What is Blockchain? And How it works?

In the past ten years, cryptocurrencies such as Bitcoin have garnered immense popularity and media attention. And if you have been following that, you may have heard about blockchain – the new technology poised to change the IT world.

What is Blockchain?

As the name denotes, a blockchain is a chain of blocks that contain information. This technique was originally explained in 1991 by a group of researchers. The main idea was to timestamp the digital documents to make backdating and tampering impossible. However, the concept was mostly unused until 2008 when Satoshi Nakamoto adopted the blockchain technology to create the first cryptocurrency, Bitcoin.

What is Blockchain Technology?

Blockchain is based on peer-to-peer (P2P) topology, which is a distributed ledger technology (DLT). It allows data from all over the world to be stored on thousands of servers. Additionally, it allows users on the network to see each other’s entries in real-time. Consequently, making it difficult for one user to have control and ownership of the network.

To understand blockchain technology, a simple analogy would be of Google Docs. The document created on Google Doc is shared with a group of people, instead of copied and transferred. This helps in the creation of a decentralized distribution chain. Further, allows access to the document to everyone at the same time.

No one waits for the other person to make changes, as all modifications to the document are recorded in real-time, keeping all the changes transparent.

Of course, blockchain is more complex than a Google Doc, but the analogy is apt because it demonstrates three main ideas of the technology:

Blockchain Explained: Quick Overview

  1. All the digital assets are distributed instead of copied or transferred.
  2. It allows real-time access because the asset is decentralized.
  3. Ledger ensures transparency when changes are done, thereby preserving the integrity of the document, and making assets trustable.

How Blockchain Works

Now we understand what blockchain technology is, the next thing is to answer the question “how does blockchain work?” In simpler terms, it is like a time-stamped record of data series, managed by computers, and has no ownership of a single entity, or individual, or enterprise. “Blocks” of data use cryptographic principles to bound with each other, forming the eponymous “chain”.

Blockchain public ledgers do not require an administrator because it is managed autonomously by all the users. Additionally, it exchanges data among the connected groups of parties in peer-to-peer networks. Whereas private blockchain allows an enterprise to both builds and administers transactional networks to be shared with partners both internally and externally from one company to another.

Step by Step Process

Whether blockchain is used for financial transactions or product tracking, it goes through the same steps. Any blockchain can be explained in four basic steps:

  1. Each transaction is recorded containing specific details of the people making the transactions. And, a digital signature is used for each to authenticate the transaction.
  2. Each transaction goes through a verification process that is done by the computers connected to the networks. The purpose is to ensure that the transaction is legitimate. Every node in the network requires an agreement before the process is completed because of its decentralized nature.
  3. Each “block” is unique and contains a code known as a hash value, that uniquely identifies the block and positions it within the blockchain. The hash is also responsible for ensuring that the data is legitimate and has not been modified since it was recorded.
  4. Each block is added to the end of the blockchain once the verification is complete and is followed by another block within a few minutes.

Source: Edureka


Blockchain technology has many practical applications that have been explored and implemented. Companies like IBM, Walmart, Siemens, and many more have already started to incorporate it in their business. It is a buzzword that is on the tongue of every investor because it has the power to make governments and business operations more efficient, accurate, cost-effective, and secure.

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