What Is Blockchain Technology? How Does It Work?

5 min readSep 21, 2021

Although blockchain first came about in 2008, it is a relatively new technology. Since the adoption of cryptocurrency, specifically Bitcoin, Blockchain has got everyone talking. So, how does the revolutionary technology of blockchain work?

What is Blockchain Technology?

Blockchain is a ledger technology that digitally records and distributes data across a network of computers. Specifically, a Distributed Ledger Technology, or a DLT. A DLT uses cryptographic hashing to record the transactions of digital assets. Moreover, with the help of decentralization, the recorded history of these digital assets becomes unalterable.

In other words, a blockchain is a database that chains encrypted blocks of data together to form a chronological ledger for data. Decentralization allows a transparent distribution of assets. As well as, real-time access to the public. Because of this transparency, the authenticity of the assets is preserved.

In simpler terms, we can compare a google document to the blockchain, for instance. When you share a google doc with a group of people, the same document is distributed. It is not copied or transferred. Instead, everyone has access to the same file. Therefore, everyone can make changes, and these changes are recorded and visible to everyone with the link.

Blockchain technology is a lot more complex than this, obviously. Furthermore, blockchain’s inherent security measures reduce risks and scales transparency for every sector.

How does Blockchain Technology work?

Blockchain technology lets parties interact with each other without a middleman such as a bank or the government. It does so through three components.

Blocks

Every chain features multiple blocks and every block includes three elements:

The data contained inside the block
A 32-bit whole number randomly generated during block creation, is called the nonce.
And the block header attached to the nonce is a 256-bit number called hash.

Unless the block is mined, the data in it is forever wedded to the two components.

Miners

Speaking of mining, miners are the ones who create the blocks on the chain.

In a blockchain network, every block has a particular nonce and hash. However, the hash follows a chronological order, referencing the hash of the prior block in the chain. Hence, it is quite difficult to mine blocks, especially on a larger chain.

That’s why miners use special software to solve tremendously complex mathematical problems to generate an acceptable nonce and hash. Since the nonce is only 32 bits, while the hash is 25 bits, there are four billion possible nonce and hash combinations that are mined before the correct combination is found. The miners call the right combination “the golden nonce”. And the block containing the nonce is added to the chain.

Remember when you were a kid and you’d mess up one calculation in a math problem during an exam? Now, to change the current issue, you’d have to redo all the calculations leading up to the original mistake.

That is pretty much how changing a block would look like. Except, it is exceptionally difficult to re-mine a block as finding the golden nonce requires incredible computing power and an enormous amount of time. As a result, editing blockchain technology is extremely unfavorable.

Nodes

As previously mentioned, blockchain is built on the concept of decentralized. A blockchain network belongs to no one organization. Therefore, the nodes present in the chain distribute the digital ledger across a network of computers.

Nodes are electrical devices that maintain copies of the blockchain and every node has its individual copy. Additionally, nodes are meant to keep the network functioning by algorithmically approving any newly minted blocks that are to be added to the chain.

Because blockchains are transparent, every user is provided with a unique alphanumeric identification number to monitor their transactions. Collaboration of visible public information while also safeguarding user anonymity, issues trust amongst its members.

Blockchain for cryptocurrency

Cryptocurrency is blockchain’s most popular use. In brief, cryptocurrencies are digital currencies that are used to purchase things online. For example, your next grocery run or a vacation in the Bahamas. However, unlike cash, the transactions made through cryptocurrency are recorded and secured.

Roughly 6,700 cryptocurrencies exist right now around the world worth a market capitalization of over $1.6 trillion. Bitcoin among these being the most famous and powerful. Presently, one single bitcoin is worth about 45 thousand US dollars.

Cryptocurrency relies on blockchain technology for security. Given that unique identifications are attached to every user, theft is a lot harder to execute. Another major reason, blockchain-based cryptocurrency is more efficient is due to its lack of a centralized system. Money from everywhere can be sent anywhere without interference or banks.

Conclusion

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