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The primary goal of blockchain is to allow digital information to be recorded & distributed but not edited. If this concept can be difficult to wrap understand without seeing the technology in action, read on & learn about how the earliest application of blockchain technology actually works.

Blockchain technology was first outlined in 1991 by Stuart Haber & W. Scott Stornetta, two researchers who wanted to create a system where document timestamps could not be tampered with. But it wasn’t until almost 20 years later, with the launch of Bitcoin in January 2009, that blockchain had its first real-world application.

The Bitcoin protocol is built on the blockchain. In a research paper introducing the digital currency, Bitcoin’s pseudonymous creator Satoshi Nakamoto referred to it as “a new electronic cash system that’s fully peer-to-peer, with no trusted third party.”

Here’s how it works

There are people, all over the world, who have bitcoin. There are also millions of people around the world who own at least a portion of a bitcoin. Now, let’s say one of those millions of people wants to spend their bitcoin on a brand new mobile phone. This is where the blockchain comes in.

When it comes to ordinary, standard, printed money: the use of printed currency is regulated & verified by a central authority, usually, a government or a bank – but Bitcoin is not controlled by anyone central authority. Instead, the transactions made in bitcoin are verified by a network of computers. This is what is meant by the Bitcoin network & blockchain being “decentralised.”

Whenever a person pays another for goods using bitcoin, the computers on the Bitcoin network verify the transaction. In order to do so, users run a program on their computers & try to solve a complex mathematical problem, called a “hash.” When a computer solves the problem by “hashing” a block, its algorithmic work will have also verified the block’s transactions.

As we described in earlier articles, the completed transaction is publicly recorded & stored as a block on the blockchain, at which point it becomes unalterable. In the case of Bitcoin, & most other blockchains, computers that successfully verify blocks are rewarded for their labour with cryptocurrency. This is commonly referred to as “mining.”

Although transactions are publicly recorded on the blockchain, user data isn’t – or, at least not in full. To conduct transactions on the Bitcoin network, participants must run a program called a “wallet.” Each wallet consists of two unique & distinct cryptographic keys: a public key & a private key. The public key is the location where transactions are deposited to & withdrawn from. This is also the key that appears on the blockchain ledger as the user’s digital signature.

Even if a user receives payment in bitcoins to their public key, they will not be able to withdraw them with their private counterpart. A user’s public key is a shortened version of their private key, created through a complicated mathematical algorithm. However, due to the complexity of this equation, it is almost impossible to reverse the process & generate a private key from a public key. For this very reason, blockchain technology is considered confidential.

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