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Blockchain Explained: The Secret Behind Bitcoin

Blockchain Explained: The Secret Behind Bitcoin

What is Bitcoin

Many of us, for one reason or another, may have recently heard about and gained some interest in learning about Bitcoin. The blockchain is a ledger that records the rightful owner of every balance of Bitcoin in existence.

When you make a Bitcoin transaction, you announce to the system that you would like to transfer an amount of Bitcoin on the ledger from one owner to another. These transactions are grouped into a block and members on the system then confirm that the transactions in the block are legitimate. Once a block is confirmed, the ledger, or blockchain, is updated to reflect the most recent transactions.

The Bitcoin system is an electronic payment system based on cryptographic proof instead of trust, allowing any two parties to transact directly with each other. It is a solution that uses a peer-to-peer distributed timestamp server to generate computational proof of the chronological order of transactions.

 

The Secret: Blockchain Technology

Some analysts believe that Blockchain is a technological advance that may not just transform financial services but many other businesses and industries. The Blockchain is a public ledger where transactions are recorded and confirmed. It’s a record of events that are shared between many parties. More importantly, once information is entered, it cannot be altered. Cryptography ensures that users can only edit the parts of the blockchain that they “own” by possessing the private keys necessary to write to the file. It also ensures that everyone’s copy of the distributed blockchain is kept in sync.

The security is built into a blockchain system through the distributed time stamping server and a peer-to-peer network, and the result is a database that is managed autonomously in a decentralized way. This makes blockchains an alternative for recording events — like financial transactions.

 

Blockchain is the Ledger

Basically, the blockchain is a ledger. Just like you have a ledger for your accounting records to hold information about your expenses and revenues, the blockchain acts as a ledger to hold information about the history of every single transaction.

The blockchain ledger can never be changed and records never be destroyed. Information can only be added to the ledger, never removed. Before anything can be added to the ledger, however, it needs to be validated and confirmed by miners who secure the legitimacy of the network and the transactions passing through it.

On the Horizon

 The blockchain can confirm transactions and balances that are stated on a company’s accounting ledger by itself. In theory, everything that is on a company’s books and therefore everything involving a company’s financial statements could occur on the blockchain.

Blockchain and cryptocurrencies have made the news over the past years. However, it seems their real importance may yet be fully realized. Companies are finding new uses for this cutting-edge technology and Venture Capital (VC) firms and investors are placing their bets on the blockchain because of its potential. Only time will tell how this technology will impact the world of financial fraud services across the US and the globe.

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Contact Veriti Consulting to speak with a professional and trusted accounting fraud investigation firm. 

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