What is blockchain technology?
Blockchain technology is a software; a protocol for the secure transfer of unique instances of value (e.g. money, property, contracts, and identity credentials) via the internet without requiring a third-party intermediary such as a bank or government.
How does it work?
We explain the concept of the blockchain by explaining how Bitcoin works since it is intrinsically linked to the Bitcoin. However, the blockchain technology is applicable to any digital asset transaction exchanged online.
Internet commerce is exclusively tied to the financial institutions serving as the trusted third party who process and mediate any electronic transaction. The role of trusted third party is to validate, safeguard and preserve transactions. A certain percentage of fraud is unavoidable in online transactions and that needs mediation by financial transactions. This results in high transaction costs.
- Spender owns the cryptocurrency—digital signature verification on the transaction.
- Spender has sufficient cryptocurrency in his/her account: checking every transaction against spender’s account (“public key”) in the ledger to make sure that he/she has sufficient balance in his/her account.
