What Is Blockchain Technology And How Does It Work?


Blockchain is a system of recording information in a way that makes it difficult or impossible to change, hack, or cheat the system.

A blockchain is essentially a digital ledger of transactions that is duplicated and distributed across the entire network of computer systems on the blockchain. Each block in the chain contains a number of transactions, and every time a new transaction occurs on the blockchain, a record of that transaction is added to every participant’s ledger. The decentralised database managed by multiple participants is known as Distributed Ledger Technology (DLT).

Blockchain is a type of DLT in which transactions are recorded with an immutable cryptographic signature called a hash

Blockchain technology is most simply defined as a decentralized, distributed ledger that records the provenance of a digital asset. By inherent design, the data on a blockchain is unable to be modified, which makes it a legitimate disruptor for industries like payments, cybersecurity and healthcare. 

Blockchain, sometimes referred to as Distributed Ledger Technology (DLT), makes the history of any digital asset unalterable and transparent through the use of decentralization and cryptographic hashing.  

A simple analogy for understanding blockchain technology is a Google Doc. When we create a document and share it with a group of people, the document is distributed instead of copied or transferred. This creates a decentralized distribution chain that gives everyone access to the document at the same time. No one is locked out awaiting changes from another party, while all modifications to the doc are being recorded in real-time, making changes completely transparent.

Of course, blockchain is more complicated than a Google Doc, but the analogy is apt because it illustrates three critical ideas of the technology:

History of Blockchain

Although blockchain is a new technology, it already boasts a rich and interesting history. The following is a brief timeline of some of the most important and notable events in the development of blockchain. 



  • The first successful Bitcoin (BTC) transaction occurs between computer scientist Hal Finney and the mysterious Satoshi Nakamoto.


  • Florida-based programmer Laszlo Hanycez completes the first ever purchase using Bitcoin — two Papa John’s pizzas. Hanycez transferred 10,000 BTC’s, worth about $60 at the time. Today it’s worth $80 million. 
  • The market cap of Bitcoin officially exceeds $1 million.


  • 1 BTC = $1USD, giving the cryptocurrency parity with the US dollar.
  • Electronic Frontier Foundation, Wikileaks and other organizations start accepting Bitcoin as donations.


  • Blockchain and cryptocurrency are mentioned in popular television shows like The Good Wife, injecting blockchain into pop culture.
  • Bitcoin Magazine launched by early Bitcoin developer Vitalik Buterin.


  • BTC market cap surpassed $1 billion.
  • Bitcoin reached $100/BTC for first time.
  • Buterin publishes “Ethereum Project” paper suggesting that blockchain has other possibilities besides Bitcoin (e.g., smart contracts).


  • Gaming company Zynga, The D Las Vegas Hotel and Overstock.com all start accepting Bitcoin as payment.
  • Buterin’s Ethereum Project is crowdfunded via an Initial Coin Offering (ICO) raising over $18 million in BTC and opening up new avenues for blockchain.
  • R3, a group of over 200 blockchain firms, is formed to discover new ways blockchain can be implemented in technology.
  • PayPal announces Bitcoin integration.


  • Number of merchants accepting BTC exceeds 100,000.
  • NASDAQ and San-Francisco blockchain company Chain team up to test the technology for trading shares in private companies.


  • Tech giant IBM announces a blockchain strategy for cloud-based business solutions.
  • Government of Japan recognizes the legitimacy of blockchain and cryptocurrencies.


  • Bitcoin reaches $1,000/BTC for first time.
  • Cryptocurrency market cap reaches $150 billion.
  • JP Morgan CEO Jamie Dimon says he believes in blockchain as a future technology, giving the ledger system a vote-of-confidence from Wall Street.
  • Bitcoin reaches its all-time high at $19,783.21/BTC.
  • Dubai announces its government will be blockchain-powered by 2020.


  • Facebook commits to starting a blockchain group and also hints at the possibility of creating its own cryptocurrency.
  • IBM develops a blockchain-based banking platform with large banks like Citi and Barclays signing on.


