There’s a lot of buzz around Fintech at the moment, and specifically around “the block chain.” So what exactly is the block chain and what is the difference between blockchain and bitcoin.

Bitcoin is a specific application of block chain technology. And it’s a cryptocurrency too. But blockchain technology can be used for other cryptocurrencies and for applications that have nothing to do with currencies.

 

The basics of the block chain

A block chain is a method of creating records of a transaction in such a way that these transactions can’t be created fraudulently. Transactions are verified by multiple participants and entered into a ledger. This means it is impossible to create fake transactions.

Copies of the ledger are kept on a decentralized database. Batches of transactions called blocks are created with each block including a reference to the block created before it. This creates a chain linking all the blocks together – hence the name block chain. Because multiple copies of this identical ledger exist at any one time, the ledger cannot be tampered with.

The parties that verify the transaction do so by performing complex calculations that require large amounts of computer processing capacity. This makes manipulating the system unviable.

 

Applications

Cryptocurrencies are currencies that only exist in virtual form. Every time a transaction using a cryptocurrency takes place, the transaction is verified, and the state of the ledger is agreed upon.

People or companies that participate in this verification process earn units of the crypto currency in return for allocating computing power to the process.

Trusted timestamps can be created with block chain technology. These can be sued as proof that a message has been created, sent or read.

Copyright and licensing application are being developed for the music industry to protect intellectual property and distribute royalties to artists.

Smart contracts and invoices are being developed to allow parties to cooperate without needing to trust one another. Invoices can be created that pay themselves and contracts can be created that force performance when certain conditions are met.

 

The future

At this stage, the block chain is really a very big experiment. The success or failure of various applications will lead to new applications and broader adoption. We are bound to see some sort of variation of the block chain entering almost every industry eventually.