What is blockchain? How does it work?

What is blockchain

Do you know what blockchain is and how it works? If not, then stick to this write-up till the end, and you will be able to gather a piece of brief information about it.


Blockchain is a kind of DLT that stands for distributed ledger technology that consists of a growing list of called books and records linked securely together with the usage of cryptography. Every block consists of a cryptographic hash, a timestamp, and transaction data. In simple words, its like accessible or shared database that helps to make transactions visible to all shareholders. Although, the development of the blockchain technology is in developmental stage. But it is expected that sectors that involve to many stakeholders or third parties will be benefitted. These sectors would include manufacturing, logistics, agriculture and others. Since, it is in developmental stage, we cannot predict its future and application in the industries. However, it will promote transparency and will speed up business transactions and functions. Investments in  such technologies have also increased owing to its expectation, this technical advancement can solve many business issues.


Do you know what the timestamp proves? It proves that when the block was created then the transaction data existed. As every block consists of pieces of information from the previous block, it forms a chain effectively. Once you record the blockchain transactions, the data cannot be altered in any given block without altering all subsequent blocks because it is irreversible.

Blockchain is a publicly distributed ledger managed by a peer-to-peer computer network. Blockchain forks are possible, so the blockchain cannot be regarded as unalterable. These can be considered secure by design system that has high Byzantine fault tolerance.

What is blockchain? How does it work?


Blockchain was created in 2008 by a person (or maybe a group of people) named Satoshi Nakamoto. It was made for bitcoin cryptocurrency transactions and served as a publicly distributed ledger. Blockchain is the first digital currency that was implemented within bitcoin. The implementation of blockchain has been solving the double spending problem and the best thing about this is, there’s no need for a central server or a trusted authority. Blockchain is also considered a payment rail that has inspired other applications.

For the use of business, private blockchains are introduced but there has always been a debate over the point of having an unsecured model of privatized and permissioned blockchains. Permission blockchains might be relatively more decentralized if they are carefully designed.

History of Blockchain

Are you aware of the history of blockchain? If not, then in this part of the write-up, you will be able to gather a piece of brief information regarding the same.

David Chaum (a cryptographer) proposed a protocol similar to blockchain in his dissertation “Computer Systems Established, Maintained, and Trusted by Mutually Suspicious Groups.” It was first proposed in the year 1982. Later in 1991, W.Scott Stornetta and Stuart Haber described a cryptographically secured chain. A system wherein the document timestamps can’t be tampered with, was something that these two wanted to implement.

Also ReadWhat is Blockchain? Will it change the future of money?

Then in 1992, Dave Bayer, Haber, and Stornetta incorporated something into the design, Merkle trees. It improved efficiency by allowing numerous certificates to be collected into one block. Since 1995, in the New York Times, the document certificate hashes have been published weekly under their company surety.

In 2008, the conceptualization of the first decentralized blockchain was done by a group of people or a person known as Satoshi Nakamoto. A Hashcash-like method was used to timestamp blocks, which improved the whole design. Later, in the year 2014’s August, the bitcoin blockchain file size, reached 20 GB. After that, in 2015’s January the size went up to approximately 30 GB. From the year 2016’s January to January 2017, the bitcoin blockchain went up from 50 GB to 100 GB in size. Whereas in the year 2020, the size of the ledgers exceeded 200 GB.

In the paper of Satoshi Nakamoto, published in 2008, the name of blockchain was written in two separate words: block and chain. But later on, in 2016, it was popularised as blockchain. As per the reports, it was found that in the year 2019, approximately 5% of CIOs had a belief that the technology of blockchain is a kind of ‘game-changer’ for their businesses.


What is the structure and design of a blockchain?

A blockchain consists of several layers: infrastructure, networking, consensus, data, and application. It is generally, distributed, decentralized and public. This kind of digital ledger consists of records usually known as blocks. These blocks are used for recording transactions across several computers. For the autonomous management of the blockchain database, distributed timestamping server and peer-to-peer network is used. Blockchain is also described as a value-exchange protocol that can also maintain title rights.

Blocks: Do you know what holds the valid transactions? The blocks hold them, and later those are encoded and hashed into a Merkle tree. The cryptographic hash of the previous block in the chain is included in every block and it links the two blocks to each other.

Block time: The average time taken by the block in the blockchain to generate a network is known as block time.

Hard forks: It is a kind of rule. The software that validates as per the old rules will notice the blocks produced as per the new rules as invalid.

Decentralization: If you store the data across its peer-to-peer network, you might see that the blockchain will eliminate numerous risks if data were held centrally.

Openness: If you have been looking for user-friendly blockchains, open blockchains would be a better option than traditional ownership records.

Public blockchain: These are also regarded as permissionless blockchains. The advantage of such blockchains is that there’s no need for access control, and there’s no requirement to guard against bad actors.

Private blockchain: Private blockchains are commonly known as permission blockchains. Private blockchains usually use an access control layer to govern who has access to a particular network.

