What Is Blockchain, How It Works And How It Can Be Utilized

Table of Contents

The Blockchain Explained

A blockchain is a shared distributed database or ledger between computer network nodes. A blockchain serves as an electronic database for storing data in digital form. The most well-known use of blockchain technology is for preserving a secure and decentralized record of transactions in cryptocurrency systems like Bitcoin. The innovation of a blockchain is that it fosters confidence without the necessity for a reliable third party by ensuring the fidelity and security of a record of data.

The way the data is organized in a blockchain differs significantly from how it is typically organized. In a blockchain, data is gathered in groups called blocks, which each includes sets of data. Blocks have specific storage capabilities, and when filled, they are sealed and connected to the block that came before them to create the data chain known as the blockchain. Every additional piece of information that comes after that newly added block is combined into a brand-new block, which is then added to the chain once it is full.

A blockchain, as its name suggests, arranges its data into pieces (blocks) that are strung together, whereas a database typically organizes its data into tables. When used in a decentralized way, this data structure creates an irreversible chronology of data by design. When a block is completed, it is irrevocably sealed and added to the timeline. When a block is added to the chain, it receives a precise timestamp.

The Function of a Blockchain

Blockchain aims to make it possible to share and record digital information without editing it. In this way, a blockchain is a foundation for immutable ledgers, or records of transactions that cannot be edited, deleted, or destroyed. Blockchains are also referred to as distributed ledger technologies because of this (DLT).

The blockchain idea was first put forth as a research project in 1991, long before Bitcoin became a widely used application in 2009. Since then, the introduction of numerous cryptocurrencies, decentralized finance (DeFi) applications, non-fungible tokens (NFTs), and smart contracts has led to explosive growth in the use of blockchains.

Decentralization of the blockchain

Consider a business with a server farm of 10,000 machines that it uses to keep a database with all of its clients’ account information. All of these computers are located in a warehouse that belongs to this corporation, and it has complete authority over each of them as well as the data they hold. But this creates a single point of failure. What would happen if the electricity at that place failed? What if the computer’s Internet connection is lost? What if it completely burns down? What happens if a malicious person deletes everything with a single keypress? The information is either missing or damaged.

What a blockchain does is enable the distribution of the data stored in that database across multiple network nodes located in different places. This not only adds redundancy but also preserves the accuracy of the data stored there; for example, if someone tries to change a record at one database instance, the other nodes won’t be changed, preventing a bad actor from doing so. All other nodes would cross-reference one another and be able to quickly identify the individual who tampered with Bitcoin’s transaction history. This approach aids in creating a clear and precise sequence of events. This prevents any one node in the network from changing the data it contains.

As a result, the data and history (such as those of cryptocurrency transactions) are irreversible. A blockchain may store a variety of data, including legal contracts, state identifications, or a company’s goods inventory. Such a record may be a list of transactions (such as with a cryptocurrency).


Due to the decentralized structure of the Bitcoin blockchain, all transactions may be transparently observed by utilizing blockchain explorers, which enable anybody to examine transactions as they happen in real-time, or by owning a personal node. As new blocks are added and confirmed, each node’s copy of the chain is updated. This implies that you might follow Bitcoin wherever it went if you so desired.

As an illustration, exchanges have previously been hacked, and anyone who had Bitcoin stored there lost everything. The stolen Bitcoins are clearly identifiable, despite the hacker’s complete anonymity. It would be known if any of the Bitcoins taken in some of these hacks were transferred or used elsewhere.

Naturally, the data kept on the Bitcoin blockchain (as well as the majority of others) is encrypted. This implies that only the record’s owner will be able to decode the file and expose their identity (using a public-private key pair). As a result, blockchain users can maintain their anonymity while maintaining transparency.

Is Blockchain Safe?

Decentralized security and trust are made possible by blockchain technology in a number of ways. To start, new blocks are always chronologically and linearly stored. In other words, they are constantly added to the blockchain’s “end.” It is very difficult to go back and change the contents of a block once it has been added to the blockchain unless a majority of the network has agreed to do so. This is due to the fact that each block has its own hash, as well as the hash of the block that came before it and the aforementioned date. A mathematical function that converts digital information into a string of numbers and letters produces hash codes. The hash code also changes if that data is altered in any way.

