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How does Blockchain Technology Work?

by jane bryon

Blockchain technology is an ingenious innovation by Satoshi Nakamoto. People don’t know whether Satoshi Nakamoto is a single person or a group of people. It was invented in 2008.

If you know what are cryptocurrencies, then you must know about blockchain. It is an open, distributed ledger which records transactions among two parties in a verifiable way managed by a peer-to-peer network.

Blockchain stores digital information in a public database. Here digital information is considered as blocks and the public database is considered as a chain. Blocks store all information about the transactions like time, date and amount of your last purchase. It even stores information about parties involving in the transaction. Your purchase is recorded in the public database on your actual name. It is recorded with a unique digital signature, which acts as your username.

We humans have names to distinguish us from each other. Blocks use the hash, a unique code to distinguish blocks from each other. Suppose you brought a purchase and couldn’t resist for the second purchase of the same one. Even though both the purchases are of the same category they can be separated by the unique codes.

A block in blockchain can store up to 1MB of data. A block can house thousands of transactions under it depending on the size of the transactions.

How does it work?

With all the information pertaining to the blockchain, you must have an idea about it. Now it’s time to understand how does it work? For a block to be added to a blockchain these four things should occur.

  • For a block to be added to the blockchain a transaction must occur in the first place. If a transaction is added to a block then only there is a possibility for a block to be added to blockchain after a series of transactions.
  • Your transaction must be verified. In Wikipedia, library or a Security Exchange Commission, there is someone in charge to verify new entries. But with blockchain technology, all of this is overseen by networks. These networks consist of many computers spread across the globe.
  • In the case of bitcoins, there are around 5million. When you make a purchase, the network of computers checks the authenticity transaction like whether this transaction has occurred or not and then check for the details of the transaction including the time, date, dollar amount, etc.
  • Once your transaction is verified, it receives the green light to join the block. A block stores your transactions amount, digital signature in it. Then it joins the hundred thousand other transactions in the block.
  • And then the block is given a unique code called hash. Once given hash your block is all set to join the blockchain. Once a new block is added to the blockchain its viewed publicly. For example, in Bitcoins, you can see when and who added that block to the blockchain.

Most asked questions about Blockchain


As everyone around the globe can see the transactions in a blockchain. Users can connect their computers to blockchain network, your computer receives a copy updated blockchain whenever a new block is added. Since there are thousands of copies around a network of computers, it gets hard to manipulate. If a hacker tries he has to manipulate every copy on the network. Which is hard and impossible.

If you take a look at Bitcoin blockchain, you would have noticed that you can’t identify any information about people making the transactions. Even if the transactions on the block are anonymous, the personal information of a user is limited to his/her user name or digital signature.


Blockchain technology addresses the issues of security and trust in many ways. Blocks are always stored chronologically and linearly. A new block is always stored at the end of a blockchain. And it is impossible to go back and change the contents of a block as it is secured with hash. Hash codes are basically mathematical functions that convert digital info into a string of numbers and letters. If the information in a block is altered any way hash code will also change.

If a hacker attempts to change any information on your transaction, the hash code of your transaction changes. While all other transactions on the block have the same hash codes your transactions will differ. So the hacker has to alter all the transactions in a block. So if the hacker changes one transaction, then he should alter every single block on the blockchain.

Blockchain addresses the trust issue by implementing tests on the computers that want to join and add blocks on blockchain network. “Consensus model” is the name of the test. This test requires users to prove themselves before entering the network. “Proof of Work” is the example for test employed. It is a test conducted by Bitcoin.

Blockchain technology in other industries

It is known that blockchain stores data about all monetary transactions taken place on the network. And it actually a very reliable method which is safe and secure. This technology can be used to store data about stops in a supply chain, Votes of a candidate and property exchange etc. More than 34% have already deployed blockchain technology into their production process. While the other 41% are looking forward to using this technology in their production.

This decentralized, distributed ledger is mostly used for the cryptocurrencies. But it is slowly finding its place in the business too. It unalterability of transactions offers people security and privacy of their transaction and this is the main reason why people are interested in it.

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