How Does BlockChain Technology Work?

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A blockchain is a distributed database that holds all the transactions that have been executed among the participating parties. Each transaction is verified by the consensus of the majority of participants in the system. Once any information is entered into these ledgers, they behave permanent and can never be erased.

BlockChain consists of a verifiable record of every single transaction. This underlying blockchain technology works flawlessly and is found in a wide range of applications.

BlockChain establishes a system of distributed consensus in the virtual world. This opens the door for developing an open and scalable centralized digital economy.


BlockChain technology has the potential to revolutionize the digital world by enabling a distributed consensus where every tiny digital asset can be verified at any time. It handles this without compromising on the security of digital assets.

One key emerging use case of BlockChain technology is “smart contract”. It is basically a computer program which can automatically execute the terms of a contract.

Smart Property is another relatable term regarding controlling the ownership of property using smart contract. This property can either be physical or non-physical.

Blockchain technology is finding applications in a wide range of financial and non-financial services.

Financial Institutions like banks are no more seeing Blockchain as a threat. In fact, the world’s biggest banks are carrying innovative research in blockchain applications. Indeed, these finance-related institutions are finding Blockchain as most tested and secure platforms.

Non-Financial applications are also endless. The anonymity of digital assets is achieved by storing the fingerprint.

There are numerous opportunities in the Blockchain technology and this revolution has just begun.

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How does it work?

Let us understand the working of Blockchain by going through how Bitcoin works since they both are linked intrinsically. In general, Blockchain technology is applicable to any digital asset transaction carried online.

The present-day internet commerce is exclusively tied to third-party financial institutions who validate and safeguard transactions. A certain fraud is predictable in online transactions leading to high transaction costs.

On the other hand, Bitcoin uses cryptographic validation instead of third-party trust for carrying online transactions. Each transaction is protected through a digital signature. Every transaction is sent to the “public key” of the receiver signed using “private key” of the sender. In order to spend the cryptocurrency, an owner must prove his ownership of the private key. The owner of organization verifies this digital sign on the transaction using the public key.

Each transaction is broadcast to every node of the network and finally saved in the public ledger after verification. Every transaction is verified before entering it into the Public Ledger. Each node ensures two things before recording any transaction:

  1. Ownership of cryptocurrency by the sender (digital sign on private key).

  2. Ensure spender has enough cryptocurrency in the account; estimating every transaction made from his account.

Virtual financial transactions using BlockChain Technology

Now, arises the question of maintaining the order of transactions that are broadcast to each node in Bitcoin peer-to-peer technology. The transactions might not proceed in the same order as they are when generated. Hence, there arrives the need for a system which eliminates double spending of cryptocurrency.

In order to eradicate the problem, a mechanism has been developed wherein the entire Bitcoin network agrees regarding the order of transactions in a distributed system.

Blockchain unconfirmed Transactions

Here comes the king of the show we have been talking all along, the “Blockchain Technology”. The bitcoins order themselves in the form of blocks, which link among themselves in a chronological order to form what is called “Blockchain”. Each block holds transactions at a time. Every block carries the hash of the previous block.

Now, you might be stuck with another problem. You might be wondering “There can be multiple blocks in the line, then How does the network decide which block is next in the line?”.

Bitcoin comes to the rescue and solves this problem as well. It introduces a mathematical puzzle. Each block comes in the line only when it answers this special mathematical problem. This whole process is termed as “Proof of Work”.

The nodes donating their complexity in solving puzzles and finding the results are termed as “miner nodes” and are financially awarded for their efforts.

Bitcoin transaction order race.

This puzzle is not something trivial, its toughness can be adjusted owing the result is solvable within just 10 minutes for each node. There is very less probability of inaccuracy. The math involved is a bit difficult ensuring the stability of Blockchain.

The network accepts and validates only the longest blockchain. Hence, it is very difficult for an attacker to introduce a fraudulent blockchain which not only solves mathematical puzzles but also race against good nodes and generate the valid subsequent blocks.

This job is made even more difficult since blockchains are linked together cryptographically.

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