Imagine a hacker who also manages a node on a blockchain network wants to change a blockchain and take everyone else’s cryptocurrency. If they changed their own copy, it wouldn’t match the copies made by everyone else. When everyone compares their copies to one another, they will notice that this one copy stands out, and the hacker’s version of the chain will be rejected as fraudulent.

For such a hack to be successful, the hacker would need to simultaneously control and change at least 51% of the blockchain copies, making their new copy the majority copy and, thus, the agreed-upon chain. The requirement to rewrite every block because their timestamps and hash codes had changed would make such an attack extremely expensive and resource-intensive.

The expense of pulling off such a feat would probably be impossible due to the size of many cryptocurrency networks and how quickly they are developing. Not only would this be very expensive, but it would probably be useless. As network participants would observe such significant changes to the blockchain, doing such a thing would not go unnoticed. The network’s users would then abruptly switch to an unaffected version of the chain. As a result, the token version that was attacked would lose value, rendering the attack ultimately useless because the malicious party would then be in control of a worthless asset. The same thing would happen if the malicious party targeted Bitcoin’s most recent fork. As a result, participating in the network is much more economically advantageous than assaulting it.

Blockchains: How Are They Used?

As we now understand, blocks on the blockchain of Bitcoin store information about monetary transactions. More than 10,000 additional cryptocurrency systems are currently active on the blockchain. However, it transpires that using a blockchain to store information about other kinds of transactions is also a secure method.

Walmart, Pfizer, AIG, Siemens, Unilever, and numerous more businesses are just a few that have already adopted blockchain technology. For instance, IBM developed the Food Trust blockchain to track food goods’ routes to their destinations.

Why do this? The food sector has had numerous E. coli, salmonella, and listeria outbreaks as well as the unintentional contamination of goods with dangerous substances. Finding the origin of these outbreaks or the illness that results from what people consume has in the past taken weeks. Brands may follow a food product’s journey using blockchain, from its origin through each stage along the way to its delivery. Food contamination can be traced back through all of the stops until it reaches its original location. Additionally, because these businesses can now see everything else they may have come into contact with, problems can be identified far earlier, potentially saving lives. Although there are other ways to implement blockchain, this is only one example.

Finance and Banking

Banking is one sector that might stand to gain the most from incorporating blockchain into its corporate operations. Financial institutions are only open during regular business hours, which are typically five days per week. As a result, if you attempt to deposit a check on Friday at 6 p.m., you probably won’t see the funds in your account until Monday morning. Due to the enormous volume of transactions that banks must settle, even if you do make your deposit within business hours, it may still take one to three days for the transaction to be verified. Blockchain, however, is always active.

Customers may expect their transactions to be processed by banks using blockchain in as little as 10 minutes—basically the time it takes to add a block to the blockchain, regardless of the day of the week or holidays. Banks now have the ability to securely and swiftly transfer money between organizations thanks to blockchain technology. For instance, in the stock trading industry, the settlement and clearing process may take up to three days (or longer, if trading is done worldwide), during which time the money and shares are frozen.

Given the scale of the amounts involved, even a small period of time during which the money is in transit can be extremely expensive and risky for banks.


For cryptocurrencies like Bitcoin, blockchain serves as the foundation. The Federal Reserve is in charge of the US dollar. A user’s data and money are technically subject to the whims of their bank or government under this system of central power. The private information of a client is in danger if their bank is hacked. The value of the client’s money may be in jeopardy if their bank fails or if they reside in a nation with a volatile government. A number of failing banks were partially bailed out in 2008 with taxpayer funds. These are the concerns that led to the initial conception and development of Bitcoin.

The blockchain enables Bitcoin and other cryptocurrencies to function as decentralized by dispersing their activities across a network of computers. In addition to lowering risk, this also does away with many processing and transaction fees. Additionally, it can provide people in nations with weak financial systems or currencies with a more stable currency that has a wider range of uses and a larger network of contacts with whom they can do business both locally and abroad.

For those without state identity, using cryptocurrency wallets as savings accounts or payment methods has a particularly significant impact. Some nations can be in a state of civil conflict or have weak administrations with no meaningful infrastructure for issuing identity. These nations’ citizens might not have access to savings or brokerage accounts, leaving them without a secure place to keep their money.

Healthcare Systems

Healthcare providers can use blockchain to safely preserve the medical records of their patients. The ability to write a medical record onto the blockchain once it has been created and signed gives patients the assurance that the record cannot be altered. These sensitive health records might be encrypted and kept on the blockchain with a secret key so that only specific people can access them, maintaining their privacy.

