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What Is Blockchain? Just Simply Explained

What Is Blockchain? Just Simply Explained

Nearly all cryptocurrencies are built around the blockchain, an innovative database technology. Blockchain makes it nearly impossible to hack or defraud the system since it distributes identical copies of a database across the entire network of computers. Blockchain technology has the potential to be used in a broad variety of ways, even if cryptocurrency is the most prominent usage at the moment.

What Is a "Blockchain"

Data of any kind can be stored in a blockchain because it is a distributed digital ledger. It's possible to record cryptocurrency transactions, NFT ownership, and DeFi smart contracts on a blockchain. There are many transactions included in each block in the chain, and each participant's ledger is updated every time a new transaction occurs on the blockchain.

Despite the fact that any regular database can hold this information, blockchain is unique in that it is completely decentralized. In contrast to a centralized database like an Excel spreadsheet or a bank database, a blockchain database is housed on several computers spread out throughout a network and is not maintained by a single administrator. There are nodes for each of these computers.

How Does Blockchain Work?

"Blockchain" isn't just a coincidence. It's common to refer to the digital ledger as a "chain" composed of discrete "blocks" of information. A new "block" is formed and added to the "chain" as new data is added to the network. To achieve this, all nodes must update their blockchain ledgers to the same version.

The process by which new blocks are generated on the blockchain is critical to its reputation for security. In order to add a new block, a majority of nodes must verify and confirm that the new data is legitimate before it can be added. They may include verifying that new transactions in a block are not fraudulent or that coins have not been spent more than once for a cryptocurrency. While a single individual can make modifications to a database or spreadsheet on their own, from which this is different.

"Once there is consensus, the block is added to the chain and the underlying transactions are recorded in the distributed ledger," explains C. Neil Gray, partner in Duane Morris LLP's fintech practice areas. Blocks are securely connected, creating a digital chain that goes back to the beginning of the ledger. "

If a transaction is encrypted, the nodes involved must solve complicated mathematical equations before the transaction can be completed.

It is common practice to award nodes—such as those running the bitcoin blockchain—with fresh bitcoin as an incentive for certifying modifications to the shared data, says Sarah Shtylman, a Fintech and Blockchain Counsel at Perkins Coie.

Difference between public and private blockchains

Private and public blockchains exist. Anyone can join in a public blockchain, which means they can read, write, or audit the data there. Because no single authority controls the nodes in a public blockchain, tampering with transactions is extremely difficult.

Same as public blockchain networks, private blockchain networks are decentralized peer-to-peer networks. Only it has the power to invite new members to the system, and it may go back and change the blockchain if necessary. It's more like an in-house data storage system, but distributed among numerous nodes for added protection.

What is the use of Blockchain?

From delivering financial services to managing voting systems, blockchain technology serves a wide range of functions.


Tokens like Bitcoin and Ethereum, which are built on blockchain, are the most widely used applications of blockchain today. A blockchain is created when users buy, sell, or spend cryptocurrency. Blockchain may become more widely used if more people started using cryptocurrency.

Due to their volatility, cryptocurrencies have yet to be widely used to buy goods and services." Nevertheless, "PayPal, Square, and other money service organizations are making digital asset services widely available to vendors and retail customers," says Patrick Daugherty, a senior partner of Foley & Lardner and lead of the firm's blockchain task force.


Transactions in fiat currency, such dollars and euros, are also being processed using blockchain technology. Compared to sending money through a bank or other financial institutions, this method may be more efficient because transactions can be checked and executed outside of usual business hours.

Transfer of Assets

It is possible to utilize the blockchain to record and transfer ownership of various assets. Currently, digital assets like NFTs, which reflect ownership of digital art and media or digital currency, are extremely popular.

The deeds to real land and automobiles, for example, may be processed on the blockchain as well. Prior to completing and recording a sale, both parties would utilize the blockchain to verify that one party has ownership of the property and the other party has the funds to purchase it.

The property deed could be transferred without the need for any papers to be submitted to the county government; instead, the blockchain would be instantly updated.

Smart Contracts

Self-executing contracts, or "smart contracts," are another blockchain invention. When criteria are met, these digital contracts are automatically enacted. After a deal's set requirements have been met, for example, a payment for a good may be released immediately.

