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What is blockchain?

How does blockchain technology work?

What is blockchain Technology? How does it work?

You’ve undoubtedly heard the phrase “blockchain technology” a lot during the last few years about cryptocurrencies like Bitcoin. You might be wondering: “What exactly is blockchain technology?” As there is no concrete meaning that the average person can readily understand, it appears that blockchain is a platitude, but only in a hypothetical sense. It is essential to explain “what is blockchain technology,” including the technology involved, how it functions, and how it is becoming important in the world of digital communication.

You must become knowledgeable about this developing technology to get ready for the future as blockchain develops and becomes more approachable. This is the best place to learn the fundamentals of blockchain if you’re new to it. This article teaches you how to respond to the inquiry, “What is blockchain technology?” Additionally, you will discover how blockchain functions, why it’s significant, and what will be the future of blockchain technology.

What is blockchain?

A blockchain is an approach for preserving records that makes it hard to replicate or hack the system or the data stored on it, making it safe and unchangeable.

It is a particular form of distributed ledger technology (DLT), which is a digital system for simultaneously recording transactions and associated data in many different places. To avoid a single point of failure, each computer in a blockchain network keeps a copy of the ledger, and all copies get updated and validated at the same time.

Although it is also regarded as a type of database, blockchain has significant differences from traditional databases in the way it maintains and saves data. Blockchain holds data in blocks that are digitally connected rather than tables, rows, columns, and files like traditional databases do. In addition, unlike traditional databases, which are controlled by a central computer, blockchains are decentralized databases run by computers connected to a peer-to-peer network.

The first widely used blockchain application was the 2009-launched cryptocurrency Bitcoin. As a result, Bitcoin and its rivals Dogecoin and Bitcoin Cash are the ones that are most frequently associated with blockchain.

Why Is Blockchain So Important?

Due to its ability to scale transparency, eliminate fraud, and reduce security threats, blockchain is an incredibly revolutionary and exciting technology. 

Blockchain technology gained popularity through its connection to cryptocurrencies and NFTs, but it has subsequently developed into a management tool for a variety of international companies. Blockchain technology is currently being used to innovate games, secure healthcare data, provide transparency for the food supply chain, and fundamentally alter how we manage data and ownership.

Is Blockchain Safe?

There are various ways that blockchain technology provides decentralized security and trust. To start, new blocks are always chronologically and linearly stored. The “end” of the blockchain is always added to them. Previous blocks cannot be modified once a block has been inserted into the end of the blockchain.

Any modification to data affects the block’s hash. Each block carries the hash of the previous block, thus if one changed, the next blocks would also change. As a result of the hashes not matching, the network is going to reject a modified block.

Consider a scenario where a hacker controls a node on a blockchain network and aims to change a blockchain so they may take everyone else’s cryptocurrency. If they wanted to modify their copy, The other nodes would need to be persuaded that the new copy was the correct one.

For them to be able to do this and put it at the right time, they would need to have control over a large portion of the network. Because you require control of at least fifty percent of the network to launch an assault, it is known as a 51% attack.

In this kind of attack, timing is crucial because by the moment the hacker performs any action, the network is probably already passed the blocks they were attempting to change.

How Does Blockchain Technology Work?

The blockchain transaction process can be summarised as follows:

Distributed Network

In a blockchain network, multiple computers, or nodes, are connected to form a decentralized network. Each node maintains a copy of the entire blockchain ledger, which includes a record of all transactions that have ever occurred on the network. This distributed nature ensures that no single entity has complete control over the network, making it resilient and resistant to failures or attacks.

Block Formation

Once a transaction is validated, it is grouped with other validated transactions to form a block. Each block contains a unique identifier, a timestamp, a reference to the previous block (except for the first block known as the genesis block), and a set of verified transactions. The block is then added to the blockchain.

Transaction Verification

Nodes in the network compete to validate transactions through a consensus mechanism. In the case of Proof of Work (PoW), nodes called miners solve complex mathematical puzzles to validate transactions and add them to a block. This process requires significant computational power and energy expenditure. In Proof of Stake (PoS), nodes are chosen to validate transactions based on the number of tokens they hold or "stake." Other consensus mechanisms, such as Delegated Proof of Stake (DPoS), combine elements of PoW and PoS.

