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what is blockchain and how does it work?

What Is a Blockchain?

A blockchain is a database that is managed by a network of computers in such a way that it is difficult to hack or alter.

Blockchain is a decentralized distributed database that is shared among the nodes of a computer network. As a database, the blockchain saves information electronically in a digital format.

With the spread of digital currencies, it was only launched 10 years ago by an unknown person(s) who were behind the creation of the first and most famous currency, Bitcoin. Throughout this article, we will learn about the concept of Blockchain technology, how it works, and why it has gained so much attention and fame since the moment it was invented.

what is blockchain

One of the main differences between a typical database and a blockchain is how the data is organized. A blockchain brings information together into groups, known as blocks, that contain sets of information.

Blocks have certain storage capacities, and when they are full, they are locked and linked to the pre-filled block, which forms a chain of data known as a blockchain. New information about the newly added block is collected into a block that will also be added to the series once it is filled out.

Normally a database builds its data into tables, whereas a blockchain, as its name suggests, builds its data into pieces (blocks) that are interconnected.

This data inherently creates an irreversible spreadsheet when executed in a decentralized nature. When a block is populated They are set in stone and become part of this timeline.

How Does a Blockchain Work?

Blockchain is three leading technologies:

  1. Cryptographic keys
  2. A peer-to-peer network containing a shared ledger
  3. A means of computing, to store the transactions and records of the network

The blockchain is to allow digital information to be saved and distributed, but not released. In this way, the blockchain is the basis for unalterable ledgers, transactions that cannot be deleted, changed, or destroyed. Therefore, the blockchain defines distributed ledger technology (DLT).

The concept of the blockchain was first created as a research project in 1991, with the first large-scale application in use: Bitcoin, in 2009. The use of the blockchain subsequently spread through the development of many cryptocurrencies, decentralized finance (Defi) applications, tokens Non-fungibles (NFTs), and smart contracts.

Is Blockchain Secure?

  • Highly Secure

It uses a digital signature feature for fraud-free proceedings which makes it impossible to corrupt or alter an individual's data by other users without a specific digital signature.

  • Decentralized System

Traditionally, you need approval from regulatory authorities such as the government or a bank for transactions; However, with Blockchain, transactions are done by mutual consent between users which results in smoother, safer, and faster transactions.

  • Automation Capability

It is programmable and can automatically generate routine actions, events, and payments when operator criteria are met.

blockchain technology

Types of Blockchain

Private Blockchain Networks

Private blockchains operate on closed networks and work well with private companies and organizations. Companies can use the private blockchain to customize access and authorization preferences, network parameters, and other important security options. Only one authority operates a private blockchain network.

Public Blockchain Networks

Bitcoin and other cryptocurrencies emerged from public blockchains, which have had an important role in popularizing distributed ledger technology (DLT). Public blockchains also help eliminate some challenges and issues, such as vulnerabilities and centralization. With DLT, data is distributed over a peer-to-peer network, rather than stored in one place. A consensus algorithm is used to validate the information; Proof of Stake (PoS) and Proof of Work (PoW) are two frequently used methods of consensus.

Permitted blockchain networks

Sometimes known as the hybrid blockchain, trusted blockchain networks are private blockchain networks that provide private access to authorized individuals. To get the best of both worlds, organizations set up these types of blockchains, and this provides a better structure when assigning who can participate in the network and in which transactions.

Blockchain consortium

Like an authorized blockchain, a consortium blockchain has public and private components, except that many organizations will manage one blockchain network from the consortium. Although these types of blockchain may initially be more difficult to regulate, once launched, they can provide better security. In addition, the consortium's blockchain is optimal for collaboration with many organizations.

Transaction process

Is the way transactions are confirmed and allowed. If he wants to make a transaction using the private and public keys, respectively, the first person will link the transaction information to the public key of the second party. This general information is gathered together in a block.

The block includes a signature and other important related information. It should be noted that the Block does not contain identification data of persons participating in the transaction. This block is sent to all networks, and when the person uses the private key and assigns it to the block, the transaction is successfully completed.

