What is Blockchain Technology? How does Blockchain Work?

What is Blockchain Technology? How does Blockchain Work?
Blockchain Technology

You’ve probably heard about Blockchain Technology in the past few years. It has been described as innovative, disruptive, and a game changer in a variety of sectors. But just what is blockchain and how does it work? In this beginner’s guide, we’ll delve into the world of blockchain technology, investigating its origins, important features, pros and disadvantages, applications, kinds, and possible commercial benefits. Let us begin by reviewing the fundamentals.

What is Blockchain Technology?

Blockchain Technology is a modular and dispersed digital ledger system designed to record operations across several computers in an immutable, transparent, and secure manner. Each collection of transactions referred to as a block, is connected in order of occurrence to form a chain, getting the term “blockchain.” This decentralized organization minimizes the requirement for intermediaries like banks or government agencies, making operations more efficient and economical.

How Does Blockchain Work?

Blockchain technology is a decentralized and distributed ledger system that allows multiple parties to securely and transparently track and validate transactions. It was primarily intended to support cryptocurrencies such as Bitcoin, but it has subsequently found applications in fields other than banking. Here’s a quick rundown of how blockchain technology works:

Decentralization: Rather than depending on a central authority, blockchain runs on an internet of computing devices known as nodes. These nodes collaborate to keep the blockchain running, making it resistant to central sources of failure or control.

Transactions: Transactions are the fundamental units of data on a blockchain. A transaction in the framework of digital currencies often contains sender and beneficiary addresses, the amount being transferred, and a digital signature for security.

Blocks: Transactions are organized into blocks, which constitute a linked list, including a collection of transactions as well as an address to the preceding block in the chain.

Consensus Mechanism: A consensus mechanism exists to guarantee that all nodes in the network agree on the blockchain’s context. The most common methods include PoW (Proof of Work), employed in Bitcoin, however, additional methods like PoS (Proof of Stake) and Delegated Proof of Stake (DPoS). Miners compete in PoW to solve complicated mathematical problems to add a new block to the blockchain and the first to solve it transmits the new block to the network. Before accepting the block, other nodes validate the solution. PoS, on the other hand, is based on participants securing a specific amount of Bitcoin as collateral to construct and verify blocks.

Addition of the new block to the blockchain: Once the newly created block attains its hash value and is authenticated, it is added to the open end of the blockchain. This is determined by the hash value of the previous block. This way, the blocks are cryptographically linked to one another to make the blockchain.

Transaction complete: As soon as the block is added to the blockchain the transaction is completed, with the details permanently stored in the blockchain. Anyone can obtain these details to confirm the transaction.

Key Features of Blockchain

Blockchain is an open-source technology that underpins cryptocurrencies such as Bitcoin, but its uses extend well beyond digital money. Below are a few significant characteristics of blockchain technology:

  1. Decentralization: Because blockchain functions on a distributed basis, it does not require centralized authority. This decreases the possibility of individual points of breakdown and improves security.
  2. Immutability: Once data is stored on the blockchain, it cannot be accessed, changed, or removed. This immutability protects the ledger’s integrity.
  3. Transparency: Because all members in a blockchain network have access to similar data, trust and transparency are promoted.
  4. Security: Cryptographic techniques encrypt data on the blockchain, rendering unauthorized individuals exceedingly impossible to alter with it.
  5. Smart Contracts: Blockchain can execute contracts that execute themselves known as smart contracts, which automate tasks when predetermined criteria are satisfied.

Pros and Cons of Blockchain

Due to its unique characteristics and features, blockchain technology has attracted substantial attention and acceptance in a variety of sectors. However, like with every technology, it has advantages and disadvantages. Below are a few main benefits and drawbacks of blockchain:


  • Security: Blockchain is very safe against unwanted access and theft as it uses cryptography and decentralized agreement processes.
  • Transparency and Traceability: Transactions and data stored on the blockchain are available to all participants, encouraging transparency. Each transaction is connected to the one before it, resulting in a traceable and auditable history.
  • Efficiency and Speed: Through smart contracts, blockchain may simplify and automate complicated operations, minimizing the need for manual involvement.
  • Reduced Costs: Through transparent and auditable records, blockchain may drastically lower the cost of auditing and compliance.


