29 November 2023

What is Blockchain, how does it work, and how can it be used?

A blockchain is a database or ledger that is shared by all the computers on a network. A blockchain is a digital database that stores information in digital form. Blockchains are best known for how important they are to keep a secure, decentralized record of transactions in cryptocurrencies like Bitcoin. A blockchain is new because it makes sure that a record of data is correct and safe and builds trust without the need for a trusted third party.

How the data is set up is a big difference between a normal database and a blockchain. A blockchain groups pieces of information into groups called “blocks,” which hold sets of information. When a block is full, it is closed and linked to the block that came before it. This makes a chain of data that is called the blockchain. All of the new information that comes after the newly added block is put into a new block, which is then added to the chain when it is full.

The information in a database is usually organized into tables, but in a blockchain, the information is organized into blocks that are linked together. When this data structure is used in a decentralized way, it creates a data timeline that can’t be changed. When a block is filled, that part of the timeline is set in stone. When a block is added to the chain, it is given an exact timestamp.

What is Blockchain

Key Takeaways

  • Blockchain is a type of shared database that stores information differently than most databases. Instead of storing information in a single place, blockchains store information in blocks that are linked together using cryptography.
  • As more information comes in, it is put into a new block. Once the block is full of data, it is linked to the block before it. This puts the data in order of when they happened.
  • A blockchain can hold different kinds of information, but so far its most common use has been as a record of transactions.
  • In the case of Bitcoin, blockchain is used in a way that is not centralized, so that no one person or group has control. Instead, control is shared among all users.
  • The information that is put into a decentralized blockchain can’t be changed, which means that it can’t be taken back. This means that all Bitcoin transactions are recorded and can be seen by anyone.

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How Does a Blockchain Work?

The goal of blockchain is to make it possible to record and share digital information without being able to change it. In this way, a blockchain is a basis for immutable ledgers, which are records of transactions that can’t be changed, deleted, or destroyed. Because of this, blockchains are also known as distributed ledger technology (DLT).

The blockchain idea was first proposed as a research project in 1991. It was used for the first time widely in 2009 with Bitcoin. Since then, the use of blockchains has grown by leaps and bounds thanks to the creation of cryptocurrencies, decentralized finance (DeFi) apps, non-fungible tokens (NFTs), and smart contracts.

How Does a Blockchain Work?

Blockchain Decentralization

Imagine that a company owns a server farm with 10,000 computers that are used to maintain a database with all of its clients’ account information. This company owns a warehouse building where all of these computers are kept. They have full control over each computer and all of the information it holds. But this only has one place where something could go wrong.

What will happen if the electricity goes out there? What if it can’t connect to the Internet? What if it goes up in flames? What if a bad person types one keystroke and deletes everything? In either case, the data has been lost or messed up.

A blockchain makes it possible for the database’s data to be spread out across several network nodes in different places. This not only creates redundancy but also keeps the data in the database accurate. If someone tries to change a record at one node of the database, the other nodes won’t change, so a bad actor won’t be able to change the record.

If one user messes with Bitcoin’s record of transactions, all the other nodes would cross-reference each other and make it easy to find the node with the wrong information. This system helps make sure that things happen in a clear and exact order. So, no single node in the network can change the information stored in the network as a whole.

Blockchain Decentralization

Because of this, the information and history of a cryptocurrency, such as its transactions, cannot be changed. This kind of record could be a list of transactions, like with a cryptocurrency, but a blockchain could also hold legal contracts, state IDs, or a company’s product inventory, among other things.


Because Bitcoin’s blockchain is decentralized, all transactions can be seen in a clear way by anyone with a personal node or by using blockchain explorers, which let anyone watch transactions happen in real time. Each node has its own copy of the chain, which is updated when new blocks are added and confirmed. This means that you could follow Bitcoin anywhere it goes if you wanted to.

For example, in the past, exchanges have been hacked, and those who kept their Bitcoin on the exchange lost everything. Even if the hacker is completely unknown, the Bitcoins they stole are easy to track down. If the Bitcoins that were stolen in some of these hacks were moved or spent somewhere, it would be known.

The records that are kept in the Bitcoin blockchain, as well as in most other places, are, of course, encrypted. This means that only the record’s owner can decrypt it to find out who it belongs to (using a public-private key pair). So, people who use blockchains can stay anonymous while still keeping things open.

Is Blockchain Secure?

Decentralized security and trust can be achieved through blockchain technology in a number of ways. First of all, new blocks are always put in order and in a straight line. That is, they are always added to the “end” of the chain.

