The Economist reviews the blockchain technology underlying Bitcoin—“a way of making and preserving truths.”
It is the blockchain that replaces this trusted third party. A database that contains the payment history of every bitcoin in circulation, the blockchain provides proof of who owns what at any given juncture. This distributed ledger is replicated on thousands of computers—bitcoin’s “nodes”—around the world and is publicly available. But for all its openness it is also trustworthy and secure. This is guaranteed by the mixture of mathematical subtlety and computational brute force built into its “consensus mechanism”—the process by which the nodes agree on how to update the blockchain in the light of bitcoin transfers from one person to another.
One interesting aspect of the blockchain technology is that it provides incentives for “mining”, rendering it self-sustainable. The future may lie in blockchain applications beyond payments, for example in securities clearance, certification and the like.