Beneath the hype and controversy of Bitcoin, there exists a new tehcnology that will soon impact most people on earth - much like the internet has done in recent decades.
The core ideas behind blockchain technology emerged in 1991 when a signed chain of information was used as an electronic ledger for digitally signing documents in a way that could easily show none of the signed documents in the collection had been changed.
It was first applied to digital cash in 2008 in the initial paper describing the Bitcoin electronic cash solution, Bitcoin: A Peer to Peer Electronic Cash System, which was published pseudonymously by Satoshi Nakamoto. The actual author(s) and owner of the first Bitcoins remain a mystery. Since then, blockchain technology has become tightly linked to Bitcoin and is often assumed to be used for monetary transactions (although it is not restricted to simple fund transfers).
Nakamoto’s paper contained the blueprint that most modern digital cash schemes follow, with many variations . Bitcoin is in fact the first of many applications or use cases for a blockchain. Many electronic cash schemes existed prior to Bitcoin, but none of them achieved widespread use. By adopting blockchain technology, Bitcoin achieved compelling capabilities that promoted its use. Bitcoin's use of a blockchain enabled it to be implemented in a distributed fashion so that no single user controlled the currency and no single point of failure existed. Its primary benefit was to enable direct electronic financial transactions between users without the need for a third party.
It also enabled the issuance of new currency in a fair fashion to those users (sometimes called miners) maintaining the blockchain that, among other factors, enabled lower transaction costs for using the system. Payment of the mining nodes allows distributed administration of the system without the need to organize those maintaining the system. By using a distributed blockchain and consensus-based maintenance, a self-policing mechanism emerged that ensures that only valid transactions are added to the blockchain.
Also, the blockchain enabled users to be pseudonymous, meaning that users are anonymous but their accounts are not – all transactions are publicly observable. Blockchain's open architecture has effectively enabled Bitcoin to offer pseudo-anonymity because accounts can be created without any identification or authorization process. Finally, the distributed maintenance of the blockchain created a system with complete transparency, which promoted trust in its use.
Since all transactions are transparent within the system, and must be verified before being included, blockchain technology greatly reduces the ability for users to double spend their digital assets. Thus, one of the most valuable aspects of applications built on blockchains is that they can enable business to be conducted with untrusted and unknown users.