Blockchain Technology: How Does it work

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Blockchain Technology: How Does it work

Blockchain Technology: How Does it work

It is your responsibility to get knowledgeable about this developing technology in order to be ready for the future as blockchain expands and becomes more approachable. This is the ideal venue to learn the fundamentals of blockchain if you are new to it. You may find out the solution to the query "what is blockchain technology?" in this article. You will also discover the workings of blockchain, its significance, and the ways in which this sector can help you progress in your career.

You have probably heard the term "blockchain technology" in relation to cryptocurrencies like Bitcoin over the past few years. To be more precise, you could be wondering, "What is blockchain technology?" Blockchain appears to be a cliche, but only in the abstract sense, as there isn't a true definition that the average person can understand. It is imperative to answer “what is blockchain technology, “including the technology that is used, how it works, and how it’s becoming vital in the digital world.

Blockchain Technology: What Is It?

Blockchain is a technique for storing data that makes it difficult or impossible for outside parties to alter, hack, or manipulate the system. A distributed ledger, or blockchain, is a network of computers that replicates and disperses transactions between themselves.

Blockchain technology is a framework that uses multiple databases, referred to as the "chain," connected by peer-to-peer nodes, to store public transactional records, or blocks. This type of storage is commonly known as a "digital ledger."

The digital signature of the owner authorizes each transaction in this ledger, ensuring its authenticity and preventing any manipulation. Hence, the information the digital ledger contains is highly secure.

To put it another way, the digital ledger can be thought of as a Google spreadsheet that is shared among many computers in a network, where transactional records are stored based on actual purchases. The interesting aspect is that anyone can view the data, but they cannot corrupt it.

 Why is Blockchain Popular?

 Let's say you want to send money to your family or friends from your bank account. You would log in to online banking and transfer the amount to the other person using their account number. Once the transaction is complete, your bank updates the transaction records. That sounds easy enough, right? Well, there is a potential problem that most people overlook: these kinds of transactions can be easily manipulated, hence the evolution of third-party payment applications in recent years.  But this vulnerability is essBlockchain is a technologically advanced digital ledger that has gained a lot of traction recently. But why has it gained such a following? Now let's explore it more to fully understand the idea.

Data and transaction recording is an essential aspect of corporate operations. This information is frequently managed internally or sent via intermediaries like bankers, brokers, or attorneys, adding time, expense, or both to the company's operations. Thankfully, Blockchain circumvents this drawn-out procedure and speeds up transaction processing, saving time and money.

The common misconception is that Blockchain and Bitcoin may be used interchangeably, but this is untrue. Blockchain is a technology that can support a wide range of applications across several industries, including supply, manufacturing and fiancé; these are why Blockchain technology was created.

Blockchain is a cutting-edge technology that offers numerous benefits in a world going digital:

Extremely Safe

It employs a digital signature function to ensure that transactions are free from fraud, making it difficult for other users to alter or corrupt a user's data without a unique digital signature.

Dispersed System

Normally, transactions require the consent of regulating bodies like banks or the government. With Blockchain, on the other hand, transactions are carried out by user consensus, which makes them faster, safer, and more seamless.

Ability to Automate

Because it is programmable, when the trigger's conditions are satisfied, it can automatically produce payments, events, and systematic actions.

How Is Blockchain Technology Operational?

You may have observed that a growing number of companies worldwide have been utilizing Blockchain technology in recent years. But how does blockchain technology operate specifically? Is this a minor addition or a big change? Let's start by dispelling some of the myths surrounding Blockchain technology, as these developments are still in their infancy and could become revolutionary in the future.

Blockchain combines three cutting-edge technologies:

  • Keys for cryptography
  • A distributed ledger on a peer-to-peer network
  • A method of computing that stores the network's records and transactions

The two keys used in cryptography are the public key and the private key. These keys facilitate the successful completion of transactions between two parties. These two keys belong to each person, and they are used to create a safe digital identity reference. This secured identity is the most important aspect of Blockchain technology. In the world of cryptocurrency, this identity is referred to as ‘digital signature’ and is used for authorizing and controlling transactions.

The peer-to-peer network and the digital signature are combined, and a lot of people who function as authorities use the digital signature to agree on transactions and other matters. The two network-connected parties engage in a successful secured transaction once they approve an agreement, which is validated by a mathematical check. In conclusion, users of blockchains utilize cryptography keys to carry out various digital operations over the peer-to-peer network.

