What is Blockchain, and How Does it Work?


What is Blockchain, and How Does it Work?

Key Points:
  • Blockchain technology facilitates the ability to track assets and record transactions. These can be tangible assets, like property, or intangible ones, like intellectual property.
  • Bitcoin was introduced as the first cryptocurrency in 2009, and blockchain 2.0 was born in 2014. Satoshi Nakamoto, who’s identify is a mystery, is the founder of blockchain technology.
  • Bitcoin, Ethereum, Bitcoin Cash, Litecoin, Tezos, ZCash, and EOS are all types of cryptocurrencies.

Blockchain may be the future of the internet. This shared, immutable ledger offers innovative ways to track assets, record transactions, build trust, and combine with artificial intelligence to create Web 3.0. Review this key technological concept and how it works for current and future innovations.

Virtually hackproof, blockchain is a way to share and record information.

Blockchain Defined

Essentially, blockchain technology facilitates the ability to track assets and record transactions. These can be tangible assets, like property, or intangible ones, like intellectual property. It takes these transactions and divides them into blocks of data.

These blocks are linked together in a way that confirms the exact time and sequence of ownership change in an irreversible chain. The result is a string of information that’s highly secure, efficient, and flexible.

Blockchain Through the Decades

As a concept, blockchain is just over 30 years old. Explore a decade-by-decade history of the technology to see how it became the popular foundation for cryptocurrencies, the metaverse, and Web 3.0. Examine the pros and cons of this technology as it continues to advance.

1990s: The Concept Is Established

In 1991, Stuart Haber and W. Scott Stornetta recorded the concept of blockchain for the first time. They described a chain of cryptographically secured blocks of information as a concept that was improved in 1998 by Nick Szabo, who conceptualized a digital currency he named “bit gold.”

2000s: The First Blockchain Transactions

A major breakthrough in technology occurred in 2008. The mysterious person Satoshi Nakamoto, which is likely a pseudonym for one or more individuals, published a white paper addressing some key issues that cryptocurrencies had in the past. Bitcoin was introduced as the first cryptocurrency in 2009, and blockchain 2.0 was born in 2014. The true identity of Satoshi Nakamoto remains a mystery, though the person is regarded as the founder of blockchain technology.

2010s: Additional Roles and Opportunities

Through Ethereum, other crypto innovations, Non-Fungible Tokens (NFTs), and other means, blockchain is advanced. The use of blockchain’s unique ledger system allows information to be transferred between two parties without using an intermediary. It opened up the world of decentralized finance, known as DeFi.

2020s: Increased Popularity

The decade started with plenty of optimism for crypto and other blockchain-based technology. Unfortunately, the crypto crash in the summer of 2022, led to a global market cap shrink of approximately $1.02 trillion. Many analysts predict this is due to inflation fears. Despite this, the future of blockchain looks promising as user-friendly interfaces are created.

How It Works

Blockchain is based on a secure, multistep process to authenticate and verify transactions. The blockchain for dummies definition is that it is an extremely safe and complicated way to send and receive information. The goal is to create a string of information that is virtually impossible to disrupt or hack. Here are the basic steps of how it works:

  • Participants input authorized transactions.
  • The technology authenticates these transactions.
  • The use of verified action creates a block of information.
  • The block is distributed to every computer node.

The result is a complex string of information that’s shared by every computer in the network. It’s important to note that only authorized nodes can add to the blockchain. These authorized nodes are generally referred to as miners. There are many pros and cons to becoming a blockchain miner, particularly because of the difficulty of the process.

Mining Blockchain

Adding a block of information is known as mining. It’s a task that typically earns cryptocurrency payments, stored in a crypto wallet, through the Proof of Work (PoW) process. The process of mining requires special software and complex math problems to create accepted patterns of data. The data is made up of nonces and hashes:

  • Nonce: 32-bit whole number that’s randomly generated during the block creation process.
  • Hash: 256-bit number that typically starts with many zeroes and is wedded to a particular nonce.