Property Documents

If you’ve ever spent time in your local recorder’s office, you are aware of how time-consuming and ineffective the process of documenting property rights is. A tangible deed must now be handed to a government worker at the county recording office, where it will be manually put into the public index and central database. Claims to the property that are in dispute must be compared to the public index.

This method is not only expensive and time-consuming, but it is also prone to human mistakes, where each error reduces the effectiveness of tracking property ownership. Blockchain might do away with the requirement to scan documents and locate actual files in a nearby recording office. Owners can have confidence that their deed is correct and permanently recorded if property ownership information is kept and verified on the blockchain.

It can be very difficult to establish ownership of a property in war-torn nations or regions with little to no financial or governmental infrastructure. It is especially difficult in places without a Recorder’s Office. A group of locals might be able to build transparent and unambiguous timelines of property ownership if they were able to use blockchain.

Smart Contracts Utilization

A contract agreement can be facilitated, verified, or negotiated using a smart contract, which is computer code that can be stored in the blockchain. Users accept a set of terms under which smart contracts operate. The terms of the Agreement shall automatically be carried out upon the satisfaction of such requirements.

Let’s take the example of a prospective tenant who wants to rent an apartment through a smart contract. When the tenant pays the security deposit, the landlord agrees to give the tenant the apartment’s door code. The smart contract would receive payments from both the renter and the landlord, keep them, and then automatically exchange the door code for the security deposit on the start date of the lease. The smart contract returns the security deposit if the landlord does not provide the door code by the start of the lease. This would do away with the costs and procedures usually related to using a notary, a third-party mediator, or lawyers.

Worldwide Supply Chains

Suppliers can utilize the blockchain to track the sources of the materials they have purchased, similar to the IBM Food Trust example. This would enable businesses to confirm the legitimacy of both their own products and well-known labels like “Organic,” “Local,” and “Fair Trade.”

According to Forbes, the food sector is utilizing blockchain technology more and more to track the whereabouts and safety of food as it travels from the farm to the consumer.

Voting Mechanism

As indicated above, blockchain might be utilized to support a modern voting system. As demonstrated in the West Virginia midterm elections in November 2018, voting using blockchain technology has the ability to end election fraud and increase voter turnout.

With the use of blockchain, tampering with votes would be next to impossible. The blockchain protocol will also uphold electoral openness while lowering the number of people required to carry out an election and giving officials access to results almost immediately. As a result, there would be no need for recounts and no legitimate reason to be concerned that election fraud would occur.

Blockchain’s benefits and drawbacks

Despite its intricacy, blockchain has virtually limitless potential as a decentralized method of record-keeping. Blockchain technology may very possibly find applications beyond those mentioned above, ranging from improved user privacy and security to reduced processing costs and fewer mistakes. But there are some drawbacks as well.


  • Improve accuracy by eliminating human involvement in verification.
  • Cost savings by avoiding third-party verification.
  • Decentralization makes manipulation more difficult.
  • Transactions are private, secure, and quick.
  • Open source technology
  • Offers residents of nations with unstable or underdeveloped governments an alternative to traditional banking services as well as a way to protect their personal data.


  • High technology costs involved with bitcoin mining.
  • Slow transaction rates.
  • Used in illegal operations, such as on the dark web.
  • Regulation is inconsistent and varies by jurisdiction.
  • Storage space restrictions.

Blockchain Advantages


A network of thousands of computers on the blockchain network verifies the accuracy of chain transactions. As a result, practically all human involvement in the verification process is eliminated, which reduces human error and ensures that the information is recorded accurately. Even if one of the computers in the network were to make a computational error, only one copy of the blockchain would be affected. It would take at least 51% of the network’s computers making that mistake for it to spread to the rest of the blockchain, which is nearly impossible for a network as big and expanding as Bitcoin’s.

Reduced Costs

Consumers typically pay a bank to confirm a transaction, a notary to sign a document, or a preacher to officiate a wedding. Third-party verification is no longer required, and with it, its accompanying costs. For instance, minor fees are charged to business owners who accept credit card payments since banks and payment processors must handle those transactions. Contrarily, Bitcoin lacks a central authority and has a small number of transaction fees.