  • China’s President Ji Xinping publicly embraces blockchain as China’s central bank announces it is working on its own cryptocurrency
  • Twitter & Square CEO Jack Dorsey announces that Square will be hiring blockchain engineers to work on the company’s future crypto plans
  • The New York Stock Exchange (NYSE) announces the creation of Bakkt – a digital wallet company that includes crypto trading


  • Bitcoin almost reaches $30,000 by the end of 2020
  • PayPal announces it will allow users to buy, sell and hold cryptocurrencies
  • The Bahamas becomes the world’s first country to launch its central bank digital currency, fittingly known as the “Sand Dollar”
  • Blockchain becomes a key player in the fight against COVID-19, mainly for securely storing medical research data and patient information

How Does Blockchain Work?

The whole point of using a blockchain is to let people — in particular, people who don’t trust one another — share valuable data in a secure, tamperproof way.

Blockchain consists of three important concepts: blocks, nodes and miners.


Every chain consists of multiple blocks and each block has three basic elements:

  • The data in the block.
  • A 32-bit whole number called a nonce. The nonce is randomly generated when a block is created, which then generates a block header hash. 
  • The hash is a 256-bit number wedded to the nonce. It must start with a huge number of zeroes (i.e., be extremely small).

When the first block of a chain is created, a nonce generates the cryptographic hash. The data in the block is considered signed and forever tied to the nonce and hash unless it is mined.  


Miners create new blocks on the chain through a process called mining.

In a blockchain every block has its own unique nonce and hash, but also references the hash of the previous block in the chain, so mining a block isn’t easy, especially on large chains.

Miners use special software to solve the incredibly complex math problem of finding a nonce that generates an accepted hash. Because the nonce is only 32 bits and the hash is 256, there are roughly four billion possible nonce-hash combinations that must be mined before the right one is found. When that happens miners are said to have found the “golden nonce” and their block is added to the chain. 

Making a change to any block earlier in the chain requires re-mining not just the block with the change, but all of the blocks that come after. This is why it’s extremely difficult to manipulate blockchain technology. Think of it is as “safety in math” since finding golden nonces requires an enormous amount of time and computing power.

When a block is successfully mined, the change is accepted by all of the nodes on the network and the miner is rewarded financially.


One of the most important concepts in blockchain technology is decentralization. No one computer or organization can own the chain. Instead, it is a distributed ledger via the nodes connected to the chain. Nodes can be any kind of electronic device that maintains copies of the blockchain and keeps the network functioning. 

Every node has its own copy of the blockchain and the network must algorithmically approve any newly mined block for the chain to be updated, trusted and verified. Since blockchains are transparent, every action in the ledger can be easily checked and viewed. Each participant is given a unique alphanumeric identification number that shows their transactions.

Combining public information with a system of checks-and-balances helps the blockchain maintain integrity and creates trust among users. Essentially, blockchains can be thought of as the scaleability of trust via technology.


Cryptocurrencies: The Beginning of Blockchain’s Technological Rise

Blockchain’s most well-known use (and maybe most controversial) is in cryptocurrencies. Cryptocurrencies are digital currencies (or tokens), like Bitcoin, Ethereum or Litecoin, that can be used to buy goods and services. Just like a digital form of cash, crypto can be used to buy everything from your lunch to your next home. Unlike cash, crypto uses blockchain to act as both a public ledger and an enhanced cryptographic security system, so online transactions are always recorded and secured.


Cryptocurrencies are digital currencies that use blockchain technology to record and secure every transaction. A cryptocurrency (for example, Bitcoin) can be used as a digital form of cash to pay for everything from everyday items to larger purchases like cars and homes. It can be bought using one of several digital wallets or trading platforms, then digitally transferred upon purchase of an item, with the blockchain recording the transaction and the new owner. The appeal of cryptocurrencies is that everything is recorded in a public ledger and secured using cryptography, making an irrefutable, timestamped and secure record of every payment.

