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Blockchain Technology Explained and How Does It Work?

Blockchain Technology Explained and How Does It Work?

Blockchain Tech Explained

Basic of Blockchain Technology

In a blockchain, information is recorded such that it cannot be altered, hacked, or manipulated.

Every computer in the blockchain network has an identical copy of the blockchain's ledger, which is why it's called a "blockchain." When a transaction occurs on the blockchain, that transaction is recorded in the ledgers of all participants, and each person has a copy of that record. Distributed Ledger Technology (DLT) refers to a decentralized database that is administered by various individuals.

Blockchain is a distributed ledger technology (DLT) that uses a cryptographic signature known as a hash to record transactions. Blockchain technology's increased transaction settlement speed has the potential to improve a wide range of financial services.

This means that if even a single link in the network were to be altered, it would be obvious. Hackers would have to change every single block in the chain, in all of the distributed versions of the chain, if they wished to destroy a blockchain.

How Does a Blockchain Work?

The idea behind blockchain is to make it possible to store and transmit digital information while preventing it from being altered. Immutable digital ledgers, or records of transactions that can't be changed, deleted, or destroyed, are built on top of a blockchain.

The blockchain concept was first presented in 1991 as a research project, years before its first widely used blockchain application: Bitcoin, in 2009. Decentralized finance (DeFi) apps, non-fungible tokens (NFTs), and smart contracts have all emerged as a result of the proliferation of blockchain technology in the last few years.

Private keys

In order to offer consumers ownership of their cryptocurrency, Blockchain employs public-key cryptography or asymmetric cryptography (or any other blockchain data). A private key is associated with each blockchain address. As long as the public address is known, the private key should remain private. Users must have their own private key in order to access their funds, which means they are acting as their own bank. In the event that a user's private key is misplaced, the funds are irrecoverably lost.

Blockchain and Bitcoin

Stuart Haber and W. Scott Stornetta, two researchers who aimed to develop a system where document time stamps could not be manipulated with, initially proposed blockchain technology in 1991. But it wasn't until January 2009, with the debut of Bitcoin, that blockchain had its first real-world use.

The Bitcoin protocol is built on a blockchain. "A new electronic cash system that's totally peer-to-peer with no trusted third party," Satoshi Nakamoto, the pseudonymous developer of the currency, wrote in white papers.

The most important thing to keep in mind is that while Bitcoin uses blockchain to record transactions in a public ledger, blockchain may theoretically be used to store any amount of data items. Transactions, votes in an election, product inventories, state IDs, deeds to properties, and much more are all examples of this.

More than just documenting transactions, blockchains are already being used in a wide range of ways to benefit society, such as a mechanism to vote safely in democratic elections. The immutability of the blockchain means that fraudulent voting will be far more difficult to perpetrate in the future.

Blockchain Advantages and Disadvantages

The development of blockchain technology has offered numerous benefits to a wide range of sectors, increasing security in previously untrustworthy settings. However, the fact that it is decentralized has significant drawbacks. For example, blockchains are less efficient and necessitate more storage space than traditional centralized databases.



Blockchain data is very resistant to technical failures and malicious attacks since it is kept on a distributed network of nodes. As a result, there is no single point of failure: a single node being offline does not affect the network's availability or security.

Conventional databases, on the other hand, rely on a single or a few servers and are more susceptible to technical failures and cyber-attacks than cloud-based databases are.


This means that once data has been registered on the blockchain, it is exceedingly impossible to remove or edit it. Confirmed blocks With its distributed and public ledger, blockchain can be used to store financial records or any other type of data that requires a permanent audit trail.

For example, a company may use blockchain technology to stop its employees from engaging in fraudulent activities. When it comes to financial transactions within a corporation, the blockchain can provide a safe and stable record of all of them. Would make it more difficult for employees to conceal suspicious transactions.

No middleman

A third party, such as a bank, financial institutions, credit card company, or other payment service provider, is usually engaged in traditional payment systems. A dispersed network of nodes validates transactions through a process known as mining when employing blockchain technology, therefore this is no longer essential. As a result, the term "trustless" is frequently used to describe Blockchain.

As a result, the lack of middlemen and third parties in a blockchain system eliminates the need to place your faith in a single company while simultaneously lowering transaction costs and fees.



Throughout the years, the Proof of Work consensus mechanism used to safeguard the Bitcoin blockchain has shown to be highly efficient. However, blockchain networks are vulnerable to a few attacks, the most prominent of which being the 51 percent attacks. In order to purposefully exclude or manipulate the sequencing of transactions, a network attacker would need to gain control of more than half of the network's hashing power.