Blockchain doesn’t save any of its data in a single place. Instead, a network of computers copies and disseminates the blockchain. Whenever a new block is uploaded to the blockchain, every computer in the network updates its blockchain to reflect the change. Blockchain makes it more challenging for someone to tamper with by dispersing that information over a network as opposed to keeping it in a single central database. In the event that a hacker obtained a copy of the blockchain, just one instance of the data would be at risk rather than the entire network.

Fast Transactions

The settlement of transactions made through a centralized authority may take many days. For instance, if you try to deposit a check on Friday night, you could not actually see any money in your account until Monday morning. Blockchain is active around-the-clock, seven days a week, 365 days a year, unlike financial institutions, which only operate during regular business hours, often five days a week. In just a few hours, transactions can be finished and deemed secure. Transactions can be finished in as little as ten minutes. Cross-border trades, which typically take substantially longer due to time zone concerns and the requirement that all parties confirm payment processing, can benefit especially from this.

Discreet Dealings

Many blockchain networks function as open databases, making the network’s transaction history available to anybody with an Internet connection. Users can see transaction data, but they cannot access information that would identify the users who made the transactions. Although it is a popular misconception, blockchain networks like bitcoin are just confidential; they are not anonymous.

A user’s specific code, known as a public key, which was described earlier, is saved on the blockchain whenever they conduct a public transaction. Not their private information. A transaction, even when linked to a person’s name, does not divulge any personal information. However, if a person has made a Bitcoin purchase on an exchange that requires verification, then the person’s identity is still linked to their blockchain address.

Safe Transacting

A transaction’s authenticity must be confirmed by the blockchain network after it is recorded. On the blockchain, thousands of computers scramble to verify that the transaction’s data are accurate. The transaction is added to the blockchain block once it has been verified by a machine. On the blockchain, each block has both its own distinct hash and the distinct hash of the block that came before it. The hash code of a block changes whenever the information on that block is altered in any manner, while the hash code of the block that comes after it does not. It is very challenging to modify information on the blockchain without notice due to this mismatch.


The majority of blockchains use only open-source code. Its code can therefore be viewed by anybody and everyone. This enables auditors to assess the security of cryptocurrencies like Bitcoin. This also implies that there is no actual control over who edits the code for Bitcoin or how it is controlled. As a result, anyone can recommend making improvements to the system. Bitcoin can be upgraded if the new version of the code with the upgrade is deemed to be sound and worthwhile by the majority of network users.

Finance for the Unbanked

The fact that everyone may utilize blockchain and bitcoin, regardless of racial origin, gender, or cultural background, is arguably their most significant feature. The World Bank estimates that 1.7 billion adults do not have bank accounts or any other way to keep their money or assets safe.

Most of these people reside in developing nations, where the economy is still in its infancy and totally reliant on foreign exchange.

These workers frequently receive physical cash payments in the form of small salaries. They must then conceal this actual currency in their homes or other living spaces, putting them at risk of robbery or needless violence. The password for a bitcoin wallet can be written down, kept on a cheap phone, or even memorized if necessary. These methods are probably easier for the majority of individuals to conceal than a tiny amount of cash under their mattresses.

Future blockchains are also searching for ways to store medical information, property rights, and a number of other legal contracts in addition to serving as a unit of account for wealth storage.

Blockchain Drawbacks

Costly Technologies

Blockchain technology is not free, despite the fact that it can help consumers save money on transaction costs. For instance, the PoW mechanism used by the bitcoin network to validate transactions demands a tremendous amount of processing power. The annual power consumption of Norway and Ukraine is comparable to that of the millions of machines on the bitcoin network in the real world.

Users continue to run up their electricity bills to verify transactions on the blockchain despite the costs associated with mining bitcoin. This is due to the fact that miners are compensated with enough bitcoin for their time and effort when they add a block to the bitcoin blockchain. To validate transactions on blockchains that do not use cryptocurrencies, however, miners will need to be paid or given some other incentive.

These problems are starting to have some solutions emerging. For instance, farms for bitcoin mining have been built using solar energy, extra natural gas from fracking operations, or electricity from wind farms.

Inefficiency of Data and speed

The potential shortcomings of blockchain may be studied perfectly using the example of Bitcoin. A new block can be added to the network in around 10 minutes using Bitcoin’s Proof of Work (PoW) method.

The blockchain network can only handle roughly seven transactions per second (TPS), according to estimates. Even while Ethereum outperforms bitcoin in terms of performance, blockchain still has limitations. For perspective, Visa’s legacy brand can process 65,000 TPS.

