Since it first appeared in 2009, the bitcoin network has grown significantly. The digital currency’s recent surge in value has sparked discussions within the security space about the benefits of blockchain, a technology that promotes the type of trust that is sorely lacking in some digital transactions.

Today, people are exchanging real money for cryptocurrencies at an increasing rate. But what makes cryptocurrencies so trustworthy? The answer is simple: Each one has its own blockchain.

Shifting the Burden of Trust

When we deposit money into a bank, we trust that the bank will not modify our accounts. Similarly, when we conduct retail transactions, we expect to receive adequate goods in exchange for the money we spend. By adopting blockchain, bitcoin and other cryptocurrency providers have removed the burden of trust from third-party financial institutions and placed it on the technology that sustains it.

A blockchain is a peer-to-peer network database that groups each transaction into its own block. In addition to cryptocurrency transactions, these blocks can contain other sensitive assets such as identity information, patents, land titles, medical data and more.

Once a transaction is grouped into a block, a hash is assigned to the block, which enables users to easily detect changes to the data. A block might contain the hash of a previous block, thus creating a blockchain. This enables security professionals to trace a blockchain back to the first block, or the genesis block, if an attacker tries to modify a transaction. Any change would alter the block’s hash, requiring a potential threat actor to modify all blocks in a chain to complete an attack. For this reason, most cybercriminals find it impractical to attack blockchains and typically target regular centralized databases instead.

More Benefits of Blockchain

A blockchain is distributed among all participating nodes in a network, so anyone who joins the network can access the entire blockchain. Participants can collectively assess the validity of the chain, meaning that a potential attacker would need to control more than half of the total participants to alter the final blockchain.

The mechanism for drawing this consensus varies from one blockchain implementation to another. For example, bitcoin uses proof of work, a mathematical challenge that participants must solve to add a block to the chain. Other methods include proof of stake, proof of activity and selective endorsement, and each has its own advantages and limitations.

By examining the audit trail of a blockchain, participants can view a complete record of who has owned a given asset, coin or token throughout its life cycle. In other words, they can trace the provenance of assets and past transactions. Public key encryption further ensures nonrepudiation and confidentiality.

The Sky Is the Limit

Today, blockchain is commonly used as a money ledger, to facilitate smart contracts and for identity management. There are also projects underway to build networks of databases that take advantage of the distributed technology for supply chains, real estate, voting systems and more.

After all, what industry wouldn’t benefit from a technology that virtually guarantees trust among participants and provides visibility into sensitive transactions? As cryptocurrencies such as bitcoin become more popular and the need to validate transactions increases, the sky is the limit for blockchain technology.

Explore IBM’s Blockchain platform to learn more

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