"There is a lot of potential in the use of blockchain technology and coding instructions to automate legal contracts," adds Gray. It is possible to reduce, or even remove, the necessity for third parties to verify the performance of a smart legal contract on a distributed ledger.

Monitoring of the Supply Chain

As items go from one end of the earth to the other, supply networks involve enormous volumes of data. Problems, such as the source of poor-quality items, can be difficult to track down using typical data storage methods. There is a lot of value in storing this data on the blockchain, as IBM's Food Trust demonstrates, which employs blockchain technology to track food from harvesting to consumption.


The use of blockchain technology to prevent election fraud is now being studied by experts. For the purposes of blockchain voting, tamper-proof ballots and the elimination of the need to manually collect and validate paper ballots are theoretically possible.

Benefits of Using Blockchain

Transactions that are more accurate

Having numerous nodes verify a blockchain transaction reduces the chance of human error. The other nodes would notice something is amiss and correct it if a mistake was made in the database on one of them.

While in a typical database, a mistake may be more likely to pass if it is made by a user. It's impossible to double-spend an asset because it's detected and monitored on the blockchain ledger (like a person overdrawing their bank account, thereby spending money twice).

There's no need for middlemen

Without the involvement of a third party, two parties to a transaction can confirm and execute their transaction using the blockchain. This reduces the need for an intermediary, such as a bank, as well as the associated time and expense.

According to Shtylman, "it has the potential to boost digital commerce's efficiency and provide financial empowerment to the world's unbanked and underbanked populations, and to fuel a new generation of internet apps."

Added Protection

It is theoretically difficult for someone to commit fraud on a decentralized network, such as blockchain. They'd have to get into every node and alter every ledger to get the fake transactions into the system. It is not impossible, but adding fraudulent transactions is difficult and not in the interest of participants in many cryptocurrency blockchain systems that use proof-of-stake or proof-of-work transaction verification mechanisms.

Transfers That Are More Efficient

People may move money and assets more quickly, especially globally, because blockchains run around the clock. A bank or government agency doesn't have to personally confirm everything, so they don't have to wait around for days.

Detriments of Using Blockchain

Limit on Transactions per Second

The speed at which blockchain can move is constrained by the fact that it relies on a broader network to authorize transactions. In comparison to Visa's 1,700 transactions per second, Bitcoin can only process 4.6 transactions per second. As the number of transactions increases, so does the amount of traffic on the network. As long as this is the case, scaling will be difficult.

High Costs of Energy

In order to verify transactions, all the nodes must work together. This consumes a lot of computing power. Not only does this lead to higher transaction costs for blockchain-based transactions, but it also adds a significant amount of carbon emissions to the atmosphere.

As a result, certain business heavyweights are started to distance themselves from Bitcoin and other blockchain-based technologies: Elon Musk, for example, recently stated that Tesla would no longer accept Bitcoin due of environmental concerns.

Risk of Asset Loss

Using a cryptographic key, such as in a blockchain wallet, some digital assets can be protected. To protect this key, you must be extremely vigilant.

As Gray points out, "there is currently no method to recover a digital asset if the owner has lost the private cryptographic key that grants them access to their digital asset." You can't get back into the system, even though you call your bank and beg for help.

Possibility of Illegal Activity

Criminals find the decentralization of Blockchain intriguing because it provides more privacy and confidentiality. Illegal transactions on blockchain are more difficult to trace than bank transactions linked to a specific person.

In spite of its potential, the blockchain technology is still a quite narrow one. Blockchain has the potential to be used in many contexts, according to Gray, but that potential is contingent on future government policy. Regulators like the SEC may or may not take action in the future. "Certain," he says, "is that protecting the markets and investors will be the primary objective."

Blockchain, according to Shtylman, is similar to the early days of the internet. For Google, it took roughly 15 years, and for Facebook, more than 20 years, before we saw the first version." However, like the internet, blockchain technology will have a huge impact on the way we conduct business and communicate with each other in the future."

With transaction constraints and high energy costs, blockchain investments may be a risk worth taking for investors who see the technology's potential.