What is Blockchain Technology? How does Blockchain Work & its Features
A blockchain is a type of database that stores information in blocks that are linked together in a chain. Each block contains a timestamp and a link to a previous block. Continue reading to find out more about blockchain technology.
5 JUN 2023, 6 min read
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Blockchain technology, a revolutionary invention by an individual or group of individuals known as Satoshi Nakamoto, is redefining the paradigm of our global economic systems. Its significance is rising, transforming various sectors, from finance to supply chain management, healthcare, and beyond.

This article aims to dissect the concept of blockchain, understanding its key elements, the intricacies of its working mechanism, and its benefits, among other facets.

What is Blockchain?

Blockchain is like a shared digital notebook that makes it easy to track exchanges and items within a group of businesses. These assets can possess physical forms, such as real estate or vehicles, or be non-physical entities, including intellectual properties or copyright rights.

A blockchain network can record and exchange anything of substance, which mitigates risks and trims expenses. This network presents an instantaneous, collaborative, and utterly open data system stored on a non-alterable ledger, accessible solely to those granted network permissions.

Blockchain’s infrastructure can monitor various operations such as orders, transactions, account details, manufacturing processes, and more, thereby creating a unified perspective of reality.

Essential Features of Blockchain

The following are ant blockchain’s key elements:

Distributed Ledger Technology

Every participant within the network can access the decentralized ledger along with its unchangeable history of transactions. This common ledger documents transaction a single time, significantly reducing the redundant tasks that are common in conventional business networks.

Immutable Records

No participant can change or tamper with a transaction once recorded to the shared ledger. If a transaction record includes an error, a new transaction must be added to reverse the error, and both transactions are then visible.

Smart Contracts

These are self-executing contracts with the terms of the agreement directly written into code. Stored on the blockchain, they get executed automatically when predetermined terms and conditions are met. A smart contract can define conditions for corporate bond transfers, include terms for paying travel insurance, and much more.

Also Read: What are NFTs

How Does Blockchain Work

Next, let's dive into the inner workings of a blockchain.

Transaction Initiation

Every action begins with a transaction. Whether transferring crypto or uploading documents, the sender initiates a transaction, which is then transmitted to all nodes in the network.

Block Creation

The transaction data is encapsulated into a digital container called a 'block.' This block contains the transaction details, timestamps, and other related information, making each block unique.

Block Verification

Before a block can be added to the chain, the network nodes must validate it. The process involves complex computational algorithms to ensure the transaction's authenticity and consistency with the blockchain's history.

Block Chaining

Once verified, the block is given a unique identifier called a 'hash,' along with the previous block's hash in the chain. This linkage forms the 'blockchain,' where each block reinforces the ones before and after.

This step-by-step mechanism and its decentralized structure make blockchain resistant to manipulation and fraud, promoting transparency and trust among network participants.

Benefits of Blockchain

Blockchain's unique features bring about several benefits:


As all transactions are transparent and immutable, blockchain fosters trust among network participants. Everyone shares a 'single version of the truth' based on data logged on the blockchain.


With each transaction requiring network consensus and recorded permanently on the ledger, blockchain offers enhanced security against fraud. Even system administrators cannot delete a transaction once it's been recorded.


Blockchain eliminates the need for transaction middlemen, resulting in faster execution and lower costs. Furthermore, smart contracts automate transaction execution based on pre-set rules, significantly boosting efficiency.

In the next section, we will look into the types of blockchain networks, the security of blockchain, and its diverse applications and use cases.

Also Read: What is Crypto

Types of Blockchain Networks

Blockchain networks can be classified into three main categories based on accessibility and user permissions:

Public Blockchains

Public blockchains, like Bitcoin or Ethereum, are open to anyone. Individuals can participate in the network, validate transactions, or mine new blocks. While this openness promotes transparency, it can also raise privacy and scalability concerns.

Private Blockchains

Private blockchains are closed networks where only selected individuals or organizations can participate. While they lose some decentralization aspects, they gain efficiency, control, and privacy. A common use case of private blockchains is in enterprise settings, where a company might use it for inter-departmental record-keeping.

Consortium or Federated Blockchains

These are a middle-ground between public and private blockchains. In these networks, multiple organizations come together to participate in the blockchain, providing a balance between transparency, control, and efficiency.