For years, people have been working on solutions to this problem. There are blockchains with more than 30,000 TPS at the moment.

After rolling out an upgrade that incorporates sharding—a division of the database so that more devices (phones, tablets, and laptops) can run Ethereum—up to 100,000 TPS is anticipated to be possible after Ethereum’s main net and beacon chain join (Sept. 15, 2022). As a result, network membership will rise, traffic will be relieved, and transaction speeds will increase.

The capacity of each block to hold data is the other problem. One of the most important concerns regarding the future scalability of blockchains has been and remains the block size controversy.

Unlawful Activities

While secrecy on the blockchain network safeguards users’ privacy and prevents hacks, it also enables illicit activities and trades on the network. The Silk Road, an online dark web illegal drug and money laundering bazaar operating from February 2011 until October 2013, when it was shut down by the FBI, is likely the most frequently cited example of blockchain being used for criminal transactions.

Using the Tor Browser and the dark web, users can purchase illicit things in Bitcoin or other cryptocurrencies and sell them without being seen. Financial service providers are required by current U.S. rules to collect information about their clients when they open an account, validate each client’s identity, and ensure that they do not appear on any lists of known or suspected terrorist organizations.

This approach has both benefits and drawbacks. Anyone can access financial accounts, but it also makes it simpler for thieves to conduct transactions. Many have claimed that the positive uses of cryptocurrencies, such as banking the unbanked globe, outweigh the negative uses, particularly as the majority of unlawful conduct is still carried out using untraceable cash.

Even though it was initially used for these things, Bitcoin’s openness and development as a financial asset have actually caused illegal activity to move to other cryptocurrencies like Monero and Dash.

Only a very small percentage of all Bitcoin transactions now are related to illicit behavior.


Concerns concerning governmental regulation of cryptocurrencies have been raised by many in the crypto community. Governments might conceivably make it unlawful to hold cryptocurrencies or take part in their networks, even though it is getting more and harder to stop something like Bitcoin as its decentralized network grows.

As major corporations like PayPal start to permit the ownership and use of cryptocurrencies on their network, this worry has diminished over time.

What Is Then a Blockchain in Plain English?

A blockchain is essentially a decentralized database or ledger. Each node of the network has an exact copy of the whole database, and data are stored in data structures called blocks. Since the majority of the copies of the ledger do not reflect this modification, attempts to edit or delete an entry in one copy of the ledger will be refused, ensuring security.

How many different blockchains exist?

Every day, the number of active blockchains increases at an exponential rate. By 2022, there will be several hundred additional non-cryptocurrency blockchains in addition to the more than 10,000 active cryptocurrencies built on blockchain.

What Sets a Private Blockchain Apart from a Public Blockchain?

A public blockchain, sometimes referred to as an open or permissionless blockchain, allows anyone to join the network and set up a node without restriction. These blockchains need to be safeguarded using encryption and a consensus mechanism like proof of work because of how open they are (PoW).

On the other hand, a private or permissioned blockchain needs each node to be approved before joining. The layers of security do not need to be as thick because nodes are presumed to be trustworthy.

A Blockchain Platform: What Is It?

On top of an already-existing blockchain infrastructure, users and developers can build new applications using a blockchain platform. Ethereum is one instance, which contains a built-in coin called ether (ETH).

However, the Ethereum blockchain also enables the development of programmable tokens for initial coin offers (ICOs), smart contracts, and non-fungible tokens (NFTs). All of them are constructed around the Ethereum network’s infrastructure and are protected by nodes.

Who Created the Blockchain?

Stuart Haber and W. Scott Stornetta, two mathematicians interested in implementing a system where document timestamps could not be altered, first proposed the concept of blockchain technology in 1991.

Cypherpunk Nick Szabo advocated utilizing a blockchain to protect the bit gold digital payment system in the late 1990s (which was never implemented).


Blockchain is finally establishing itself, in no little part because of bitcoin and cryptocurrencies, with several real-world uses for the technology now being implemented and researched. Blockchain, a buzzword on everyone’s lips as an investor in the country, promises to reduce middlemen while increasing accuracy, efficiency, security, and cost-effectiveness in commercial and government activities.

It’s no longer a question of if legacy organizations will adopt blockchain technology—it’s a question of when—as we get ready to enter the third decade of the technology. NFTs are becoming more and more prevalent today, and assets are being tokenized. Blockchain will experience significant expansion during the ensuing decades.

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