What is Blockchain Technology and How does it Works

Blockchain technology

What is Blockchain Technology?

A blockchain is a decentralised ledger that is shared across computer network nodes. A blockchain helps to store data in a digital format, similar to a database. Blockchains are well recognised for their critical function in keeping a secure and decentralised record of transactions in cryptocurrency networks like Bitcoin Blockchain. The blockchain’s novelty is that it ensures the accuracy and integrity of a data record while also generating trust without the requirement for a trusted intermediary.

A blockchain’s data structure is quite different from any regular database. Blocks are used to collect and store data in groups in a blockchain network. Blocks have specific storage capabilities, and when they’re full, they’re closed and connected to the preceding block, producing a data chain called the blockchain. All additional information added after that newly added block is combined into a new block, which is then introduced to the chain after it is completed.

Databases organise data into tables, however, a blockchain organises data into chunks or blocks which are linked together, as the name suggests. When deployed in a decentralised manner, this data structure creates an irreversible data chronology. When a block is completed, it becomes permanent and part of the chronology. When each block is introduced to the chain, it is given a specific timestamp.

How does Blockchain Technology Work?

The purpose of blockchain is to enable the recording and distribution of digital data without the ability to modify it. In this sense, a blockchain serves as the cornerstone for irreversible ledgers, or transaction history that can’t be changed, erased, or wiped. Blockchains are also called distributed ledger technology or DLT because of this.

Here is a brief process guide to helping you understand how does blockchain technology works.

  • A new transaction has been made.
  • The transaction is subsequently sent to a web of peer-to-peer computers all around the world.
  • The computer network then performs calculations to verify the transaction’s legitimacy.
  • Once the transactions have been confirmed to be legitimate, they’re grouped to form blocks.
  • Those blocks are then linked collectively to form a lengthy, irreversible history of all transactions.
  • The transaction has finished.

Blockchain Networks

A public blockchain networks, for example, Bitcoin, is one that anybody may enter and contribute to. Significant computer performance is needed, however, there is little or no anonymity for transactions, and security is also inadequate in this case. These are crucial concerns for blockchain use cases in the industry.

A private blockchain network system is a decentralized peer-to-peer chain, analogous to a public blockchain network. However, the system is governed by a single organization, which determines who is authorized to participate, implements a consensual procedure, and maintains the shared ledger. Based upon the use case, this can greatly increase user confidence and trust. A private blockchain could be used within a company’s firewall and even hosted on-site.

The upkeep of a blockchain can be shared across many companies that can execute transactions or access data determined by these pre-selected entities. A consortium blockchain network is suited for commercial situations in which all parties must be authorized and bear the accountability of the blockchain.

Blockchain Security

In numerous ways, blockchain technology enables decentralised security and trust. For starters, new blocks are continuously recorded in sequential and chronological order. That is, they always are linked to the blockchain’s “end.” It is exceedingly hard to go back and change the contents of a block once it has been committed to the end of the blockchain unless a majority of the system has agreed to do so. That’s because each transaction has its hash, as well as the hash of the block preceding it and the time stamp described before. A mathematical function converts digital data into a sequence of numbers and letters, resulting in hash codes. If the data is changed in any manner, the hash code will alter as well.

Assume a hacker who also manages a block or node on a blockchain system wants to change a blockchain and loot cryptocurrency from others. If they changed their single instance, it would no longer match the copy of everyone else. When everyone else compares their versions, they’ll see that this one stands out, and that hacker’s copy of the chain will be discarded as invalid.

To accomplish such a breach, the hacker would have to possess and change 51 per cent or more of the blockchain copies at the same time, ensuring that their new version becomes the dominant copy and, therefore, the agreed-upon chain. An operation like this would cost a lot of money and effort since they’d have to rewrite each of the blocks since the timestamps and hash codes will be different now.

The expense of pulling off such a task would almost certainly be impossible, given the scale of many cryptocurrency systems and how quickly they are developing. Not only would this be prohibitively costly, and it would also be futile. Such actions would not go undetected by network participants, who would detect such significant changes to the blockchain.

Blockchain Platforms

Ethereum Blockchain

Ethereum blockchain platform is similar to Bitcoin yet offering improved capabilities. It works similarly to Bitcoin’s blockchain technology but also provides additional functions, such as Smart Contracts and decentralized applications. Smart contracts are computer programs that enforce contractual agreements in real-time. Ethereum smart contracts eliminate the need for third parties and enable secure peer-to-peer transactions. The potential of Ethereum Blockchain has made it one of the most widely used technologies in the world today, allowing companies to utilize its unique features when building distributed systems or financial services. Furthermore, Ethereum’s secure network protocol makes it one of the safest ways to transfer digital assets worldwide.


Hyperledger is another open-source, enterprise-grade blockchain platform for creating private and authorized blockchain networks. The Linux Foundation hosts it and provides various tools and frameworks for developing and implementing enterprise-grade blockchain applications. This blockchain platform application is spread across a variety of industries consisting of finance, healthcare, and supply chain management.

IBM Blockchain

IBM Blockchain is a business-grade blockchain platform that provides a variety of tools and services for developing and delivering blockchain applications.

It is intended for application in several areas, including banking, supply chain management, and healthcare. This blockchain platform also provides private, permissioned blockchain networks as well as public blockchain networks, and it interfaces with a variety of other IBM technologies, including Watson AI and IBM Cloud.