Standardization: In 2016, a proposal for the standardization of blockchain technology was submitted by Standards Australia to the International organization for standardization. Because of this proposal, ISO Technical Committee 307 was created. Almost fifty countries have taken part in the standardization process.

Centralized blockchain: Mostly, you can find distributed and decentralized blockchains, but Oracle launched a centralized blockchain. Centralized blockchain can provide you with lower latency and higher throughput of transactions.

What are the different types of blockchains?

If you are searching for different types of blockchains, then you might find four different types of blockchain networks. A public blockchain, Sidechains, Private blockchain, and Hybrid blockchain are the different types of blockchains. So, let us know about these in brief.

Public blockchains: Public blockchains are commonly known as permissionless blockchains. Anyone can access a public blockchain because there’s no restriction against it. So, if you have an internet connection, you can also send transactions. Some of the most popular and common public blockchains are the Ethereum blockchain and the bitcoin blockchain.

Private blockchains: Private blockchain, commonly known as permission blockchain. Until the network administrators don’t invite you, till then you can’t join it, validator and participant access is restricted, which makes it opposite to the public blockchains. DLT, a distributed ledger, is used for permission/ private blockchains.

Hybrid blockchain: As the name says, it combines the blockchain network, which means you can find a combination of decentralized and centralized features. In such blockchains, the exact working might vary, depending on the usage of decentralization and centralization.

Sidechains: It is a kind of designation for a blockchain ledger.

How does the blockchain work?

Blockchains are known as Distributed ledger technology (DLT) because it is a kind of foundation for records immutable ledgers.

It is a kind of digital database composed of encrypted data blocks. These encrypted blocks of data are usually chained” together, and it is secured through complex math problems. The math problem that involves hashes and matching nonces are later quite impossible to change. The blockchain’s previous record of actions is highly secure and accurate from manipulation. There is an identical distribution of blockchain across various decentralized nodes, which tries to ensure that no organization can manipulate or own it.

The transaction process consists of six steps and begins with the entry of a new transaction. Then the next step is when the transaction is transmitted to a peer-to-peer network. After this, the network of computers tries to solve an equation to confirm the transaction’s validity. They are clustered into blocks when it is confirmed to be a legitimate transaction. Then the blocks are chained together, creating a long history of permanent transactions, which completes the transaction later in the final step.

Use of blockchain

If you have yet to understand the usage of blockchain, then here, in this part of the write-up, you will be able to seek all the essential pieces of information related to it.

Blockchain is such a technology that can be integrated into multiple areas. You can trace the usage of blockchains in the areas of cryptocurrencies, financial services, smart contracts, games, domain names, supply chains, and at many other places. Now let us discuss this in brief.

Cryptocurrencies: Blockchain technology is majorly used in most cryptocurrencies for recording transactions. Some examples of this are the Ethereum network and the bitcoin network.

Smart contracts: These proposed contracts can be fully or partially enforced or executed without human interaction. In smart contracts, there is no requirement for any trusted third party because the blockchain network does everything on its own (executes the contract). Its main objective is automated escrow.

Financial services: Several banks are interested in implementing distributed ledgers in banking uses.

Games: With the changes in time, we can see many changes in the gaming world. Several blockchain technologies are used for monetization in video games. Cryptokitties was one of the first games that used blockchain technology in 2017.

Domain names: Via blockchain, there are various ways to offer domain name services. These are usually controlled by using a private key that allows uncensorable websites.

Supply chain: Blockchain is widely used in the supply chain in various ways. You can find its usage in the shipping, precious commodities mining, food supply, and fashion industries.

Other uses: Blockchain technology can create a public, permanent, transparent ledger system. It can be used for tracking digital payments, detecting counterfeits, compiling sales data, and much more.

Per the data of 2019, it was found that in blockchain technology, approximately $2.9 billion were invested. The International Data Corp estimates that in blockchain technology, corporate investment in 2022 will reach approximately $12.4 billion.

What is blockchain? How does it work?

Benefits of blockchain

Blockchain has several benefits in several arenas, but the best it could serve is the businesses.

Helps in saving time: Earlier, when we lacked blockchain technology, things used to be possible, but they were pretty slow. Not anymore, because with blockchain technology, you can save a lot of time. The transactions that took a few days are now done in a few minutes.

Secured: The features of blockchain allow tighter security against tampering, cybercrime, and fraud.

Reduced cost: Blockchain has been very helpful in cutting down the cost as it creates efficiencies in the processing of transactions, and not only this, but it can also reduce manual tasks.

Transparency: You can enjoy a more transparent history with the help of blockchain. All information related to a currency exchange can be made available to everyone.

Other benefits: The other benefits of using blockchain technology are traceability, efficiency, auditability, and many others.


Blockchain technology is growing day by day, and it is not wrong to say that blockchain technology has a great future ahead. From 1991 till date, a drastic change has been observed in the usage of blockchain technology. It is also estimated that by 2030, blockchain technology might generate an annual business of approximately $3 trillion.

This write-up was helpful for you in gathering detailed knowledge on what blockchain is, how it works, its usage, structure, types, and benefits.

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