Consensus Algorithm

To make a block permanent, the nodes that make up the block will attempt to add it to the blockchain network. However, if every node is permitted to add blocks in this way, the blockchain network will no longer function as intended. The nodes utilize a consensus process to address this issue and guarantee that each new block added to the blockchain represents the sole version of the truth accepted by all of the nodes.
Only a valid block is then safely linked to the blockchain. We name these nodes who are chosen to add a block to the blockchain "miners" since they will receive a payment for doing so. A hash code for that block is generated by the consensus method and is necessary for adding the block to the blockchain.


Cryptography plays a crucial role in ensuring the security and immutability of the blockchain. Each transaction and block is encrypted using cryptographic hashes, which are unique mathematical representations of the data. Changing any part of the transaction or block will result in a completely different hash value, making it evident that tampering has occurred.

Adding Blocks to the Chain

Once a block is validated and accepted by the network, it is added to the existing chain of blocks, creating an unbroken, chronological sequence of transactions. As new blocks are added, the blockchain grows, forming a permanent and auditable record of all transactions.

Decentralization and Trust

The decentralized nature of blockchain, combined with the cryptographic techniques used to secure the data, provides a high level of trust and transparency. Since the ledger is distributed among multiple nodes, there is no single point of failure or control. This decentralization fosters trust by removing the need for intermediaries and enabling peer-to-peer interactions.

Blockchain Nodes

In simple terms, a blockchain node refers to a computer or device that participates in a blockchain network. These nodes are responsible for storing, validating, and maintaining a copy of the blockchain ledger. Each node possesses a complete record of all transactions and blocks, ensuring the transparency and immutability of the blockchain.

Types of Blockchain Nodes:

Full Nodes

Full nodes are considered the backbone of the blockchain network. They maintain a complete copy of the entire blockchain, including all transactions and blocks, and participate in the verification and validation of new transactions. Full nodes independently validate each transaction based on the consensus rules of the blockchain, ensuring the integrity of the network. These nodes are commonly used by miners, developers, and enthusiasts who actively engage with the blockchain.

Light Nodes (SPV Nodes)

Light nodes, also known as Simple Payment Verification (SPV) nodes, are lightweight version of blockchain nodes. They don't store the entire blockchain but instead rely on full nodes for transaction verification. Light nodes only keep a subset of the blockchain, such as headers or a Merkle tree, allowing them to operate with lower storage and computational requirements. These nodes are commonly used in mobile wallets and applications that prioritize efficiency and reduced resource consumption.

Benefits of Blockchain Technology

Enhanced Security and Data Integrity

One of the most prominent benefits of blockchain technology is its inherent security features. Blockchain utilizes cryptographic techniques to secure transactions and data, making it extremely difficult for malicious actors to tamper with or manipulate the information stored on the blockchain. Each transaction and block is encrypted using unique cryptographic hashes, creating a transparent and immutable record. This high level of security and data integrity provides trust and transparency, reducing the risks of fraud, hacking, and unauthorized modifications.

Transparency and Accountability

Blockchain's decentralized nature fosters transparency and accountability in transactions and operations. Every participant in the network has access to the same version of the blockchain, eliminating information asymmetry and enabling real-time auditing. This transparency promotes trust among stakeholders, as they can verify and validate transactions without relying on intermediaries or central authorities. In sectors such as supply chain management and finance, blockchain enables the traceability of goods and funds, reducing fraud and improving accountability.

Improved Efficiency and Cost Reduction

Traditional systems often involve intermediaries and complex processes, leading to inefficiencies and increased costs. By leveraging blockchain technology, these inefficiencies can be minimized or eliminated. Blockchain enables direct peer-to-peer transactions, removing the need for intermediaries and reducing associated costs. Moreover, blockchain's decentralized and automated nature streamlines processes eliminates manual reconciliation, and accelerates settlement times. This increased efficiency not only saves time but also reduces operational expenses, making blockchain an attractive solution for businesses across industries.

Decentralization and Empowerment

Blockchain technology empowers individuals and organizations by eliminating the reliance on centralized authorities. Traditional systems often concentrate power in the hands of a few, leading to information asymmetry and limited access. In contrast, blockchain enables decentralized decision-making and governance through consensus mechanisms. This decentralization promotes inclusivity, democratizes access to resources, and allows for peer-to-peer interactions. For instance, blockchain-based decentralized finance (DeFi) platforms provide financial services to individuals who may not have access to traditional banking systems, fostering financial inclusion.

