This IDC Financial Insights Perspective is Part 5 in a six-part series on bitcoins and the use of digital currencies. Part 5 looks at the technology behind a network-based electronic process that records and transfers value using technology that is usually referred to as a blockchain. The technology involves distributed legers, cryptology, and unique algorithms. The result is a secure core process that functions without central control. A common use of this technology is the support of digital currencies like bitcoin, which is currently the dominant digital currency. Digital currencies and the associated technology are described in detail in this document.
Blockchain has taken everything known about the Internet, security, and cryptography to build a payments system designed for the Internet. No party owns or controls the network, and access is available to everyone. This is a powerful concept, and one that can be applied to many other situations involving electronic transactions and record keeping. The end result is that blockchain technology will change everything that we know about managing value and not just financial service processes.
In this document, the terms virtual currency, digital currency, and cryptocurrency will be used interchangeably with the name of the leading virtual currency bitcoin. All dollar amounts are U.S. dollars unless otherwise noted.