Types of Blockchain

There are different types of blockchains, they include;

Networks of Permitted Blockchains

Permission blockchain networks, often referred to as hybrid blockchains, are private blockchains that grant specific access to individuals who have been granted authorization. These kinds of blockchains are usually set up by organizations to combine the greatest features of both, and they allow for better organization when determining who can participate.

Hybrid Blockchains

Hybrid blockchains combine elements of both public and private blockchains; within a hybrid blockchain, certain parts are accessible to authorized and specific participants only, while other parts are public and transparent. This feature makes hybrid blockchains perfect for applications where a balance between privacy and transparency is needed, such as supply chain management, where sensitive data can be kept private but certain information can be accessed by multiple parties. 


 Sidechains are distinct blockchains that operate in parallel to the main blockchain, providing extra functionality and scalability. They also allow developers to test new features and applications without jeopardizing the integrity of the main blockchain mechanisms. Sidechains can also be used to handle transactions of the main blockchain to reduce congestion and increase scalability.

Networks of Private Blockchains

Private blockchains are typically effective for private companies and organizations, operating on closed networks. Private blockchains allow businesses to tailor network characteristics, accessibility and permission choices, and other critical security features. Networks using private blockchains are managed by a single authority.

Blockchain Networks for Public Use

Public blockchains are the source of Bitcoin and other cryptocurrencies, and they also contributed to the rise in popularity of distributed ledger technology (DLT). Additionally, public blockchains aid in the removal of some obstacles and problems including centralization and security holes. DLT distributes data throughout a peer-to-peer network as opposed to storing it in a single place. Information authenticity is confirmed using a consensus process; two commonly used methods are proof of stake (PoS) and proof of work (PoW).

Blockchain Levels

Building several blockchain layers on top of one another is referred to as "blockchain layers." Every layer can have its own rules, functionality, and consensus mechanism that can communicate with other layers. Due to the capacity to handle transactions concurrently across multiple layers, this guarantees increased scalability. As an illustration, the Lightning Network is a second layer solution that facilitates quicker and less expensive transactions by opening up payment channels between users and is built on top of the Bitcoin blockchain.

Blockchains for Consortiums

Consortium blockchains are similar to permissioned blockchains in that they consist of both public and private components. The difference is that a single consortium blockchain network is managed by several organizations. These kinds of blockchains can provide superior security once they are operating, despite the fact that they can be more difficult to set up initially.

Networks of Permitted Blockchains

Permissioned blockchain networks, often referred to as hybrid blockchains, are private blockchains that grant specific access to individuals who have been granted authorization. These kinds of blockchains are usually set up by organizations to combine the best features of both worlds, and they allow for better organization when deciding who can join in the network and in which transactions.

The Transaction Process

The way blockchain technology authorizes and verifies transactions is one of its key characteristics. For instance, the first party would attach the transaction data to the second party's public key if they both wanted to complete a transaction using their private and public keys, respectively. This entire set of data is compiled into a block.

A timestamp, a digital signature, and other significant, pertinent data are included in the block. It should be emphasized that the identity of the parties to the transaction are not included in the block. The transaction is then properly completed when the correct person uses his private key and compares it with the block, which is then broadcast throughout all of the network's nodes.

The Blockchain can store transactional data about homes, cars, and other items in addition to money transactions.

This use case demonstrates how blockchain technology functions:


"Mining" is the term used in Blockchain technology to describe the process of adding transactional data to the current digital/public ledger. Although the phrase is linked to Bitcoin, it can also apply to other Blockchain-based technologies. By creating a block transaction's hash, which is difficult to fake, mining ensures the security of the entire Blockchain without the need for a centralized mechanism.

Hashing and encryption are used by blockchain technology to protect data

The SHA256 algorithm is primarily used for this purpose. The SHA256 method is used to convey the sender's address (public key), the recipient's address, the transaction, and the recipient's private key data. Hash encryption is used to encrypt data that is sent over the globe and put to the blockchain after verification. The SHA256 algorithm makes it almost impossible to hack the hash encryption, which in turn simplifies the sender and receiver’s authentication.

Evidence of Work

Each block in a blockchain is made up of four major headers.

Previous Hash: The previous block can be found using this hash address.