Security of Blockchain

Security is one of the main advantages of blockchain, and it is provided through several mechanisms:


Blockchain uses cryptographic functions to secure data. Each transaction is signed with a private key, and anyone with the corresponding public key can verify the transaction's authenticity.

Consensus Mechanisms

Blockchains use consensus mechanisms like Proof of Work (PoW) or Proof of Stake (PoS) to agree on the validity of transactions. This prevents any single entity from controlling the network.


As a decentralized network, blockchain doesn't have a central point of failure, making it resilient against attacks. If an attacker wanted to alter a transaction, they would need to alter every subsequent block on over 50% of the network's nodes – a practically impossible feat.

Transparency of Blockchain

Blockchain’s design promotes transparency, as each transaction on the network is visible to all participants.

This transparency enhances accountability and makes it difficult for malicious actors to manipulate transaction data. While individual user identities are usually obscured (through cryptographic hash functions), the trail of transactions remains public.

Also Read: What are Crypto Tokens

Applications of Blockchain

Blockchain has a wide range of applications beyond cryptos:

Supply Chain Management

Blockchain can provide real-time, transparent tracking for products at every stage of the supply chain. This could significantly reduce inefficiencies and fraud.


Patient records stored on a blockchain could be shared securely across different healthcare providers, improving care coordination while preserving patient privacy.


From facilitating quicker, cheaper money transfers to providing immutable audit trails for regulatory compliance, blockchain has numerous potential applications in finance.


Blockchain could be used to create secure, transparent voting systems, making elections more efficient and reducing the risk of fraud.

Decentralized Autonomous Organizations (DAOs)

These are organizations governed by smart contracts on a blockchain, with decisions made by member voting. DAOs could revolutionize organizations, making them more democratic and transparent.

Blockchain vs. Banks

The rise of blockchain technology presents an interesting contrast with traditional banking systems.


While banks operate on a centralized trust system, where the institution is the trusted third party, blockchains are decentralized and eliminate the need for a trusted third party.

Speed and Availability

Blockchain networks can process transactions 24/7, unlike banks with specific operating hours.


Transacting on a blockchain network might incur lower fees than traditional banking fees, especially for international transfers.

Transparency and Privacy

As discussed earlier, blockchain provides more transparency than traditional banking systems, though this also comes with privacy considerations.

Disadvantages/Challenges of Blockchain Technology

Despite the significant advantages blockchain offers, it also faces several challenges that must be addressed:


Blockchains, particularly public ones like Bitcoin, face scalability issues. They can process a limited number of transactions per second, far less than traditional payment systems like Visa.

Energy Consumption

Blockchain networks, particularly those using Proof of Work consensus, consume a significant amount of energy, which raises environmental concerns.


As a new and disruptive technology, blockchain faces regulatory uncertainty in many jurisdictions. This can impede its adoption and use.

User Experience

The technical complexity of blockchain can be a barrier for mainstream users, who may need help understanding how to use it.


As multiple blockchain networks emerge, interoperability's needed – the ability for different blockchains to interact and exchange information.


In conclusion, blockchain technology significantly shifts how we think about trust in a digital context. Its unique characteristics – decentralization, immutability, and transparency – offer solutions to many of the problems inherent in today's digital world, particularly data security and privacy.

However, like any technology, it has its challenges. As we move forward, the task will be to address these challenges while maximizing the vast potential of this technology.

Frequently Asked Questions

To help clarify some common questions about blockchain, let's answer the following:

What is blockchain decentralization?

Decentralization is a key feature of blockchain technology. Unlike centralized systems, where a single entity has control, control is distributed among many participants (or nodes) in a decentralized blockchain network. This means no single entity has full authority over the entire network, enhancing its security and resilience.

Who invented blockchain?

The blockchain concept was first introduced by an individual (or group of individuals) known as Satoshi Nakamoto, with the creation of Bitcoin in 2008. Satoshi Nakamoto's true identity remains unknown.

What is the future of blockchain?

The future of blockchain looks promising, despite its current challenges. With ongoing developments in scalability, energy efficiency, interoperability, and regulatory clarity, we expect blockchain technology to become increasingly integrated into various sectors, from finance to supply chain management, healthcare, and more.

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