How does a blockchain work?

- Today, when organizations that have competing interests need to verify that a piece of data's true, they use middlemen or business processes and sometimes very complex ones. With blockchains, this work of checks and balances is delegated instead to cryptography and code. It's done by providing a shared ledger or bookkeeping record that we can trust. Now, people have relied on ledgers for a long time, as in thousands of years. And they've taken on various forums like these. Depending on your age, you probably have used a checkbook although perhaps not in a very long time. That's a ledger too, but a blockchain ledger is different from the entire history of ledgers because no one owns it. It's a shared decentralized ledger. Instead of being managed by a person or central organization that everyone must agree to trust, it's governed by all. So let's say you run an international aid organization and you want donors to be able to see exactly where their funds go from the moment that they hit your organization to the moment that the funds are used to purchase a specific thing, and to verify what was actually purchased. Today, donors would need to rely on your record keeping and on your computers, and your version of the truth. You could get auditors to check your records but that can be expensive and it takes time, and it's prone to errors. With a blockchain, donors could check the records themselves and see exactly what happened from when they gave you funds all the way down to exactly where these funds went and know that no one's tampered with the records. This isn't a technical course. So we're going to keep this high level, but basically if the movement of funds is kept on a blockchain ledger, there isn't one organization that's keeping that register. Instead, a distributed network of computers owned by many people in organizations often all over the world has a copy of the blockchain. The majority of the computers on the network must agree that a transaction is legitimate before they write it to the ledger. But why is it called a blockchain? Well, those transactions, they're wrapped up in blocks and they're permanently chained through cryptography to all the blocks before it. And that's how we get the name blockchain. To tamper with a particular transaction, someone would need to take over the majority of computers in the network and change, not just that single transaction, but the entire history of the blockchain. So once it's recorded, it's pretty much tamper-proof. So with this blockchain version of a ledger that shared and decentralized, you don't have to go through anyone else to check what's true. We don't have to use a bunch of complicated business processes and crosschecks or tracked around a trail of paper. We can check it directly. Bitcoin is an example. It's a form of digital money. Bitcoin was the first application built on the very first blockchain which is a public blockchain that anyone can use. And in a way, you can think of Bitcoin as a first proof of concept. There's over a hundred billion dollars or about a hundred million dollars, depending on the day, on the Bitcoin blockchain. So people who don't know each other all over the world are trusting a hundred billion dollars of value to a share ledger that no one owns. Not a bank, not a government. It and the transactions on it are kept safe by code alone. A lot goes into building trust and trust comes not just from technology, but the way the technology's governed and the way it's used. But blockchain technology provides an essential backbone on which we can build trust.