To date, there are roughly 6,700 cryptocurrencies in the world that have a total market cap around $1.6 trillion, with Bitcoin holding a majority of the value. These tokens have become incredibly popular over the last few years, with one Bitcoin equaling $60,000. Here are some of the main reasons why everyone is suddenly taking notice of cryptocurrencies:

  • Blockchain’s security makes theft much harder since each cryptocurrency has its own irrefutable identifiable number that is attached to one owner.
  • Crypto reduces the need for individualized currencies and central banks- With blockchain, crypto can be sent to anywhere and anyone in the world without the need for currency exchanging or without interference from central banks.
  • Cryptocurrencies can make some people rich- Speculators have been driving up the price of crypto, especially Bitcoin, helping some early adopters to become billionaires. Whether this is actually a positive has yet to be seen, as some retractors believe that speculators do not have the long-term benefits of crypto in mind.
  • More and more large corporations are coming around to the idea of a blockchain-based digital currency for payments. In February 2021, Tesla famously announced that it would invest $1.5 billion into Bitcoin and accept it as payment for their cars.

Of course, there are many legitimate arguments against blockchain-based digital currencies. First, crypto isn’t a very regulated market. Many governments were quick to jump into crypto, but few have a staunch set of codified laws regarding it. Additionally, crypto is incredibly volatile due to those aforementioned speculators. In 2016, Bitcoin was priced around $450 per token. It then jumped to about $16,000 a token in 2018, dipped to around $3,100, then has since increased to more than $60,000. Lack of stability has caused some people to get very rich, while a majority have still lost thousands. 

Whether or not digital currencies are the future remains to be seen. For now, it seems as if blockchain’s meteoric rise is more starting to take root in reality than pure hype. Though it’s still making headway in this entirely-new, highly-exploratory field, blockchain is also showing promise beyond Bitcoin.

Different Types of Blockchain Technologies

Now that we have established a good understanding of the need for blockchain technology types. It is now time for us to learn about them.

At a glance, there are four different major types of blockchain technologies. They include the following.

  • Public
  • Private
  • Hybrid
  • Federated

Public Blockchain

A public blockchain is one of the different types of blockchain technology. A public blockchain is the permission-less distributed ledger technology where anyone can join and do transactions. It is a non-restrictive version where each peer has a copy of the ledger. This also means that anyone can access the public blockchain if they have an internet connection.

One of the first public blockchains that were released to the public was the bitcoin public blockchain. It enabled anyone connected to the internet to do transactions in a decentralized manner.

The verification of the transactions is done through consensus methods such as Proof-of-Work(PoW), Proof-of-Stake(PoS), and so on. At the cores, the participating nodes require to do the heavy-lifting, including validating transactions to make the public blockchain work. If a public blockchain doesn’t have the required peers participating in solving transactions, then it will become non-functional. There are also different types of blockchain platforms that use these various types of blockchain as the base of their project. However, each platform introduces more features in its platform aside from the usual ones.

Examples of public blockchain: Bitcoin, Ethereum, Litecoin, NEO

What Are the Advantages?

Public blockchains are good at what they do. Its advantages include the following.

  • Anyone can join the public blockchain.
  • It brings trust among the whole community of users
  • Everyone feels incentivized to work towards the betterment of the public network
  • Public blockchain requires no intermediaries to work.
  • Public blockchains are also secure depending on the number of participating nodes
  • It brings transparency to the whole network as the available data is available for verification purposes.

What Are the Disadvantages?

Public blockchain does suffer from disadvantages. They are as follows:

They suffer from a lack of transaction speed. It can take a few minutes to hours before a transaction is completed. For instance, bitcoin can only manage seven transactions per second compared to 24,000 transactions per second done by VISA. This is because it takes time to solve the mathematical problems and then complete the transaction.

Another problem with public blockchain is scalability. They simply cannot scale due to how they work. The more nodes join, the clumsier, and slow the network becomes. There are steps taken to solve the problem. For example, Bitcoin is working on lighting the network, which takes transactions off-chain to make the main bitcoin network faster and more scalable.

The last disadvantage of a public blockchain is the consensus method choice. Bitcoin, for example, uses Proof-of-Work (PoW), which consumes a lot of energy. However, this has been partially solved by using more efficient algorithms such as Proof-of-Stake (PoS).

What Are the Use Cases?

There are multiple use-cases of the public blockchain. To get a better idea, let’s list some of them below.

  • Voting: Governments can do voting through public blockchain employing transparency and trust.
  • Fundraising: Companies or initiatives can make use of the public blockchain for improving transparency and trust.

