What Is Blockchain Technology and How Does it Work?


Blockchain technology refers to a database that is distributed. This database is shared among computer network nodes. The information in the database of the blockchain is stored in digital patterns electronically.

Blockchain technology has become popular over the years because of the important role it plays in cryptocurrency. Cryptocurrencies like Bitcoin and Ethereum are built on blockchain technology. 

Cryptocurrencies use blockchain technology to keep transaction records decentralized and secure. Another reason blockchain technology has gained mass adoption over the years is that it provides security and fidelity to data records. You can trust data records on blockchain technology without the involvement of a third party. 

The structure of data is what separates an ordinary database from blockchain data. The structure of blockchain data is in blocks. It means that information in the blockchain network is structured in groups, these groups are called Blocks. These blocks have storage limits, when they are full, they are linked to a previous block by a chain. This linking of blocks by a chain accounts for the name blockchain technology. 

All new information that the system will gather is put together again till the storage capacity is full. Then it is linked again to a previous block by another chain. So, what you have in blockchain technology are just blocks of information linked together by a chain. 

This structure is unlike the structure of a typical database, the typical database arranges data in tables. The data structure of blockchain technology makes the information on the database tamper-proof. Once the information is entered into the database, it is irreversible. Once a block is full, it is structured like a stone, giving the information there an irreversible timeline. 

When a block is full and gets fixed like a stone, that block receives a definite timestamp. This timestamp is to show when the block was joined to the chain. 

How Does Blockchain Technology Work?

More than before, a lot of businesses are now getting into blockchain technology. The integration of businesses into this technology is rising by the day. One thing you must know if you will successfully integrate your business into this technology is how the technology works. You should be able to answer the question “is it a total shift from traditional processes or is it just an addition?”

Knowing these answers now is one of the best things that can happen to you. This technology is still new, and it will change the operations of things and business processes in the coming years. Let me guide you into demystifying this revolutionary technology. 

Blockchain technology has three major components, they are;

  • Keys that are produced through cryptography.
  • A distributed ledger in a peer-to-peer network.
  • Computing method for record and transaction storage in the peer-to-peer network. 

The cryptographic keys are of two types, the Private and Public Keys. When two users in the blockchain network want to perform a transaction, they will use these keys. Every player in the blockchain network has these keys. Users use these keys to manufacture a secured reference of digital identity. When it comes to blockchain technology, one of the most crucial aspects is this secured identity. 

When we are looking at this secured identity in the cryptocurrency application of blockchain technology, the identity is called a digital signature. This signature is used basically for transaction authorization and control. 

The technology joins the digital signature to the network containing a large number of people. These people have digital signatures, so they act as authorities by reaching transactional consensus.  Immediately a consensus is reached by these users with their digital signatures, a deal authorization takes place. This authorization goes through a mathematical computation to get verified. 

If the authorization is verified and the deal is certified, then there will be a secure and successful transaction between the users in the peer-to-peer network. In summary, the users in the blockchain network use their cryptographic keys to carry out different types of safe, smooth, and fast digital transactions. 

Types of Blockchain Technology

What Is Blockchain Technology and How Does it Work?

There are four types of blockchain technology. We will mention them here and then discuss them in full in our next article.

The four types of blockchain are;

  • Private Blockchain Networks
  • Public Blockchain Networks
  • Permissioned Blockchain Networks
  • Consortium Blockchains

The Reason for Blockchain’s Popularity?

Let’s say you want to send money to a family member or a friend that is far away from you. What you need to do is to open your bank app, log in and then transfer the amount you want to send to the person through the person’s account number. The bank will send you a debit alert and send the receiver a credit alert when the transaction is completed. 

The truth is that as simple as this process is, the date that the bank will send to both of you can be tampered with. A lot of people know this truth, and for them using this transaction method is disturbing. This issue has been the reason for the increase in the development of applications responsible for third-party payments.  Apart from these applications, this issue gave rise to the creation of blockchain technology. 

Blockchain technology is one concept that has attracted a whole lot of attention recently. This digital ledger has become so popular that the big question is “why is it so?” Well, let’s explore a bit further into the whole concept. 

You see, one of the most important aspects of business is keeping data and records. Most of the time, this data is handled within the organization, if they will hand the data to a third party for storage, then the third party must be a trusted party. Examples of seemingly trusted third parties are lawyers, bankers, and brokers. 

The problems that can come with passing the company data through these seemingly trusted parties are;

  • The information with them is still not tamper-proof.
  • Data storage and record-keeping will take a lot of time and money. 

These problems are the selling points of blockchain technology. Blockchain technology will provide tamper-proof for the information stored there. Also, it will facilitate the whole process, and make it faster. When the process is faster, the business will save a lot of time and money in the process of data storage and record keeping. 

Quite some people usually use bitcoin in place of blockchain, and vice versa. While these two concepts may sound and look similar, they are not the same. The concept of blockchain technology refers to a technology that can power different applications linked to a wide range of industries. Some of these industries are supply chain, manufacturing, and finance. 

Bitcoin on the other hand is just a type of cryptocurrency that runs on blockchain technology to stay secure. In the digital world we live in today, blockchain technology is a rising technology with a lot of potential and advantages. Some of the advantages of this technology are;

  • High level of security – blockchain technology uses unique digital signatures to carry out transactions void of fraud. This feature makes transactions fraud free by making changing or corruption of data impossible for other users. 
  • System decentralization – blockchain technology makes it possible for users to carry out transactions without the banks’ and governmental approvals. All you need to carry out transactions in the blockchain is mutual consensus between users. This consensus between users makes transactions smoother, faster, and safer. 
  • Capacity for automation – the technology can generate actions within the system. Actions like payments, events, validation, and so on, are done automatically when users trigger certain actions.

The Reason For The Hype About Blockchain Technology

What Is Blockchain Technology and How Does it Work?

In the past, a lot of people have tried to create digital money and failed. The reason for this failure is trust. Trust has always been the issue because someone who creates digital money called Y dollars can decide to give themselves millions of Y dollars. Also, we cannot even stay sure that the creator will not steal our Y dollars for himself. 

This trust issue became a major issue that bitcoin came to solve. Bitcoin was to provide the solution to this trust issue using blockchain technology. Most of these typical databases like SQL databases are run by people. These people can decide to change the entries at any time. It means that they can give themselves millions of Y dollars when they decide to. 

The reason blockchain is different is that nobody runs it centrally. The people in charge of blockchain technology are those who are using it. It is like putting power in the hands of the people. More than that, you cannot hack bitcoin, fake or double spend it. You see why it is tamper-proof, if you have this currency, you can trust that the value is what it is. 


Blockchain technology is a revolutionary technology that will disrupt the various mainstream industries. It will make processes easier, more trustworthy, faster, and more transparent. 

Businesses and individuals who are seeing into the future and the disruptions that this technology will cause are positioning themselves by either integrating their businesses into the technology or by investing in the technology. You should not be left behind. To find out more reasons why you should invest in blockchain technology and bitcoin, click here.

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