  • Scalability Issues: Blockchains such as Bitcoin and Ethereum have had scalability issues, leading to delayed transaction processing times and high fees during peak demand periods.
  • Energy Consumption: Some blockchain networks, particularly proof-of-work systems such as Bitcoin, require a lot of energy, which raises worries about their environmental effect.
  • Limited Usage: Blockchain technology is still in its early stages, and acceptance varies by industry. Because of ambiguity or a lack of understanding, several businesses and organizations are unwilling to accept it.

Overall, blockchain technology has the capacity to transform many sectors, but its widespread acceptance is dependent on overcoming its limitations and developing to satisfy the demands of many use cases.

Types of Blockchain

Blockchain technology has evolved over time, and different types of blockchains have emerged to suit various use cases and requirements. However, there are four main types of blockchains.

1. Public Blockchain

Public blockchains are available to the public and require no authorization to join. Anyone may join, validate operations, and contribute additional blocks to the chain. These Blockchains are often very decentralized, with plenty of nodes spread over the world. When it comes to transparency, transactions, and data on public blockchains are available to all participants, giving a high level of accessibility.

Examples of Public Blockchain: Bitcoin, Litecoin, Ethereum

Advantages of Public Blockchain

  • Full decentralization
  • High security through consensus mechanisms
  • Transparency

Disadvantages of Public Blockchain

  • Slower transaction times
  • Scalability challenges
  • Potential for high energy consumption

2. Private Blockchain

Private blockchains are only accessible to a small number of individuals who have been granted permission to participate. These participants are frequently well-known entities. Private blockchains are less decentralized than public blockchains because they often contain fewer validators or nodes. Furthermore, private blockchains provide better anonymity because the data and transactions are not available to the public.

Examples of Private Blockchain: Ripple, Ethereum Enterprise

Advantages of Private Blockchain

  • Faster transaction speeds
  • Enhanced privacy
  • Control over participants and access

Disadvantages of Private Blockchain

  • Reduced decentralization
  • Potential for a single point of control or failure
  • Limited transparency

3. Consortium Blockchain

Consortium blockchains are used by a collection of businesses or entities, usually from the same industry or sector. Participants have been identified and verified. These Consortium blockchains find a compromise between the complete decentralization of public blockchains and private blockchain centralization. They are frequently used in collaborative activities when numerous companies must exchange data and procedures.

Examples of Consortium Blockchain: Hyperledger, R3 Corda, Quorum

Advantages of Consortium Blockchain

  • Controlled participation
  • Shared infrastructure
  • Increased efficiency through collaboration

Disadvantages of Consortium Blockchain

  • Limited decentralization

4. Hybrid Blockchain

Hybrid blockchains integrate public and private blockchain components. They may feature a public layer for openness and decentralization, as well as a private level for confidential transactions or private information. Hybrids are appropriate for situations in which certain data must be made public (e.g., for auditing or regulatory compliance) and other data must be kept private (e.g., for business operations).

Examples of Hybrid Blockchain: IBM Food Trust and Walmart

Advantages of Hybrid Blockchain

  • Flexibility to balance transparency and privacy
  • Customizable to specific use cases

Hybrid Blockchain Disadvantages

  • Complexity in managing both public and private layers
  • Potential for increased governance challenges

Blockchain Applications

Blockchain technology, which was originally intended to support cryptocurrencies such as Bitcoin, has grown into a flexible tool with a wide range of uses in a variety of sectors.

Blockchain in Healthcare

Blockchain’s impact on healthcare is nothing short of revolutionary. Patient security and confidentiality of information have long been top priorities in this industry, and blockchain provides a simple answer. Healthcare providers may securely store and exchange patient records via decentralized and unchangeable ledger systems, assuring the accuracy of information and accessibility. Patients have greater power over their medical history and can offer healthcare personnel selective access when necessary. Furthermore, it may be used to simplify operations such as insurance claims, minimizing fraud and mistakes.

Blockchain in Cryptocurrency

While cryptocurrencies are the most well-known use of blockchain, their importance cannot be overstated. Cryptocurrencies have upset the old banking system by allowing decentralized and unrestricted transactions. Blockchain’s consensus methods assure transaction security and transparency, rendering it an attractive complement to existing financial systems. Beyond Bitcoin, cryptocurrencies such as Ethereum have opened the path for decentralized apps and smart contracts, hence opening new avenues for decentralized finance (DeFi) and other uses.