Private Blockchain

A private blockchain is one of the different types of blockchain technology. A private blockchain can be best defined as the blockchain that works in a restrictive environment, i.e., a closed network. It is also a permissioned blockchain that is under the control of an entity.

Private blockchains are amazing for using at a privately-held company or organization that wants to use it for internal use-cases. By doing so, you can use the blockchain effectively and allow only selected participants to access the blockchain network. The organization can also set different parameters to the network, including accessibility, authorization, and so on!

So, how is it different from a public blockchain? It is different in the way it is accessed. Otherwise, it offers the same set of features as that of the public blockchain, providing transparency, trust, and security to the selected participants.

Another major difference is that it’s kind of centralized as only one authority looks over the network. So, it doesn’t have a decentralized theoretical nature. There are also various types of blockchain platforms that use private blockchain as the base of their platform. More so, each one of them tends to be unique and offer different features.

In many cases, a private blockchain is considered permissioned blockchain. But the concept of permissioned blockchain is much broader as it can include public blockchain as well.

Examples of Private blockchain: Multichain, Hyperledger Fabric, Hyperledger Sawtooth, Corda

What Are the Advantages?

Private blockchains are fast. This is because there are few participants compared to the public blockchain. In short, it takes less time for the network to reach consensus resulting in faster transactions.

Private blockchains are more scalable. The scalability is possible because, in a private blockchain, only a few nodes are authorized to validate transactions. This means it doesn’t matter if the network grows; the private blockchain will work at its previous speed and efficiency. The key here is the centralization aspect of decision making.

What Are the Disadvantages?

Private blockchains are not truly decentralized. This is one of the biggest disadvantages of private blockchain and goes against the core philosophy of distributed ledger technology or blockchain in general.

Achieving trust within the private blockchain is tough because the centralized nodes make the last call.

Lastly, as there are only a few nodes here, the security isn’t all that good. It is important to understand that it is possible to lose security if a certain number of nodes go rogue and compromise the consensus method utilized by the private network.

What Are the Use Cases?

There are multiple private blockchain’s use-cases. Some of them are listed below.

  • Supply chain management: Organizations can deploy a private blockchain to manage their supply chain.
  • Asset ownership: Assets can be tracked and verified using a private blockchain.
  • Internal Voting: Private blockchain is also effective at internal voting.

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Consortium Blockchain

A consortium blockchain is one of the different types of blockchain technology. A consortium blockchain (also known as Federated blockchains) is a creative approach to solving organizations’ needs where there is a need for both public and private blockchain features. In a consortium blockchain, some aspects of the organizations are made public, while others remain private.

The consensus procedures in a consortium blockchain are controlled by the preset nodes. More so, even though it’s not open to mass people, it still holds a decentralized nature. How? Well, a consortium blockchain is managed by more than one organization. So, there is no one single force of centralized outcome here.

To ensure proper functionality, the consortium has a validator node that can do two functions, validate transactions, and also initiate or receive transactions. In comparison, the member node can receive or initiate transactions.

In short, it offers all the features of a private blockchain, including transparency, privacy, and efficiency, without one party having consolidating power.

Examples of Consortium Blockchain: Marco Polo, Energy Web Foundation, IBM Food Trust.

What Are the Advantages?

  • It offers better customizability and control over resources.
  • Consortium blockchains are more secure and have better scalability.
  • It is also more efficient compared to public blockchain networks.
  • Works with well-defined governance structures.
  • It offers access controls.

What Are the Disadvantages?

  • Even though it is secure, the whole network can be compromised due to the member’s integrity.
  • It is less transparent.
  • Regulations and censorship can have a huge impact on network functionality.
  • It is also less anonymous compared to other types of blockchain.

What Are the Use Cases?

There are multiple use-cases of consortium blockchain. Some of them include the following

  • Banking and payments: A group of banks can work together and create a consortium. They can decide the nodes that will validate transactions.
  • Research: A consortium blockchain can be used to share research data and results.
  • Food tracking: It is also great for food tracking.

