got its name.

The structure permanently timestamps and stores the transactions, preventing anyone from altering the ledger. If someone tried to alter a block, the preceding block would no longer accurately link to the next, alerting users that it was incorrectly changed after the fact. Once created, the blockchain, in effect, can never be changed.

A blockchain is distributed, meaning it runs on computers (called “nodes”) provided by people from around the world. There is no central database to hack. Anyone can process transactions using the computing power of specialized hardware and earn a reward (such as the cryptocurrencies Bitcoin or Ether) for this service. This is typically called “mining.”

A blockchain is traditionally public – anyone can view it at any time because it resides on the network – but it’s also encrypted, using public and private keys to maintain virtual security. The authenticity of each transaction is protected by a “public key,” which corresponds to the sending addresses of each computer within the blockchain. A “private key” is what a user would use to access their digital assets. Private, custom blockchains can also be created, where only certain individuals can view or participate in the blockchain processing.

How can blockchain be implemented?

Of course, Bitcoin and other cryptocurrencies are an application of blockchain technology, but they’re certainly not the only use. In fact, blockchain can be used in a myriad of ways.

For example, blockchain-based identity authentication systems would require identity verification using digital signatures based on blockchain’s public key cryptography. This could reduce the chance of public information being leaked, like what happened with Target in 2013 or Home Depot in 2014.

Blockchain would also benefit financial institutions in streamlining the clearing process, handling payments, or even reducing trading errors. Healthcare could also be revolutionized with blockchain, allowing healthcare providers and other parties to share access to their networks without compromising data security and integrity for improved patient care, costs savings, and billing management.

For a more detailed look at blockchain, check out the infographic below from PwC:

blockchain infographic