Bitcoin, schmitcoin. Let’s play piggyback on the blockchain

Bitcoin may have generated countless salacious news headlines, but it’s a cameo player in a much bigger act. The blockchain is the real innovation that that makes Bitcoin work, and could well outlast the upstart currency. But it’s in trouble – and Silicon Valley has forked out millions to try and save it.

The blockchain is a regularly updated ledger detailing all of the transactions on the Bitcoin network. It doesn’t run on any one server, though: it’s decentralized, with countless copies distributed around the network. It’s also cryptographically sealed, so that no one can change it. That’s what stops someone spending Bitcoin, claiming that they didn’t, and trying to spend it again.

Every ten minutes, a new block of data is added to the blockchain, detailing the latest transactions that have taken place. Each block includes a cryptographic hash of all its transactions.

A hash is unique, and is computed based on the transaction data that it represents. If any part of the underlying data changes, the hash changes too. Any fraudster wanting to tamper with a block’s transactions would need to also alter the hash recorded for that block to match the new, fraudulent set of transactions. Given that the computing power distributed around the whole Bitcoin network takes ten minutes to produce the hash, that’s a tall order.

The blockchain uses another trick to further secure itself: every block’s hash also uses the previous block’s hash as an input.

This means that to alter transactions in a block, the fraudster would also have to recompute the hash of the next block, and the block after that, all the way down the chain. That’s practically impossible. Technologically speaking, it’s a beautiful system.

Blockchain bloat

There’s just one problem with the blockchain: it’s huge. At the time of writing, there are around 120,000 transactions

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