How Does Blockchain Technology Work

You've likely heard the term 'blockchain technology' in recent years in relation to cryptocurrencies like Bitcoin. What is blockchain technology? Blockchain is a platitude in a hypothetical sense because the layman can't easily understand it. It's important to define blockchain technology, including how it works and why it's important in the digital world.

As blockchain becomes more user-friendly, you must learn it to prepare for the future. This is the best place for blockchain beginners. This article explains blockchain technology. You'll discover how blockchain works, why it's important, and how to enhance your career.

What's Blockchain?

Blockchain technology holds public transactional records in many databases, called the "chain," in a peer-to-peer network. This is called a 'digital ledger'.

Every ledger transaction is authenticated and protected by the owner's digital signature. The digital ledger's data is safe.

The digital ledger is like a Google spreadsheet shared among multiple computers on a network, where actual purchases are recorded. Anyone can see the data but can't corrupt it.

Blockchain's popularity

Suppose you're sending money to family or friends. You would use their account number to transfer money online. Your bank updates transaction records afterward. It's easy, right? We overlook a potential problem.

These transactions are easily manipulated. People who know this are wary of these transactions, hence the rise of third-party payment apps. Blockchain was created to address this vulnerability.

Blockchain is a popular digital ledger. What's its appeal? Let's explore the concept.

Data and transaction recording are crucial to a business. This information is often handled in-house or passed to brokers, bankers, or lawyers, increasing time, cost, or both. Blockchain avoids this lengthy process and speeds up transactions, saving time and money.

Most people assume Blockchain and Bitcoin can be used interchangeably, but in reality, that’s not the case. Blockchain is the technology capable of supporting various applications related to multiple industries like finance, supply chain, manufacturing, etc., but Bitcoin is a currency that relies on Blockchain technology to be secure.

Blockchain is an emerging technology with many advantages in an increasingly digital world.

  • Highly Secure
    It uses a digital signature to execute fraud-free transactions, making it impossible to corrupt or change a user's data without a signature.
  • Decentralized
    With Blockchain, transactions are done with user consensus, resulting in smoother, safer, and faster transactions.
  • Automated
    When the trigger criteria are met, it can automatically produce actions, events, and payments.

What Is the Process of Blockchain Technology?

Many firms around the world have been incorporating Blockchain technology in recent years. But how does Blockchain technology actually work? Is this a substantial modification or a little addition? Blockchain innovations are still in its infancy and have the potential to be revolutionary in the future; so, let us begin demystifying this technology.

  • Blockchain is a hybrid of three key technologies:
  • Keys for cryptography
  • A peer-to-peer network with a shared ledger.
  • A computer method for storing network transactions and records.

Cryptography keys are made up of two keys: private and public. These keys aid in the completion of successful transactions between two parties. Each person possesses these two keys, which they use to generate a secure digital identification reference. The most significant component of Blockchain technology is its secure identity. This identification is known as a 'digital signature' in the realm of bitcoin and is used for authorising and managing transactions.

The digital signature is integrated into the peer-to-peer network; a large number of individuals acting as authorities utilise the digital signature to obtain agreement on transactions and other matters. When they approve a transaction, it is validated mathematically, resulting in a successful secured transaction between the two network-connected parties. To summarise, Blockchain users use cryptography keys to accomplish various forms of digital exchanges over the peer-to-peer network.

Different blockchains

Four blockchain categories exist. Names:

Private Blockchain

Private blockchains are best for private enterprises and organisations. Private blockchains allow companies to customise access, permissions, network characteristics, and other security measures. One authority manages a private blockchain network.

Public Blockchain

Bitcoin and other cryptocurrencies sprang from public blockchains, which helped spread DLT (DLT). Public blockchains eliminate security flaws and centralization. DLT distributes data throughout a peer-to-peer network instead of storing it centrally. Proof of stake (PoS) and proof of work (PoW) are two consensus methodologies.

Permissions-based blockchain

Permissioned blockchain networks, often called hybrid blockchains, only allow approved users access. Organizations set created these blockchains to take use of the best of both worlds and to better structure who can join the network and in what transactions.

Consortiums Blockchain

Consortium blockchains have both public and private components, but many companies operate a single network. Once set up, these blockchains can give greater security. Consortium blockchains are suited for multi-company collaboration.


Blockchain technology confirms and authorises transactions. If two people want to make a transaction with a private and public key, the first party attaches the transaction information to the second party's public key. This information is blocked.

The block contains a digital signature, timestamp, and other information. The block doesn't include transaction participants' IDs. When the proper person uses his private key and matches it with the block, the transaction is completed.

Blockchain can also store property, vehicle, etc. transactional details.

Here's a Blockchain example,

Blockchain technology uses hashing and encryption to secure data, namely the SHA256 algorithm. SHA256 transmits the sender's (public key), receiver's, transaction, and private key data. After verification, the hash-encrypted information is posted to the blockchain. SHA256 makes hash encryption nearly impossible to attack, simplifying sender and receiver authentication.

  • Documentation
  • Blockchain blocks have 4 headers.
  • Preceding Hash: Finds the previous block.
  • Details: Transaction details.
  • Nonce: A cryptographic number used to differentiate the block's hash address.

Block Hash

Preceding hash, transaction data, and nonce are all hashed. This produces a 256-bit, 64-character 'hash address' It's called the block's hash.

Using computing algorithms, many people throughout the world try to find the proper hash value. When the condition is met, the transaction completes. Blockchain miners solve a proof-of-work mathematical puzzle. Winner gets a prize.


Mining is the process of adding transactional details to the current digital/public ledger in Blockchain technology. Though it is connected with Bitcoin, the phrase is also used to apply to other Blockchain technologies. Mining entails generating a difficult-to-forge hash of a block transaction, hence assuring the security of the entire Blockchain without the need for a central system.

Blockchain's history

Satoshi Nakamoto introduced blockchains in 2008 under an alias. Nakamoto used a Hash cash-like approach to improve the design. It became a key component of bitcoin, a prominent cryptocurrency, where it records all network transactions. Bitcoin blockchain files, which store all network transactions and information, grew significantly. By August 2014, it was 20 gigabytes and 200 by early 2020.

The Blockchain Has Both Advantages and Drawbacks Just like any other type of technology, the blockchain has both benefits and drawbacks that should be taken into consideration.


The high level of security that can be provided by blockchains is one of the most significant benefits they offer. Because of this, blockchains are able to protect and secure sensitive data that is involved in online transactions. Anyone interested in transactions that are both quick and convenient will find that blockchain technology provides this as well. In point of fact, the total time required is only a few minutes, although the completion of other transaction methods can take several days. In addition, there is no intervention from any other parties, such as monetary establishments or government agencies, which is something that many users see to be an advantage.


It has been stated that there have been issues with private keys, which is problematic given that blockchain and cryptography both necessitate the use of public and private keys. If a user misplaces their private key, they are going to run into a lot of problems, which is one of the disadvantages of using blockchains. Another drawback is the constraints on scalability, as there is a cap on the number of transactions that can take place on each node. As a result of this, it is possible that completing many transactions and other chores will take several hours. Another key drawback of blockchain technology is that after information has been recorded, it can be challenging to make changes to it or add new information.

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