A Quick Guide On What Is Blockchain Technology And How It Works?

If you ever came across the term cryptocurrency then you have also heard of the term blockchain associated with it. The term blockchain refers to the task of keeping transaction records for these cryptocurrencies to validate them. But have you ever wondered how this complex technology works? Well, this article is here to explain all the gritty details behind this tech.

What Is Blockchain?

Formally blockchain technology is defined as a digital ledger that is decentralized, distributed, and often public. But this does not give out the details on what and how the technology works.

The blockchain consists of computers (referred to as nodes) that are connected. These computers all have a common ledger shared between them which can be considered as a spreadsheet. The ledgers are in a state of consensus and are checked-in after every 10 minutes as designed by its creator(s) Satoshi Nakamoto.

The information for a single transaction including details like the digital signature and transaction nature is known as a “block”. These blocks are publically available on every node forming a “chain” like structure hence the term blockchain is used.

Every block has a unique identifier which is known as a “hash”. The hash is generated by using a hash generator algorithm; if a transaction is repeated still the hash would turn out different for the block giving it a unique identifier. Which is then distributed to all of the nodes in the network, a single block can contain thousands of transactions.

How Does Blockchain Work?

Now that you know what blockchain is, let us get to know how the technology works. Let us take an example that you are planning on doing a purchase from a certain website. You select a certain product and go ahead with the purchase and fill out the necessary information.

What simply happens is the entered information along with your digital signature, the seller’s digital signature, time, and the amount in question are processed. And a block for your request is created which is shared in the network.

Like every bank transaction, transactions are also needed to be verified, in blockchain technology. This is done by a network of nodes that are connected. These nodes all have a copy of the block which they verify by running some certain algorithms, these nodes verify the signatures, time, and the amount in question.

Once the transaction is verified the information is hashed and added to a block which also contains other transactions as well, the block is added into the chain of thousands of other transactions. The hashed block is made public and can be viewed by anyone for verification.

The Benefits Of Using Blockchain

So now you may be wondering what is the catch here? Well, there are multiple benefits but the most important one is that there are no transaction costs associated with blockchain.

The block is created and distributed to thousands of computers in the network all having the same data entry for the said transaction. Altering such a transaction is virtually impossible as one would need to alter the data in thousands of computers around the world.

Another benefit is that the whole system is decentralized. On the contrary, a centralized system is controlled by a single entity. The global banking system is centralized meaning that every request/query is sent to the central server which validates the user requests and approves or rejects the transaction.

The major drawback of having a centralized system is that it has a single point of failure making it easier to take down the whole system.

On the other hand, a decentralized system is distributed into multiple nodes meaning that each system can validate a request on its own. This also removes the necessity of going through a third party.

Blockchain provides its users with full transparency, meaning that every transaction that has ever occurred is visible for the masses to see. It also provides its users with privacy as well, meaning that when a transaction takes place the public address of the user would be visible for everyone to see.

Along with the amount of money that was involved in the transaction. This added feature of transparency makes it easier to track the chain of transactions that were involved leading up to a specific transaction.

As mentioned before once a transaction takes place the data information stored in a block is unchangeable. The information is stored in the form of hash values in the blocks.

If one can change certain information in a single block on a single node then the change would result in a drastic manipulation in the hash values. It would not match with the other values in the chain making the changes useless. Thus maintaining the integrity of the data stored in the chains of blocks.

Pros And Cons Of Blockchain

As good as the blockchain technology sounds on paper from being a decentralized system having no governing authority and no limits, the technology does have flaws of its own. Here is a comprehensive list of the technological advantages and disadvantages of blockchain.


  • The decentralization of the system makes it easier to maintain data integrity.
  • Transactions are transparent making it easier to track and verify records.
  • No third party transactions.
  • The system is much more efficient without human interaction.
  • The stability of the system is unchallenged as when a block is confirmed it becomes impossible to change the information stored in it.


  •  High technology costs in terms of adding new nodes to the network.
  • The number of transactions per second is quite low.
  • Blockchain has been used in illicit activities online as a source of payment for certain services.
  • The blockchain is susceptible to hackers, the most prominent being the 51% attack. Despite being virtually impossible, it still is theoretically possible. But it has never occurred in the history of blockchain but the possibility for the system to get hacked always persists.

Is This Technology Secure?

The answer to this question is a solid yes. Blockchain is as secure as it gets, as mentioned before the blockchain technology is decentralized. Hence, it removes the single point of failure issue. Along with this, the blocks form a chain meaning that every block is based on the information stored in the previous block.

The new nodes which are added into the network need to prove themselves by going through a test which is known as a “consensus model”. Systems need to prove that they can solve a complex computational problem. This is known as blockchain mining, the nodes get an incentive in the form of bitcoins, this is also known as bitcoin mining.

So, for hackers to launch an attack on the blockchain system, they would need to control at least 51% of the resources which are deployed in the network. That is virtually impossible and just not worth the effort as well.

With the technological advances being made every day the tech associated with blockchain is also improving. Making it better with every passing day. There are a large number of blockchain applications and are growing by the day as well so it is safe to say that the blockchain technology is here to stay.