Management of the Supply Chain

The supply chain sector is distinguished by complex networks of suppliers, manufacturers, and distributors. The capacity of blockchain to establish easily accessible and enduring records is a game changer in this situation. It gives real-time visibility into the flow of commodities and checks product authenticity, which is especially crucial in the fight against counterfeits. Smart contracts automate supply chain operations, minimizing administrative overhead and human error.

Asset Administration

Blockchain technology has made its way into asset management, making it simpler to manage and exchange many types of assets such as real estate, art, and intellectual property. These assets may be represented on a blockchain via tokenization, allowing for simple and secure ownership transfers. This democratizes investing possibilities, allowing a broader audience to participate.

Blockchain in Advertising

Advertising has long been plagued by difficulties such as ad fraud, lack of transparency, and inefficiency. Blockchain can alleviate these issues by establishing transparent, tamper-proof ad networks. Advertisers and publishers may validate ad impressions and guarantee that ad campaigns reach their target demographic. Smart contracts may automate payment procedures, ensuring that all parties involved are compensated.

How can Businesses Benefit from Blockchain?

Blockchain technology can provide several benefits to firms in a variety of industries. While blockchain may not be appropriate for every use case, organizations might profit from it in the following ways:

  • Transparency and trustworthiness: The decentralized structure of blockchain means that all parties in a transaction have real-time access to the same data, encouraging transparency. The blockchain’s immutable and timestamped records promote confidence among members since data cannot be readily edited or tampered with.
  • Fewer intermediaries: In some transactions, it eliminates the need for middlemen such as banks or clearinghouses, which can cut costs and boost efficiency.
  • Security: Blockchain secures data using powerful cryptographic algorithms, making it very resistant to hackers and fraud. Data integrity is ensured by private keys and consensus methods.
  • Smart Contracts: Smart contracts are self-executing contracts with established rules that enforce agreements automatically when criteria are satisfied. They can decrease the need for legal middlemen while also streamlining corporate procedures.
  • Efficiency and speed: By eliminating the need for middlemen and laborious reconciliation processes, blockchain may drastically accelerate transactions. It can also help to simplify complex supply chains and logistics by offering real-time visibility into items’ movement.
  • Cost-cutting measures: Businesses can reduce operational expenses by eliminating the need for middlemen and automating operations. Cost reductions can be realized through reducing fraud and mistakes.

IBaseIt: Best Blockchain as a Service (BaaS) Provider

Blockchain as a Service is a blockchain platform installed, hosted, and managed by third-party cloud providers allowing customers to build, host, and manage their own blockchain functions. Adopting BaaS saves time and enables businesses to easily leverage blockchain to provide more convenient, reliable, and sophisticated solutions.

BaaS at IBaseIt helps to store digital records in a secure and auditable manner, enabling a speedy, safe, and cost-effective transfer of assets. Below are a few services offered:

  1. Strategic consultancy: As part of our assessment process, we work closely with clients to determine the applicability and business implications of blockchain technology.
  2. Blockchain Technology Solutions: Through our advanced blockchain technology, we create custom solutions to address corporate hurdles related to people, processes, operating models, and technology.
  3. Interoperability, Integration, and Solution Implementation: We investigate blockchain challenges raised by interoperability and work actively on managing implementations and third-party connectivity.
  4. Permissioned networks: Using Ethereum technology, we provide collectively controlled access and membership rights within the organization network, helping businesses to increase transparency, and trust.


Blockchain Technology is a formidable tool that has the potential to change a variety of sectors by enhancing security, transparency, and efficiency. Blockchain will most certainly become a fundamental part of our digital world as it evolves, providing new answers to age-old issues. Understanding the blockchain is a critical step in navigating the digital future, whether you’re a business owner, investor, or simply curious. So, keep an eye on this place, since the blockchain adventure is only getting started, and the possibilities are endless. At IBaseIT, we collaborate closely with our clients to assess Blockchain applicability, business ramifications, and implementation plans. To know more, get in touch with us today.

Leave a Reply

Your email address will not be published. Required fields are marked *