Once a block has been added to the end of the blockchain, it is very hard to go back and change what is in it unless the majority of the network agrees to do so. This is because each block has its own hash, as well as the hash of the block before it and the timestamp we already talked about. A mathematical function takes digital information and turns it into a string of numbers and letters. If any of this information is changed in any way, the hash code also changes.

Let’s say a hacker who also runs a node on a blockchain network wants to change a blockchain and steal cryptocurrency from everyone else. If they changed their own single copy, it wouldn’t match the copies of everyone else. When everyone else compares their copies to each other, this one copy would stand out, and that hacker’s version of the chain would be thrown out as fake.

For this hack to work, the hacker would have to control and change at least 51% of the copies of the blockchain at the same time, so that their new copy becomes the majority copy and, therefore, the agreed-upon chain. Such an attack would also cost a lot of money and time because all of the blocks would have to be redone because their timestamps and hash codes would be different.

Due to how big and fast many cryptocurrency networks are growing, it would probably be too expensive to pull off something like this. This would not only be very expensive, but it would probably not work out either. Doing something like this wouldn’t go unnoticed because people in the network would see such big changes to the blockchain.

The network members would then hard fork off to a new version of the chain that was not affected. This would cause the value of the attacked version of the token to drop, making the attack pointless since the bad guy would be in control of an asset that isn’t worth anything. If the bad person attacked the new Bitcoin fork, the same thing would happen. It is set up this way so that joining the network is much more financially beneficial than trying to attack it.

Bitcoin vs. Blockchain

In 1991, Stuart Haber and W. Scott Stornetta, two researchers, came up with the idea for blockchain technology. They wanted to set up a system where document timestamps could not be changed. But blockchain didn’t have its first real-world use until almost 20 years later, when Bitcoin came out in January 2009.
A blockchain is the foundation of the Bitcoin protocol. Satoshi Nakamoto, who created Bitcoin under a fake name, wrote about it in a research paper as “a new electronic cash system that is fully peer-to-peer, with no trusted third party.”
The most important thing to know is that Bitcoin only uses blockchain to record a transparent ledger of payments. However, blockchain could be used to record any number of data points in a way that can’t be changed. As we’ve already talked about, this could include transactions, votes in an election, inventories of goods, state IDs, home deeds, and much more.

Bitcoin vs. Blockchain

At the moment, tens of thousands of projects are looking for ways to use blockchains to help society in ways other than just recording transactions. For example, blockchains could be used to make voting in democratic elections more secure. Because blockchain can’t be changed, it would be much harder for people to vote more than once.

For example, each citizen of a country could be given one cryptocurrency or token as part of the voting process. Then, each candidate would be given a unique wallet address, and voters would send their token or cryptocurrency to the address of the candidate they want to vote for. Because blockchain is transparent and easy to track, it would eliminate the need for humans to count votes and the ability of bad people to change physical ballots.

Blockchain vs. Banks

Blockchains have been praised as a way to change the financial industry, especially when it comes to payments and banking. But, banks and decentralized blockchains are not the same thing.

Let’s compare the banking system to Bitcoin’s implementation of blockchain to understand how they vary.

How Are Blockchains Used?

As we now know, Bitcoin’s blockchain stores information about money transactions in blocks. On the blockchain, there are now more than 10,000 other cryptocurrency systems. But it turns out that blockchain is also a good way to keep track of information about other types of transactions.

Walmart, Pfizer, AIG, Siemens, Unilever, and a lot of other companies have already started to use blockchain. For example, IBM has made the Food Trust blockchain so that food products can be tracked from where they come to where they end up.

Why do that? There have been many outbreaks of E. coli, salmonella, and listeria in the food industry, as well as accidents where dangerous materials got into food. In the past, it took weeks to figure out where these outbreaks came from or what people were eating that made them sick. Using blockchain, brands can track where a food item comes from, where it stops along the way, and where it finally ends up.

If food is found to be tainted, it can be tracked back through each stop to where it came from. Not only that, but these companies can now also see everything else they may have come in contact with. This means that the problem can be found much faster, which could save lives. This is one way that blockchain is used in the real world, but there are many other ways as well.

Banking and Finance

Banks may be the industry that stands to gain the most from using blockchain in their business operations. Financial institutions only work during business hours, which are usually Monday through Friday. So, if you try to deposit a check on Friday at 6 p.m., the money probably won’t show up in your account until Monday morning.