There has never been a successful 51 percent attack on the Bitcoin blockchain, despite the fact that it is theoretically conceivable. As the Bitcoin network expands, so does its security, and as a result, attackers will be less reluctant to spend enormous sums of money and energy to attack the cryptocurrency. Since cryptographic proofs connect blocks, a 51-percent-attack that succeeds would only be able to alter the most recent transactions for a brief amount of time (changing previous blocks would require intangible levels of computing power). Bitcoin's blockchain, on the other hand, is extremely resilient and would be able to quickly adapt to any attack on it.

Data modification

Another disadvantage of blockchain systems is the difficulty in modifying data once it has been added to the network. While blockchain's stability is a benefit, it isn't necessarily a good thing. A hard fork, in which one chain is abandoned and a new one is established, is typically required to make significant changes to the blockchain's data or code.


Using Proof of Work-based blockchains is extremely inefficient. All the other miners' efforts go to waste since mining is so competitive that there is only one winner every ten minutes. Many countries, including Denmark, Ireland, and Nigeria, now consume more energy than the Bitcoin network does, as miners continue to boost their processing capacity in order to have a better chance of finding a valid block hash.


Over time, the size of a blockchain's ledger might grow tremendously. At the moment, the Bitcoin blockchain requires about 200 GB of storage space to function properly. There is a risk that the network will lose nodes if the growth of the blockchain outpaces the expansion of hard drives, as the ledger becomes too large for individuals to download and store.

What Is a Permissioned Blockchain?

Cryptocurrencies like Bitcoin and Ethereum's Blockchains keep growing as new blocks are added to the network, making the ledger ever more secure.

This is a distributed ledger that is not available to the general public. To access it, you must have the appropriate permissions. By signing in with a digital certificate or other kind of digital identification, each user is limited to a limited set of actions permitted by the ledger administrators.

Permissioned users can be seen as an additional layer of protection for the blockchain. Administrators keep a layer of access control in place to restrict certain actions to just specific individuals. Records of who was involved in the transactions are preserved in the blockchain. Public and private blockchains differ in this regard.

Understanding Blockchains with Permissioned Access

There are many ways to build and access a blockchain. Information can only be read, accessed, and written on some blockchains with permissions. Only those who have the ability to connect and provide labor for the network are required to join in. Depending on the blockchain's configuration, each participant's transactions are controlled and defined by their respective responsibilities.

Maintaining the identity of each blockchain member may also be a component of this process. Permissioned blockchains are a term used to describe such blockchains.

Permissionless and Permissioned Blockchains: What's the Difference?

Technology-wise, permissioned and permissionless blockchains are identical. Permissioned blockchains, on the other hand, prevent unauthorized users from accessing the ledger.

To track money transfers, a bank, for example, may use a permissioned blockchain managed by a set number of nodes within the bank. Because you lack the necessary permissions, you are unable to access this blockchain. When it comes to a permissionless blockchain like a cryptocurrency mining network, you can join once you have established a semi-anonymous account on that network.

Why is blockchain technology receiving so much attention?

Even though many people have tried to build digital currency, they have all failed.

It's a matter of trust. How can we be sure that whoever invents the X dollar won't use it to grant themselves a million dollars or steal your X dollars?

Bitcoin was created to address this issue by employing a unique database type known as a blockchain. An SQL database, for example, often has a person in charge who can make changes to the data (e.g. giving themselves a million X dollars). With blockchain, no one is in charge; instead, the network is managed by the people who utilize it. People who own this currency can be assured that it has some value because it cannot be falsified, hacked or double-spent.

Tokenization of Digital Assets and Blockchain Use Cases

Cryptocurrency's first meteoric growth and its subsequent enterprise application of blockchain/DLT are the first two waves of blockchain innovation. Re-imagining how value is transferred and managed is having a significant influence right now and will radically alter business practices in many industries.

Open-source blockchain technology is generating new markets for formerly illiquid assets and decreasing risk and cost in post-trade systems by allowing assets to be represented on a digital system and transactions to be executed. As an alternative to traditional payment methods, digital asset tokens can represent any kind of asset or agreement between parties. End-to-end solutions that combine trading, settlement, and custody services into a single seamless offering are made possible by these tokens, which improve market efficiency by releasing liquidity in previously illiquid markets.

What's in store for Blockchain in the coming years?

Due in large part to bitcoin and other cryptocurrencies, blockchain is finally establishing itself as a viable technology with a plethora of practical applications already being implemented and researched. With blockchain as a household term for investors around the country, businesses and government agencies will benefit from more accurate, efficient, secure, and cost-effective operations thanks to the elimination of middlemen.

It's no longer a question of whether or not legacy corporations will adopt blockchain technology—a it's question of when. Tokenization and the growth of NFTs are now commonplace. Blockchain is poised for significant expansion in the coming decades.