Disintermediation and Trustless Transactions

Blockchain technology enables trustless transactions, eliminating the need for intermediaries in various sectors. Through smart contracts and self-executing agreements coded into the blockchain, parties can engage in transactions without relying on intermediaries to enforce the terms. This disintermediation reduces costs, enhances efficiency, and mitigates the risks associated with traditional contractual agreements. Trustless transactions are particularly valuable in cross-border payments, where blockchain eliminates the need for multiple intermediaries, significantly reducing the time and costs associated with remittances.

Where is blockchain technology used?

Supply Chain Management

Blockchain technology can greatly enhance transparency and traceability in supply chains. By recording each step of a product's journey on the blockchain, stakeholders can track its origin, manufacturing processes, storage conditions, and transportation. This enables consumers to verify the authenticity and quality of products, helps combat counterfeiting, improves inventory management, and ensures ethical sourcing by providing a trusted record of the supply chain's history.


In the healthcare industry, blockchain technology can revolutionize patient data management and interoperability. With patient consent, medical records can be securely stored on the blockchain, providing a tamper-resistant and unified source of patient information. This can facilitate the seamless sharing of medical data between healthcare providers, reduce medical errors, and enhance patient privacy and control over their health information.

Identity verification

Blockchain offers a decentralized and secure solution for identity management. Individuals can have control over their digital identities, allowing them to selectively share personal information with trusted parties. Blockchain-based identity systems can reduce identity theft, streamline user authentication processes, and provide a verifiable and immutable record of identities, making it easier to establish trust in online transactions.


Blockchain technology has the potential to transform voting systems by introducing transparency, immutability, and verifiability. By recording votes on a blockchain, it becomes virtually impossible to alter or manipulate the results. Blockchain-based voting systems can enhance voter trust, enable remote and secure voting, and reduce costs associated with traditional voting methods. Moreover, blockchain can be used for decentralized governance models, allowing stakeholders to participate in decision-making processes transparently and securely.

Intellectual Property

The immutability and timestamping capabilities of blockchain technology make it well-suited for protecting intellectual property rights. Blockchain can be used to create a decentralized and tamper-proof ledger for recording patents, copyrights, and trademarks. This can simplify the process of establishing ownership, preventing unauthorized use or infringement of intellectual property, and facilitating fair compensation for creators.

Independent financing

Decentralized finance, or DeFi, is the application of blockchain technology that gives users access to services that are comparable to those found in the mainstream financial industry but in a decentralized setting. Participants can lend and borrow money, as well as access additional opportunities, governed on the blockchain independent of a centralized authority using various DeFi methods.

Nontransferable tokens

NFTs, or nonfungible tokens, are a blockchain technology application with a wide range of potential applications. These tokens cannot be exchanged one for one for the same value and are indubitably unique. When artwork is linked to NFTs, which can confirm its validity and ownership, it can be authenticated. This is one potential use for NFTs.

Blockchain technology's future

Blockchain technology has a bright future ahead of it, with lots of opportunities and possible trends. As developments like sharding and layer-2 protocols strive to boost transaction throughput and reduce latency, scalability, and interoperability are significant areas of study. 

As companies become more aware of blockchain’s potential to improve security, efficiency, and transparency, adoption among enterprises is expected to grow. 

The Internet of Things (IoT) integration holds considerable potential for providing safe and reliable interactions between linked devices. Real-world asset tokenization will enable fractional ownership and liquidity while privacy-enhancing technology will find a compromise between openness and secrecy. 

Blockchain technology is poised to revolutionize industries, expedite procedures, and encourage trust in a variety of applications as it develops.


Blockchain technology provides a transparent and secure means to store data and record transactions. It can transform industries by providing a new standard of security and trust in the online environment.

Blockchain technology offers a wide range of opportunities, whether it’s enabling peer-to-peer transactions, developing novel types of digital assets, or supporting decentralized applications. In the upcoming years, we may anticipate the emergence of more creative and revolutionary use cases as the technology develops and becomes more widely used.