Blockchain History

W. Scott Stornetta and Stuart Haber, two engineers who aimed to develop a system wherein documentation timestamps could not be manipulated, initially proposed blockchain technology in 1991. Blockchain didn’t have its first real-world use until over two decades later, with the debut of Bitcoin Blockchain in January 2009.

A blockchain is the foundation of the Bitcoin network. Bitcoin’s pseudonymous developer, Satoshi Nakamoto, described it as “a revolutionary electronic cash that is peer-to-peer, without any trusted third party” in a scientific report unveiling the digital currency.

Nowadays, thousands of initiatives are attempting to use blockchains in several ways apart from merely recording transactions, such as a secure voting system in electoral politics. Because of the irreversibility of blockchain, illegal voting could become even more difficult. An election process, for instance, maybe set up such that each citizen of a nation receives a separate coin or token. Each candidate I the election would be given a unique wallet address where voters could deposit their tokens as a sign of voting. The transparency and traceability of blockchain could eliminate the necessity for manual vote counting as well as the possibility of bad actors manipulating the system.

Blockchain Technology Pros

A network of multiple computers approves transactions on the blockchain database. This almost eliminates human intervention in the validation process, leading to lower human error and a more precise recording of data. Even if one of the computers in the network committed a computation error, it would only affect one version of the blockchain. To propagate to the remainder of the blockchain, that error would have to be committed by at least 51% of the network’s computers, which is nearly impossible in a vast and developing network like Bitcoin’s.

Consumers generally pay a bank to authenticate a transaction, a registrar to sign a document, or a preacher to marry them. The blockchain removes the need for third-party validation, as well as the fees that come with it. When a firm accepts credit card payments, for instance, it pays a tiny charge to the banks and payment-processing businesses to handle the payments. Bitcoin, however, has no centralized power and only has a small number of transaction fees.

It might take several days for a central authority to settle the transactions. For instance, if you deposit a cheque on Friday evening, you may not see the cash in your bank till Monday morning. Blockchain operates 24 hours a day, all year long, unlike financial institutions, which function only during business hours, which are normally five days a week. Transactions may be done in as little as 10 minutes, and after a few hours, they are considered secure. This is especially important for cross-border deals, which take substantially longer due to time zone differences and the requirement that all parties approve payment processing.

None of the data stored in the blockchain ledger is kept in a single place, rather a group of computers makes a copy and distributes the blockchain. Each computer in the chain updates its ledger to reflect the addition of a new block to the blockchain. Blockchain makes it harder to interfere with data by disseminating it over a network rather than holding it in a single central database. If a hacker obtained a copy of the blockchain, just a single copy of the data would be affected, rather than the whole network.

Many blockchain network function as public databases, allowing anybody with Internet access to examine the network’s transaction history. Although users have access to the transaction information, they do not have access to identifying information about the people who are doing the transactions. It’s a frequent misconception that blockchain networks like bitcoin are anonymous, but they’re not and are only confidential.

When a user conducts a public transaction, their distinctive code is known as a public key—is published on the blockchain. Their private details, on the other hand, aren’t. A person’s identity is still connected to their blockchain address if they made a Bitcoin transaction on an exchange that needs identification, but a transaction, even when attached to a particular person, does not divulge any personal details.

Once a transaction has been made, the network must verify the transaction for authenticity. Thousands of machines on the blockchain scramble to verify if the purchase’s data are accurate. The transaction is recorded to the ledger block after it has been verified by a computer. Each node on the blockchain has its specific hash, as well as the hash of the previous block. The hash code of a block changes when the data on it is changed in any way; nevertheless, the hash code of the block after it does not. Because of this disparity, changing data on the blockchain without notification is exceedingly difficult.

Blockchain Technology Cons

While blockchain might save customers money on transaction costs, it is not a free technology. For instance, the bitcoin network’s PoW algorithm, which is used to verify transactions, demands a lot of computing power. In the actual world, the electricity generated by the bitcoin network’s millions of computers is comparable to what nations like Norway and Ukraine utilize yearly.

Despite the high expenses of bitcoin mining, consumers continue to utilise more power to authenticate blockchain transactions. It’s because miners are compensated with enough bitcoin for their time and effort when they add a block to the bitcoin network. Nevertheless, miners will also need to be compensated or otherwise encouraged to authenticate transactions on blockchains that do not employ cryptocurrencies.

The crypto community is worried about government interference in the regulation of cryptocurrency. Governments might conceivably make it illegal to hold cryptocurrencies or engage in their systems, even though ending something like Bitcoin is becoming incredibly hard and practically impossible as its decentralised network expands. As huge corporations like PayPal begin to enable the ownership and usage of cryptocurrencies on their platforms, this issue is starting to fade.

Blockchain is finally gaining a reputation for itself, thanks in no little part to bitcoin and cryptocurrencies, with numerous practical uses for the Blockchain technologies already being deployed and researched. Blockchain, which has become a phrase on the lips of every investor in the country, promises to make corporate and government processes more precise, effective, safe, and cost-effective by eliminating middlemen.

As we approach the third decade of blockchain, the issue is no longer if traditional organisations will adopt the technology, but rather when.

The next several decades will prove to a critical phase for blockchain development.

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