If you’re aware of Bitcoin, you’re familiar with the idea that so-called Bitcoin miners harness high-speed computational processing power in an effort to solve mathematically difficult problems to secure and verify transactions, and create Bitcoins. (Miners earn transaction fees and subsidies — paid in Bitcoins, of course.) A new block is written every ten minutes, extending the chronological block chain, which is shared among nodes on a peer-to-peer network using the Bitcoin protocol. But it’s more complicated (and far more elegant) than that.
The block chain is a series of data records — time-stamped transactions — stored in a database. The hash of each block (beginning with the “Genesis block”) is used to link to the next so that there is a single forward pathway through the blocks: This is the “chain.” Each new block is broadcast in near real-time all across the Internet, with almost every miner (or node) maintaining a current copy of the transactions log.
When a Bitcoin transaction occurs, the previous transaction’s hash and the public key of the next owner are digitally signed with the current owner’s private encryption key. If you want to transfer your Bitcoin (that is, buy something), you have to have your secret key. No key, no possession.
Once an entry is written into the block chain, it cannot be altered without regenerating the previous blocks. (In other words, data can be added to the transactions database, but it cannot be removed.) This prevents double-spending and ensures the forward linking of the block chain.