In addition to conducting financial transactions, the blockchain can also contain information about transactions with real estate, vehicles, etc.

Here is a usage example showing how blockchain works:

Hash encryption

Blockchain technology uses hashing and encryption to protect data and relies primarily on the Shah 256 algorithm to protect information. The sender's address (public key), recipient's address, transactions, and private key data are sent using the Shah 256 algorithm.

Encrypted information called hash encryption is verified worldwide after transfer and added to the blockchain after verification. Shah's 256 algorithm makes it nearly impossible to eliminate hash encryption that authenticates the sender and receiver.


In blockchain technology, the process of adding transaction details to an existing digital/public record is known as "mining". Although this term is related to bitcoin. Mining involves generating a hash for a block transaction that is difficult to fake, thus ensuring the security of the entire blockchain without the need for a centralized system.

History of blockchain

Satoshi Nakamoto first introduced the blockchain concept in 2008. Development continued with Nakamoto using a method similar to hash cache.

Which has become a political element of bitcoin, a popular form of cryptocurrency as it serves as a public record of all network transactions. The size of bitcoin blockchain files, which contain all transactions and records on the network, is going up dramatically. By August 2014, it had reached 20 GB and eventually exceeded 200 GB by early 2020.

Advantages and disadvantages of blockchain

  • Advantages

It is one of the main advantages of blockchain in providing the best security, which also means that the blockchain can protect sensitive data and protect it from online transactions.

In fact, it takes only a few minutes, while other methods of treatment can take several days. There is no third-party interference from financial institutions or government organizations, and this feature is preferred by many users. 

  • Disadvantages

Blockchain and encryption use public and private keys, and there are problems with private keys. If the user loses his private key, he faces a problem and this makes one of the disadvantages of blockchain.

Another disadvantage is scalability limitations because the number of transactions is limited. For this reason, it may take several hours to complete multiple transactions and other tasks. The information cannot be changed or added after it has been recorded and is difficult to change.

How is blockchain used?

Using cryptocurrencies, blockchain stores information about cash transactions, and other types of information such as product tracking and other data are stored. Which can track food products from the moment they are sent, until the final delivery.  This is just one of the many ways in which important enterprise data can be stored.

How to invest in blockchain technology

Blockchain technology and stocks can be a profitable investment, and when you make your first purchase to invest in blockchain.

When you think about investing, bitcoin is the first to come to mind. There is also the possibility of investing in cryptocurrency penny stocks such as altcoin and Litecoin. 

There are developments in blockchain technology to attract funding. When prices rise, you can buy coins. Another way to invest in blockchain technology is to invest in blockchain-based startups.

What are the consequences of blockchain technology?

Blockchain technology has had a significant impact on society, including:

Where bitcoin is the main application of blockchain where Yati is primarily behind the development of technology that helps many people with financial services such as digital wallets.

In far from ideal economic conditions, they provide small loans and allow small payments to people and this creates opportunities for a new life for the global economy.

Where the concept of trust in the field of international transactions. In the past, lawyers were hired to bridge the gap in trust between two different parties, but this took extra time and money. But with the advent of cryptocurrency radically changed the equation of trust.

In the case of organizations in areas where resources are limited and corruption is widespread, blockchain gives a significant advantage to these affected people and organizations and allows them to avoid the tricks of unreliable third-party intermediaries.

The new reality of the Internet of Things (IoT) is that there are a lot of smart devices that drive your cars and organize garbage collection you name it! This is where blockchain comes in.

To improve processes and maintain more accurate records blockchain technology can be used by creating smart contracts.

Blockchain technology allows you to create a decentralized peer-to-peer network for organizations or applications like Uber. This allows people to pay for things like fees, and parking.

Blockchain technology is used as a secure platform for the healthcare industry in order to store confidential patient data and share information only with authorized persons.

To get started in forex trading, visit our article on what is forex?. For more advanced traders, visit our article on Top 7 Steps To Learn Successful Trading.


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