Even if you make your deposit during business hours, it can still take one to three days for the transaction to be verified. This is because banks have a lot of transactions to settle. On the other hand, blockchain is always working.

By adding blockchain to banks, customers’ transactions can be handled in as little as 10 minutes, which is about how long it takes to add a block to the blockchain, no matter what day of the week or holiday it is. With blockchain, banks will also be able to send and receive money more quickly and safely between institutions.

In the stock trading business, for example, the settlement and clearing process can take up to three days (or longer if trading internationally), which means that the money and shares are frozen during that time. Due to the size of the amounts, even the few days that the money is in transit can cost and risk banks a lot.


Cryptocurrencies like Bitcoin are built on blockchain. The Federal Reserve is in charge of the U.S. dollar. Under this central authority system, a user’s data and money are technically at the mercy of their bank or government. If a user’s bank is hacked, the user’s private information is at risk. If the client’s bank fails or if they live in a country with an unstable government, the value of their currency could be at risk. In 2008, some failing banks were saved, partly with money from taxpayers. These are the worries that led to the idea of Bitcoin and its early development.

Blockchain makes it possible for Bitcoin and other cryptocurrencies to work without a central authority. It does this by spreading its operations across a network of computers. This lowers the risk and gets rid of a lot of the fees for processing and transactions.

It can also give people in countries with unstable currencies or weak financial systems a more stable currency that can be used in more places and with a bigger group of people and institutions with whom they can do business, both at home and abroad.

Those who don’t have state identification can save money in cryptocurrency wallets or use them to pay for things. Some countries may be in the middle of a war or have governments that don’t have the infrastructure to give people IDs. People in these countries may not have access to savings accounts or brokerage accounts, which means they have no safe way to store their money.


Blockchain can help healthcare providers store the medical records of their patients in a safe way. When a medical record is made and signed, it can be added to the blockchain. This gives patients proof that the record can’t be changed and gives them peace of mind. With a private key, these health records could be encrypted and stored on the blockchain so that only certain people could access them. This would protect their privacy.

Property Records

If you’ve ever been to your town’s Recorder’s Office, you know that recording property rights is a time-consuming and inefficient process. Today, a physical deed must be given to a government worker at the local recording office, where it is entered by hand into the county’s central database and public index. In the case of a property dispute, the public index must be compared to the claims to the property.

This process is not only expensive and time-consuming, but it is also prone to human error. Each mistake makes it harder to keep track of who owns a piece of property. Blockchain could make it unnecessary to scan documents and look for paper files in a local recording office. If proof of property ownership is stored and checked on the blockchain, property owners can be sure that their deed is correct and will always be there.

In war-torn countries or places with little or no government or financial infrastructure, and especially if there is no Recorder’s Office, it can be very hard to prove who owns a piece of land. If a group of people who live in such a place can use blockchain, they could set up clear and transparent timelines for who owns what.

Smart Contracts

A smart contract is a piece of computer code that can be added to the blockchain to help make, check, or negotiate a contract. Smart contracts work based on a set of rules that users agree to. When these conditions are met, the agreement’s terms are carried out automatically.

Say, for example, that a possible renter wants to use a smart contract to rent an apartment. When the tenant pays the security deposit, the landlord agrees to give the tenant the door code to the apartment. Both the tenant and the landlord would send their parts of the deal to the smart contract.

The smart contract would hold on to the door code and the security deposit, and on the first day of the lease, it would automatically trade the door code for the security deposit. If the landlord doesn’t give you the door code by the date of the lease, the security deposit will be returned by the smart contract. This would get rid of the need for a notary, a third-party mediator, or an attorney, as well as the fees and procedures that come with them.


As was already said, blockchain could be used to make a modern voting system possible. Blockchain voting has the potential to stop election fraud and get more people to the polls. This was tested in the midterm elections in West Virginia in November 2018.

If blockchain was used in this way, it would be almost impossible to change votes. The blockchain protocol would also keep the voting process open and honest. It would reduce the number of people needed to run an election and give officials almost instant results. This would get rid of the need for recounts and any real worries that election fraud could happen.

Supply Chains

As in the case of IBM Food Trust, suppliers can use blockchain to keep track of where the materials they buy come from. This would let companies check not only the authenticity of their own products but also the authenticity of common labels like “Organic,” “Local,” and “Fair Trade.”

Forbes says that the food industry is using blockchain more and more to track the path and safety of food all the way from the farm to the consumer.