  • Transaction Specifics: Information about each and every transaction that must take place.
  • Nonce: In cryptography, a random number assigned to distinguish the block's hash address.
  • Hash Address of the Block: A hashing technique is used to transmit the previous hash, transaction information, and nonce, among other things. This produces an output that is known as the distinct "hash address" and has a length of 64 characters (256 bits). It is called the hash of the block as a result.
  • Many people worldwide attempt to use computational procedures to determine the appropriate hash value to satisfy a predefined criterion. When the predefined condition is met, the transaction is finished.

How to Make Blockchain Technology Investments

Investing in stocks and blockchain technology can yield significant profits, and there are multiple approaches to initiate your first blockchain investment. When considering blockchain technology investments, bitcoin is usually the first item that comes to mind, and it is important not to be disregarded. Investing in cryptocurrency penny stocks, like Altcoin and Litecoin, is an additional option to purchasing Bitcoin. Additionally, several services and apps that are in the pre-development stage are raising money via blockchain technology. As an investor, you might purchase coins, hoping that as the service or program gains popularity, the price will rise. An additional option for blockchain technology investment.

Conventional Banking and Investment Approaches Using Blockchain Technology

The two primary investment strategies used in traditional finance are active and passive. Selecting stocks or other assets and hanging onto them for an extended length of time is known as active investing. Conversely, passive investing entails making long-term investments in a variety of assets and keeping onto them. Although each of these approaches has advantages and disadvantages, active investing is significantly riskier than passive investing.

What Qualities Does Blockchain Technology Offer?

  • Blockchain technology is an immutable, transparent, and secure distributed ledger. 
  • A decentralized database that is impenetrable by tampering can be created using blockchain technology, potentially revolutionizing he way we interact with the digital world.
  • Blockchain technology is secure, transparent, and tamper-proof.

What are the Core Elements of Blockchain Technology? 

The core elements of blockchain technology are the distributed ledger, the consensus mechanism, and the smart contracts. 

  • The distributed ledger is essentially a database that is dispersed throughout a network of computers. 
  • The consensus mechanism facilitates agreement among the computers on the ledger's state. 
  • The smart contracts enable the blockchain to be utilized for purposes beyond database management. 

What are the Implications of Blockchain Technology?

Blockchain technology has had a significant impact on society in a number of ways. 

  • First, its primary application, Bitcoin, has helped a great deal of people through financial services like digital wallets; it has helped people in less fortunate financial circumstances by providing microloans and allowing micropayments, thereby bringing new life to the global economy. 
  • Secondly, blockchain technology has had a significant impact on the concept of TRUST, particularly in the area of international transactions. Previously, lawyers were hired to bridge the trust gap between two different parties, but this required extra time and money. However, the introduction of cryptocurrency has fundamentally changed the trust equation and corruption is widespread. In such cases, Blockchain renders a significant advantage to these affected people and organizations, allowing them to escape the tricks of unreliable third-party intermediaries.
  • The Internet of Things (IoT) is a new reality that is already brimming with smart gadgets that can do anything from control traffic safety in your neighborhood to turn on washing machines, drive vehicles, steer ships, and schedule garbage pickup. This is the role of blockchain technology. Any firm can improve operations and maintain more accurate records by utilizing blockchain technology through the creation of Smart Contracts, as demonstrated in all of these scenarios and others.
  • A decentralized peer-to-peer network is made possible by blockchain technology for companies or applications such as Uber and Airbnb. It enables payments for parking, tolls, and other expenses.
  • Sensitive patient data can be securely stored inside the healthcare sector by utilizing blockchain technology. Organizations pertaining to health can establish a centralized database with the technology and share the information with only the appropriately authorized people.
  • Blockchain technology can be used in the private consumer space by two parties who want to carry out a private transaction. However, before both sides may move forward with these kinds of transactions, several elements need to be worked out:
  • What are the exchange's terms and conditions (T&C)?
  • Are all of the terms understood?
  • When does the conversation begin?
  • When is it going to end?
  • When is stopping the conversation unfair?

Through the use of distributed ledgers on decentralized networks and shared ledgers, blockchain technology allows all parties to promptly obtain answers to these queries by looking up individual "blocks" inside the "chain." All of the transactions in the chain can follow a transaction on a blockchain platform from the point of departure to the destination.

Despite the fact that this article only touched the surface of the industry's potential for blockchain applications, the career opportunities in this field are growing rapidly. For professionals, staying ahead of the curve is always a wise move.