Blockchain: What is it, How It Works, and how it can be used
Blockchain is a distributed digital ledger technology that securely, transparently, and impenetrably records transactions. A blockchain functions via a network of computers that cooperate to verify and preserve data, as opposed to depending on a central authority (such as a bank or government).
What Blockchain Is
At its core, blockchain is:
A Chain of Blocks
- A series of transactions or data is contained in each block.
- Cryptographic hashes are used to connect blocks and create a chronological chain.
Decentralized
- The database is not controlled by one entity.
- The ledger is replicated on thousands of computers (nodes) around the globe.
Immutable
- Data is difficult to alter once it has been captured.
- On big blockchains, it would be almost impossible to change one block without also rewriting every subsequent block.
How Blockchain Works
1. A transaction is started
Data is sent, usually in the form of a cryptocurrency transaction (like Bitcoin).
2. A network receives the transaction broadcast.
The transaction is received and validated by nodes, or computers.
3. The transaction has been confirmed.
Nodes check:
- Is the digital signature legitimate?
- Is the sender balanced enough?
4. Verified transactions are grouped into a block
A block consists of:
- Transactions that were verified
- Time stamp
- A hash in cryptography
- The previous block’s hash
5. The block is verified via a consensus process
Algorithms are used by networks to determine the ledger’s current state:
- Proof of Work (PoW) — solving complex puzzles (Bitcoin)
- Proof of Stake (PoS) — validators stake coins (Ethereum after 2022)
6. The block is added to the chain
All nodes permanently store it after it is accepted.
7. Everywhere, the ledger is updated
Every copy of the blockchain is automatically updated, maintaining synchronization.
Blockchain Types
Public
Anyone can access it (Ethereum, Bitcoin)
Private
Organizations in charge (Hyperledger Fabric)
Consortium
Controlled by multiple organizations
Why Blockchain Is Secure
Blockchain uses:
• Cryptography (digital signatures plus hashing)
• Data held over multiple nodes is known as distributed storage.
• Mechanisms of consensus (agreement rules)
When combined, these make tampering very challenging.
Blockchain Uses Outside of Cryptocurrency
• Tracking the supply chain (such as food traceability)
• Ethereum smart contracts
• Systems of voting
• Digital identity
• DeFi, or decentralized finance
• Digital ownership, or NFTs
Blockchain vs Banks
Blockchain
- Decentralized: no central authority
- Faster, frequently less expensive, and available around-the-clock
- Open and transparent public ledger
- Transactions are irreversible.
- If you have your keys, you are in charge of your own assets.
Banks
- Centralized: under the authority of financial institutions and governments
- Expensive and slow international transfers
- Not transparent, but private
- Reversing transactions is possible.
- Bank controls your account
How Blockchain Can Be Used
• Payments with digital currency (Bitcoin, quick transfers)
• Automated smart contracts
• Tracking the food, product, and medication supply chains
• Digital identification and secure data sharing
• DeFi (bank-free lending and borrowing)
• NFTs for digital ownership
• Voting systems for secure, tamper-proof elections
In summary, blockchain contributes to the security, transparency, and decentralization of data and transactions.
