Understanding how blockchain works and identifying myths about its powers are the first steps in the development of blockchain technologies.

Blockchain is an algorithm and distributed data structure for managing electronic money without a central administrator between people who know nothing about each other. Originally designed for the cryptocurrency Bitcoin, the blockchain architecture was driven by a radical rejection of (government-guaranteed) cash and bank-controlled payments.

Blockchain is a special example of Distributed Ledger Technologies (DLTs), almost all of which emerged in the wake of Bitcoin.

HOW DOES BLOCKCHAIN WORK?

Blockchain is a Distributed Ledger Technology (DLT) invented to support the Bitcoin cryptocurrency. Bitcoin was motivated by an extreme rejection of government-guaranteed money and bank-controlled payments. Bitcoin's developer, Satoshi Nakamoto, envisioned people spending money without friction, middlemen, regulation, or the need to know or trust other parties.

Technically the original blockchain is separable from Bitcoin, but this report will show that the blockchain design is so specific to Bitcoin that it is not suitable for many other things.

The central problem with electronic money is Double Spend. Since pure electronic money is just data, there is nothing to stop a coin holder from spending it twice. Blockchain solves the Double Spend problem without a digital reserve fund or similar form of referee.

Blockchain monitors and verifies Bitcoin transactions by enabling a decentralized network of volunteer-run nodes to essentially vote on the order in which transactions occur. The network's algorithm ensures that every transaction is unique.

Video created by the Center of International Governance Innovation.

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