Hybrid Blockchain

Hybrid blockchain is one of the different types of blockchain technology. More so, Hybrid blockchain is the last type of blockchain that we are going to discuss here. More so, hybrid blockchain might sound like a consortium blockchain, but it is not. However, there can be some similarities between them.

Hybrid blockchain is best defined as a combination of a private and public blockchain. It has use-cases in an organization that neither wants to deploy a private blockchain nor public blockchain and simply wants to deploy both worlds’ best.

Example of Hybrid Blockchain: Dragonchain, XinFin’s Hybrid blockchain

What Are the Advantages?

  • Works in a closed ecosystem without the need to make everything public.
  • Rules can be changed according to the needs.
  • Hybrid networks are also immune to 51% attacks.
  • It offers privacy while still connected with a public network.
  • It offers good scalability compared to the public network.

What Are the Disadvantages?

  • Not completely transparent.
  • Upgrading to the hybrid blockchain can be a challenge.
  • There is no incentive for participating and contributing to the network.

What Are the Use Cases?

Some of the best use-cases of the Hybrid blockchain are as follows:

  • Real estate: You can use hybrid networks for real-estate purposes where real-estate companies can use it to run their systems and use the public to show information to the public.
  • Retail: Retail can also use the hybrid network to streamline their processes.
  • Highly regulated markets: Hybrid blockchains are also ideal for highly regulated markets such as financial markets.

Why is there so much hype around blockchain technology?

There have been many attempts to create digital money in the past, but they have always failed.

The prevailing issue is trust. If someone creates a new currency called the X dollar, how can we trust that they won’t give themselves a million X dollars, or steal your X dollars for themselves?

Bitcoin was designed to solve this problem by using a specific type of database called a blockchain. Most normal databases, such as an SQL database, have someone in charge who can change the entries (e.g. giving themselves a million X dollars). Blockchain is different because nobody is in charge; it’s run by the people who use it. What’s more, bitcoins can’t be faked, hacked or double spent – so people that own this money can trust that it has some value.

Advantages of Blockchain Technology

There are many advantages to using blockchain technology compared to other traditional technologies.

  • With blockchain, your business process will be better protected with the help of a high level of security
  • The hacking threats against your business will also be reduced to a greater extent.
  • As blockchain offers a decentralized platform, there is no need to pay for centralized entities or intermediaries’ services.
  • Enterprise blockchain technology enables organizations to use different levels of accessibility.
  • Organizations can do faster transactions with the help of blockchain.
  • Account reconciliation can be automated.
  • The transactions done are transparent and hence, easy to track.

Now, with the impact of industries clear, it is now time to go through the list of sectors that are taking advantage of blockchain technology. Let’s get started.

Which Industry Can Benefit from Blockchain?

Almost all the sectors out there can benefit from the blockchain. Out of all the sectors out there, the four sectors that we think benefit the most include Energy, Real Estate, Logistics, Healthcare, Finance, and Government.

There are already many companies using blockchain technology actively after realizing the potential of this tech. To get a glimpse of exactly how different industries are taking benefits of blockchain, let’s briefly go through each one of them.

Benefits of Blockchain In Energy Sector

Energy distribution, allocation, and production have always been an important sector for governments out there. Without proper energy management, it becomes hard for any government to provide valuable growth to its economy. Private players also play a crucial role and can benefit from the blockchain. Below are the benefits that the energy sector receives with the use of blockchain.

  • Environmental Sustainability: Blockchain helps make the energy sector more environmentally sustainable. It helps overcome legacy energy sector efficiency issues and provides a network where it is possible to produce, store, and distribute energy more efficiently.
  • Reduced Costs: The costs associated are reduced when it comes to infrastructure and operational aspects of the energy sector.
  • Improved Transparency: The use of a distributed ledgers improves transparency.