Pros and Cons of Blockchain

Even though there are problems with blockchain technology, it has the potential to become a decentralized ledger system with almost endless uses. Blockchain technology could be used for more than just what has been talked about so far. Some of these uses include giving users more privacy and security, lowering processing costs, and making fewer mistakes. But there are also a few things to think about.


  • Improved accuracy by taking people out of the verification process.
  • By getting rid of third-party verification, costs can be cut.
  • When things aren’t centralized, it’s harder to mess with them.
  • Transactions are safe, confidential, and quick.
  • Technology that is clear
  • It gives people in countries with unstable or underdeveloped governments an alternative to banking and a way to keep their personal information safe.


  • Bitcoin mining has a lot of costs related to technology.
  • The low number of deals per second
  • History of being used for illegal things, like on the dark web
  • Regulations vary by country and are still not clear.
  • Data storage limitations

Benefits of Blockchains

Accuracy of the Chain

Transactions are checked and approved by a network of thousands of computers that are spread out across the blockchain. Because of this, the process of checking is streamlined, and the data that is recorded is more reliable because human error is less likely to happen. Because each computer only keeps one copy of the blockchain, it is impossible for a single computer’s mistake to mess up the blockchain. This mistake would have to be made by at least 51% of the machines on the network, which is almost impossible on a network as large and growing quickly as Bitcoin’s.

Banking the Unbanked

Perhaps the most important thing about blockchain and Bitcoin is that anyone can use it, no matter what race, gender, or culture they come from. The World Bank says that about 1.7 billion adults do not have bank accounts or other ways to keep their money or wealth safe.
Almost all of these people live in developing countries, where the economy is still young and completely cash-based.

These people often make a small amount of money that they get in cash. They then need to store this physical cash in hidden locations in their homes or other places of living, leaving them subject to robbery or unnecessary violence. The keys to a bitcoin wallet can be kept on paper, in a cheap cell phone, or even just in your head if you need to. Most people are more likely to be able to hide these things than a small amount of cash under their mattresses.

The blockchains of the future are also looking for ways to do things like store medical records, property rights, and a wide range of other legal contracts, in addition to being a way to keep track of money.


The software for most blockchains is completely open-source. This means that the code can be seen by anyone. This means that auditors can check the safety of cryptocurrencies like Bitcoin. This also means that there is no real authority over who controls Bitcoin’s code or how it is changed. Because of this, anyone can suggest that the system be changed or improved. Bitcoin can be updated if most of the people who use the network agree that the new version of the code with the upgrade is safe and useful.

Secure Transactions

Once a transaction is recorded, the blockchain network must check that it is real. Thousands of computers on the blockchain work quickly to make sure that the details of the purchase are correct. After a computer verifies the transaction, it is added to the blockchain block. Each block on the blockchain has its own unique hash, as well as the unique hash of the block that came before it.

When information on a block is changed in any way, the hash code for that block changes, but the hash code for the block that comes after it does not. Because of this difference, it is very hard to change information on the blockchain without being noticed.

Private Transactions

Many blockchain networks work like public databases, so anyone with an Internet connection can see a list of all the transactions that have happened on the network. Users can see information about transactions, but they can’t see information that would let them know who made the transactions. People often think that blockchain networks like Bitcoin are anonymous, but they are not. Instead, they are only private.

When a user makes a public transaction, the blockchain records their unique code, which is called a “public key.” The information about them is not. If a person buys Bitcoin on an exchange that requires identification, their identity is still linked to their blockchain address. However, a transaction, even if it is tied to a person’s name, does not reveal any personal information.

Efficient Transactions

Settlement can take up to a few days for transactions that go through a central authority. For example, if you try to deposit a check on Friday night, you might not see the money in your account until Monday morning. Blockchain works 24 hours a day, seven days a week, and 365 days a year.

Financial institutions only work during business hours, which are usually five days a week. Transactions can be done in as little as 10 minutes, and after only a few hours, they can be considered safe. This is especially helpful for cross-border trades, which usually take much longer because of differences in time zones and the fact that all parties must confirm payment processing.


Blockchain doesn’t keep any of its data in a single place. Instead, copies of the blockchain are made and sent to many computers. When a new block is added to the blockchain, every computer on the network updates its blockchain to reflect the change.

By spreading this information across a network instead of keeping it in a single database, blockchain makes it harder to change. If a hacker got their hands on a copy of the blockchain, they would only be able to see one copy of the information, not the whole network.

