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What is Blockchain Technology and How It Works: A Simple Guide for Beginners

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What is Blockchain Technology and How It Works

Blockchain, the underlying technology behind Bitcoin is already shaping the future of several industries. The disrupted technology is arguably the most important factor of the financial revolution today, yet most tech pros are unaware of how the technology functions.

Understanding how blockchain technology functions is essential for both startups and established business function these days. Truth be told, currently there are many blockchain projects that are already live in sectors such as the energy industry, the banking sector, big data analytics, the real estate and many more other industries. If you’ve been following the finance world, you might have come across these buzzwords “blockchain” and “bitcoin.” Well these terms have been in the IT market for quite some time now. In fact, this technology is the new breakthrough that is already altering many industries today. And this technology holds huge potential, but unfortunately most entrepreneurs and stakeholders are still in deception regarding how this technology functions.

What’s blockchain technology?

Most of the explanations out there are covered in complex languages that often it gets difficult for a reader to understand what this technology is all about. To start with, blockchain is a digital concept that allows to store data. This data comes in the form of blocks, in simple terms these blocks are digital data. Further, there are similar blocks that are chained together forming a blockchain. Now once these blocks are chained together, the data stored inside get difficult to alter, thus immutable.

This data will be publicly available to anyone within the network. However, to access the data one needs to have a unique digital signature. It is a process which is revolutionary providing the means to keep records of pretty much anything and everything. From storing property rights to identities, storing medical records and balancing moneys without having the fear of someone tampering these records.

How it works?

Blockchain, no doubt is being used not just for currency and transactions but for several other purposes as well. This game changing technology is already disrupting other industries to monitor supply chains, create digital IDs giving users a way to control their digital identities, it has also revolutionized the retail industry by providing retail loyalty programs, helps in data sharing, digital voting, immutable data backup, tax regulation and compliance, and many much more.

Here’s how it works-

Step 1 – Mr. Gwen requests a transaction

Step 2 – This requested transaction is then broadcasted to a P2P network that consists of a network of computers called as nodes. The details of the transaction is made to ensure the trade taken place is valid.

Step 3 – The transaction done by Mr. Gwen could involve records, contracts, cryptocurrency or any other information.

Step 4 – Transaction process gets completed

Step 5 – Once this transaction gets verified, it is added to other transactions creating a new block of data for the ledger. Each of this block contains a unique code named ‘hash’ this block contains the hash code of the previous block.

Step 6 – This new block is then further added to the blockchain that already existed in a manner where the data stored is unaltered and immutable. The hash codes keep the data safe and unaltered.

Currently, there is a lot of hype going around about the technology. The best part about this game changer technology is that it is decentralized, meaning it doesn’t need to store any information in a central location. Instead, the information is spread across several network (P2P). Doing this offers a lesser possibility of the information to be tampered upon.

Hopefully now you’ve understood how blockchain technology works and why businesses are looking towards implementing it.

Jitender Sharma is an entrepreneur and internet marketer with over 5 years of experience in Search Engine Optimization, Creative Writer and Digital Marketing Consultant.

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