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What is Blockchain and How it Works

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What is Blockchain

Blockchain technology has the potential to be one of the most hyped inventions of the 21st century. Blockchains, which were created to support Bitcoin, now power dozens other cryptocurrencies, and developers are seeking to integrate the technology into sectors such as health, art, and banking. Understanding how blockchain works, why it has value, and what distinguishes it from other internet technologies would help you grasp the rising interest.

What is Blockchain?

A ‘Blockchain’ is a digital record of transactions that is maintained by a network of computers in a secure manner that is impossible to hack or modify. The technology enables individuals to transact directly with one another without the use of an intermediary such as a government, bank, or other third party.

Cryptography is used to connect the expanding list of records, known as blocks. Each transaction is validated independently by peer-to-peer computer networks, time-stamped, and contributed to a growing data chain. The data cannot be changed once it has been recorded.

While popularized by the increasing usage of Bitcoin, Ethereum, and other Cryptocurrencies, Blockchain technology has promising uses in legal contracts, property sales, medical records, and any other business that requires the authorization and recording of a sequence of activities or transactions.

How Blockchain Works?

Here’s how blockchain — also known as distributed ledger technology — works using the Bitcoin system as an example:

  • Bitcoin transactions are entered and broadcast to a network of powerful computers known as ‘Nodes’.
  • This global network of thousands of nodes competes to confirm the transaction using computer algorithms. This is referred to as ‘Bitcoin Mining.’ The miner who is the first to successfully complete a new block receives Bitcoin in exchange for their efforts. These benefits are paid in the form of newly minted Bitcoin as well as network fees, which are passed on to the buyer and seller. Fees might vary based on the amount of transactions.
  • The sale is added to a block on the distributed ledger once it has been cryptographically validated. The transaction must next be confirmed by the majority of the network.
  • Using a cryptographic fingerprint known as a ‘Hash,’ the block is permanently connected to all previous blocks of Bitcoin transactions, and the sale is completed.

Blockchain technology first appeared in academic publications in 1982, in a dissertation on “the architecture of a distributed computer system that may be built, maintained, and trusted by mutually suspicious organizations.” However, it was a 2008 article titled “Bitcoin: A Peer-to-Peer Electronic Cash System” by the pseudonymous Satoshi Nakamoto that moved an academic idea into real-world practice.

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Blockchain Technology: Pros and Cons.

Using bitcoin as an example, below are some of the pros and cons of blockchain technology when used to cryptocurrencies:


  • Decentralization.
  • Transparency Combined with Anonymity.
  • Accuracy and Security.
  • Blockchain Applications, Both Public and Private.
  • Possibilities for the Unbanked.


  • Crypto Is Popular with Criminals.
  • Cryptocurrencies Based on Blockchain Technology Are Extremely Volatile.
  • The Use of Cryptocurrency Is Still in Its Infancy.
  • It Requires Energy to Mine Bitcoins.
  • The Bitcoin Blockchain Is Quite Sluggish.
Video explaining the Blockchain Technology

The Future of Blockchain Technology.

While the Bitcoin system is the most well-known implementation of blockchain technology, many other cryptocurrencies are based on this new technology. And you must note that Blockchain technology has already been adopted by several big corporations.

While it remains to be seen if Bitcoin will succeed in supplanting other types of traditional payment systems, Blockchain technology applications are expanding rapidly, and enthusiasts believe they will result in profound changes across sectors.

What are your thoughts about Blockchain technology? Is it capable of disrupting established banking institutions? Let us know in the comment section down below.

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Disclaimer – I’m not a financial advisor. The article is for informational and educational purposes only.

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