Cost Reductions

Most of the time, people pay a bank to confirm a transaction, a notary to sign a document or a minister to marry them. Blockchain gets rid of the need for third-party verification and the costs that come with it. For instance, when a business owner accepts credit card payments, they have to pay a small fee because banks and payment-processing companies have to handle the transactions. Bitcoin, on the other hand, doesn’t have a central bank and only charges a small fee for each transaction.

Drawbacks of Blockchains

Technology Cost

Users can save money on transaction fees by using blockchain, but the technology is not free. For instance, the Proof-of-Work (PoW) system that the bitcoin network uses to verify transactions uses a lot of computing power. In the real world, the power used by the millions of computers on the bitcoin network is close to what Norway and Ukraine use each year.

Even though it costs money to mine bitcoin, people still use a lot of electricity to validate transactions on the blockchain. That’s because when miners add a block to the bitcoin blockchain, they get enough bitcoin to make their time and effort worth it. When it comes to blockchains that don’t use cryptocurrency, however, miners will need to be paid or given some other incentive to verify transactions.

Some ideas are starting to come up for how to deal with these problems. For instance, farms have been set up to mine bitcoins using solar power, extra natural gas from fracking sites, or electricity from wind farms.

Speed and Data Inefficiency

Bitcoin is a great example of how the blockchain might not work as well as it could. With Bitcoin’s proof-of-work system, adding a new block to the blockchain takes about 10 minutes.
At that rate, the blockchain network can only handle about seven transactions per second (TPS), according to estimates. Even though other cryptocurrencies, like Ethereum, work better than bitcoin, the blockchain still puts limits on them. Visa, a well-known brand, can handle 65,000 TPS.


A lot of people in the crypto space are worried about how the government will regulate cryptocurrencies. As Bitcoin’s decentralized network grows, it gets harder and harder and almost impossible to shut it down. However, governments could make it illegal to own cryptocurrencies or take part in their networks.

This worry has lessened over time, especially as big companies like PayPal make it easier to own and use cryptocurrencies on their platforms.

Illegal Activity

Confidentiality on the blockchain network protects users from hacks and keeps their privacy, but it also lets people trade and do other illegal things on the blockchain network. The Silk Road, a marketplace on the dark web where illegal drugs and money were sold and laundered from February 2011 until October 2013, when the FBI shut it down, is probably the most talked about example of blockchain being used for illegal transactions.

Users can buy and sell illegal goods on the dark web without being caught if they use the Tor Browser and pay for their purchases with Bitcoin or other cryptocurrencies. Current U.S. regulations say that when a customer opens a bank account, the bank must get information about the customer, verify the customer’s identity, and make sure that the customer is not on any list of known or suspected terrorist organizations.

This system has both good and bad points. It lets anyone access financial accounts, but it also makes it easier for criminals to do business. Many people have said that the good uses of cryptocurrency, like letting people who don’t have bank accounts use them, outweigh the bad uses, especially since the most illegal activity is still done with cash that can’t be tracked.

Even though this was done with Bitcoin early on, illegal activity has moved to other cryptocurrencies like Monero and Dash because Bitcoin is open and mature as a financial asset.

Today, only a very small amount of Bitcoin transactions are linked to illegal activity.

Blockchains: What Are They?

A blockchain is, in the simplest terms, a shared database or ledger. Blocks are structures for storing data, and each node in the network has an exact copy of the whole database. If someone tries to change or delete an entry in one copy of the ledger, the change won’t show up in the majority of copies, and the change will be rejected.

How Do Private and Public Blockchains Differ?

A public blockchain, which is also called an open or permissionless blockchain, is one that anyone can join and set up a node in. Because these blockchains are public, they need to be protected by cryptography and a consensus system like proof of work (PoW).

On the other hand, in a private or permissioned blockchain, each node must be approved before it can join. Since nodes are thought to be safe, the security layers don’t need to be as strong.

The Bottom Line

Blockchain is finally getting a name for itself, and it’s not just because of bitcoin and other cryptocurrencies. The technology has already been put to use and is being researched for many real-world uses. Blockchain is a buzzword that every investor in the country is talking about. It has the potential to make business and government operations more accurate, secure, cheap, and efficient, with fewer middlemen.

As we get ready to enter the third decade of blockchain, it’s not a matter of if legacy companies will adopt the technology, but when. Today, there are a lot more NFTs, and assets are being turned into tokens. The next few decades will be an important time for blockchain to grow.

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