Benefits of Blockchain In Real Estate

The real estate sector’s condition has not been so good for the past few years. That’s partly because of the ever-increasing price and how frustrating it has become to buy a property. Blockchain has brought a new fresh outlook on how the real estate sector operates. The benefits of blockchain in real estate include the following –

  • Tokenization: With blockchain, it will become possible to tokenize actions. This means that properties can be rented out for a certain period using pre-defined code. Tokens also make it possible to add any business logic, including the ability to protect against fraud.
  • Proper Tenant and Investor Identity: Digital identities can help both investor and tenant to create digital identities that are easy to verify and work with. The KYC/AML procedures will become more streamlined with the use of proper identity management. Lastly, documentation becomes easier and more shareable.
  • Property Sale: Property sales can be automated with smart contracts. It enables legal agreements that are traceable and executable if a certain condition is met.
  • Real-Time Accounting: With blockchain, it is possible to do real-time accounting

Benefits of Blockchain In Trade Finance

Trade finance benefited immensely from the blockchain. It required some form of reform to solve the problems it is currently facing. The benefits of blockchain in trade finance include the following.

  • Data Integrity: With blockchain, the trade finance sector improves when it comes to data integrity, authenticity, and proper asset provenance.
  • Streamlined Process: Automation also became a norm due to blockchain dApp and smart contract capabilities. It improved overall process efficiency, including the ability to do real-time settlement. The process also became error free due to the non-involvement of intermediaries.
  • Programmable: With blockchain, organizations can now code multiple aspects of the business, including data privacy, governance, identity management, and so on.
  • Market Reactivity: Using digital security also means that trade finance organizations can make changes when the need arises. In simple words, it offers customization.
  • Cost Reduction: Using an automated network means cost reduction, including transactional, operational, and infrastructural.

Benefits of Blockchain In Government

Many governments around the world are not in favor of cryptocurrency, but they do understand the importance of blockchain and what it has to offer. The government can utilize blockchain in many ways. The benefits of Blockchain in government include the following –

  • Proper Identity Management: The government can use identity management for every citizen. This way, they can manage the transactions, credentials and also do data management.
  • Fair Elections: They can also utilize the blockchain to do transparent elections where there is no chance of fraud.
  • Finance Management: Engage in a better way to do finance management. They can also allocate budgets with transparency, efficiency, and effectiveness.

Benefits of Blockchain In Healthcare

Healthcare also requires a complete change if they want to be more effective in providing service to their patients. The benefits of blockchain in healthcare are countless. It does bring a lot of benefits to the table. Let’s see how blockchain for healthcare can really alter the game.

  • Patient Profile Privacy: The use of a decentralized ledger means a unified patient profile. Patients do not have to carry their papers anymore as everything can be stored and shared through a secure ledger. It will also offer patients more privacy as they hold the authority to grant permission to who can use or see the data.
  • Drug Traceability: Drug traceability will also improve with blockchain. As everything is tracked in real-time and in a decentralized network, there are next to impossible chances for it to get hampered.
  • Better Clinical Trials: Patient’s data is secured and stored in a decentralized network. The public health data can be used to do better clinical trials and research — improving the chances of developing drugs for different diseases.
  • Electronic Health Records (EHRs): With blockchain, health organizations can easily manage electronic records.

Benefits of Blockchain In Logistics

Logistics is a prominent industry that needs a change as soon as possible. This is one of the industries that is dealing with an overwhelming number of issues. This is where blockchain comes into play. Blockchain can truly offer benefits to this industry. Let’s check out how  can really offer:

  • Better Freight Tracking: Blockchain offers a proper authentication channel that comes with verification as well; no one can tamper with the data available on the network. This can help to keep track of all deliveries and maintain the deliveries in real-time.
  • Better Carrier Onboarding: Blockchain is fully capable of handling the situation; any new driver’s onboarding process can happen within minutes.
  • Vehicle to Vehicle Communication: Blockchain can quickly secure all the data from vehicle-to-vehicle communication processes and help companies streamline the information efficiently.
  • Security for the Internet of Things (IoT) Devices: It can offer security for IoT devices (used within the logistics industries) and monitor all the data that comes from all of these devices.


This leads us to the end of our key benefits of blockchain technology topic. Now that you know about the importance of blockchain technology, you can make educated decisions on whether you want to use this technology or not.

Blockchain is a revolutionary technology with a huge impact on every sector out there. Our focus was only on the main sectors so that you can relate and understand its advantages.

But in the end, the decision is entirely up to you. Hopefully, this guide will help you out in making the right decision for your business.


Author: refuge_2020

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