Intro Guide

What Is Blockchain Technology and How Does It Work?

Learn what a blockchain is, how it works, and what its different types, features, and use cases are.
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Key Takeaways
  • Blockchain – also known as Distributed Ledger Technology (DLT) – is a digital and distributed ledger of data, such as code and transactions.
  • There are four types of blockchain networks: Public, Private, Hybrid, and Consortium.
  • Some features of blockchain technology include: Consensus, Decentralized, Distributed, Fast, and Immutable.
  • Some use cases of blockchain technology include: Healthcare, Media, Real Estate, Supply Chain, and Voting.

Traditionally, recording financial transactions has often come with various challenges.

When the buyer transfers their money to the seller in exchange for an asset, they receive the ownership of the asset in return. Both the buyer and the seller can keep a record of the financial transaction individually. However, neither of them can be fully trusted.

The buyer could claim that they have already paid for the asset, when they actually haven’t. The seller could also just as easily state that they haven’t received the payment when they already have. To ensure that such issues do not arise, transactions have been supervised and validated by a trusted third party.

However, the existence of a centralized entity also comes with its own concerns. It complicates transactions, creates a single point of failure, and its compromise can lead to problems for both the buyer and the seller.

This is where a decentralized, immutable, and tamper-proof database technology comes in: the blockchain.

What is Blockchain?

Blockchain – also known as Distributed Ledger Technology (DLT) – is a digital and distributed ledger of data, such as code and transactions. The data is collected into blocks and uses a network of nodes to verify and secure them. Once the data has been stored onto a blockchain, it is virtually impossible to change or remove.

Each block is built on top of the previous one and includes a unique signature that links it back to the last one. As such, the blocks are linked together into a “chain of blocks”, or blockchain. By looking at the latest block, we can confirm if it has been created after the previous one, and if we were to continue all the way down, we’d reach the first block of the blockchain – the genesis block.

Blockchain technology is what powers industries, such as cryptocurrencies and decentralized finance (DeFi), as can be seen by Bitcoin and Ethereum. As blockchain transactions are peer-to-peer (P2P), the technology enables you to transfer value online without requiring any middlemen, like a bank or credit card company – hence preventing them from having any control over the transactions. Blockchain transactions also take place without needing approval from traditional finance (TradFi) institutions. Instead of having to go through standard documentation, anyone with an internet connection can access the blockchain.

In cryptocurrency, each block in a blockchain functions as a digital record containing various details about a transaction, such as the time, amount, and parties involved. Each transaction can be traced by a transaction hash (tx hash or txn hash), which cannot be altered after the transaction has been completed and added to the blockchain. Every new transaction is added to the end of the blockchain and the height of the blockchain grows, and more transactions are made.

How Does Blockchain Work?

  1. A new transaction is requested in the network.
  2. The transaction is sent to a P2P network of computers (nodes) scattered all over the globe.
  3. The nodes validate the transaction and receive a reward in return, typically in cryptocurrency.
  4. Once the validity of several transactions is confirmed, they are grouped together into a block.
  5. The block is then added to the end of the existing blockchain.
  6. The transaction is complete.

What Are The Types of Blockchain?

There are four different types of blockchain networks. They are as follows:

Public Blockchain Networks

Public blockchains are permissionless, completely decentralized, and allow anyone to join and participate. They allow all nodes of the blockchain to enjoy equal access to the blockchain, create new blocks, as well as validate them.

Examples of public blockchains include: Bitcoin and Ethereum.

Private Blockchain Networks

Private blockchains – also known as managed blockchains – are permissioned blockchains controlled by one authority. In a private blockchain, the single organization determines who can be a node and may choose not to grant equal rights to every node on the blockchain. As public access to private blockchains is restricted, they are only partially decentralized.

Examples of private blockchains include: Hyperledger and Ripple.

Hybrid Blockchain Networks

Hybrid blockchains – also known as permissioned blockchains – are a combination of public and private blockchains. While they are controlled by a central entity, they also have a certain level of oversight performed by the public blockchain, which is needed for the validation of certain transactions.

An example of hybrid blockchains include: IBM Food Trust.

Consortium Blockchain Networks

Consortium blockchains are similar to private blockchains, but instead of being governed by a single organization, they are controlled by a group of organizations. Hence, consortium blockchains are more decentralized and secure than private blockchains.

An example of consortium blockchains include: R3.

What Are The Features of Blockchain?

There are several features of blockchain technology. Some of them are as follows:


The network users’ identities are either anonymous or pseudonymous.


All nodes must come to a common agreement, by trusting the consensus algorithm that runs at the core of the network, for a transaction to be accepted.


Blockchain networks are open and accessible globally and 24/7.


Rather a central governing authority, it is a group of nodes that manage transactions, which leads to better transparency and easier traceability too.


All users in the network possess a copy of the ledger for transparency.


Users can transfer funds quicker compared to traditional banking systems, due to smart contracts (which are executed automatically) and a lack of need for intermediaries.


Once a record is validated, it cannot be changed. No participant on the network can edit, delete, or change the transaction.


Blockchain platforms can operate at relatively lower costs due to a lack of need for middlemen.


No one can change records of the network for their own benefit as it’s decentralized, and every information is hashed cryptographically as another layer of security.


The timestamp of a transaction is also recorded on a block.

What Are The Use Cases of Blockchain Technology?

Blockchain technology has various use cases that go beyond just cryptocurrency, DeFi, and NFTs. Some of them can be seen as follows:


Blockchain technology can help secure important information regarding patients, as well as streamline the process of billing and claims.


Blockchain technology can help protect media companies’ intellectual property and make sure that the artists receive their royalty payments on time.

Real Estate

Blockchain technology can help speed up real estate transactions, and reduce the amount of paperwork needed in a more budget-friendly manner.

Supply Chain

Blockchain technology can help track the movement of goods as they go from one party to another. This would reduce the risk of fraud, and allow for higher accountability and transparency.


Blockchain technology can help prevent fraud in voting, as it would allow citizens to submit votes that cannot be tampered with. It would also remove the need to manually collect and verify paper ballots.


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