To put this into perspective, there are about four billion possible combinations but only a specific pairing will be accepted. A miner, or founder of a new block, is looking for that “golden nonce” that will be accepted as another block in the blockchain. As a chain grows, so does the complexity of adding new blocks.


Bitcoin is a decentralized electronic cash system that was born and lives entirely on the internet.

Since 2008, Bitcoin, which was soon followed by other cryptocurrencies, has been used as a decentralized digital currency. It’s continued to grow and be used as a digital alternative to traditional currencies. Unlike traditional currency, cryptocurrency isn’t backed by or issued by a government. It comes in many different types and can be used to make DeFi a possibility. The private keys that access cryptocurrency is stored in a crypto wallet. The use of a crypto wallet is essential in verifying the owner of a cryptocurrency.

Types of Cryptocurrency

Soon after Bitcoin was established, many other individuals and teams created alternative cryptocurrencies. Here are some of the most popular types available that also act as examples of crypto’s possibilities:

  • Bitcoin
  • Ethereum
  • Bitcoin Cash
  • Litecoin
  • Tezos
  • ZCash
  • EOS

Prospective miners and investors should weigh the pros and cons of each type of currency before choosing one to invest in. Hardware wallet companies, like Ledger, offer physical crypto wallet solutions to store your keys. Without these keys, you may not be able to access your digital currency.

Solving Double-Spending

One of the earliest, and most challenging, problems of digital currency was the problem of double-spending. Because digital data can be replicated and sent without the sender losing the information, it can easily become difficult to verify whether the currency is spent or not. This also leads to difficulties determining the amount of that currency in circulation.

This is how blockchain technology helped create reliable cryptocurrencies. As a foundation for digital currency, blockchain creates a safe, decentralized solution to verify transactions occur without modifying or copying the currency.

Decentralized Finance (DeFi)

Through blockchain and cryptocurrency possibilities, many financial experts are looking to decentralized finance (DeFi) as the future of borrowing, lending, and trading. In traditional finance, banks leverage your savings account to lend money and take a large portion of the profit from the interest rate. DeFi allows consumers to lend their savings, transfer funds, and perform other financial activities without a banker as a middleman.

Because of these examples, DeFi is a popular option for anyone looking to have more autonomy in the financing process. Many investors turn to yield farming to increase their wealth through DeFi strategies.


Another innovation that is powered by blockchain is the metaverse. While there are many different definitions of the metaverse, here are a few key concepts that are shared by most companies and individuals seeking to create it and make it more mainstream:

  • Persistent digital environment
  • Synchronous and live experiences
  • Created by a wide range of individuals with virtually unlimited interoperability
  • Sustained by a functioning economy based on cryptocurrency

The metaverse for dummies definition is that it is a virtual world that allows users to live their lives and do most activities they do in the real world. Mark Zuckerberg positioned Facebook as a leading company in the creation of the metaverse starting in 2021, when he named the company Meta. There is still a significant amount of debate about what the metaverse will look like. From real estate in the metaverse to privacy concerns, there are many aspects of this concept that continue to be discussed, debated, and created.

Web 3.0

Ever since Tim Berners-Lee invented the internet, he and other innovators have envisioned a time when the web would be semantic and fully integrated. Often referred to as Web 3.0, this future version of the internet is becoming more and more of a possibility thanks to blockchain, artificial intelligence, and machine learning. The Web 3.0 for dummies definition is that it makes searching for information and uploading information far easier for users who don’t want major corporations controlling access to the internet.

The interoperability of blockchain that allows decentralized person-to-person data transfer is essential to Web 3.0. Thanks to blockchain, the future of the internet may not require large companies as intermediaries and may allow individuals to easily search for the information they want through semantic typing or voice commands.

Up Next…

Frequently Asked Questions

What is blockchain in simple terms?

Blockchain is a way of recording and sharing information that makes it virtually impossible to hack, change, or cheat.

What is the biggest blockchain company?

IBM is the largest company that’s embracing blockchain in a significant way. One of the main benefits of blockchain, however, is that it isn’t reliant on major companies.

Who invented blockchain?

Stuart Haber and W. Scott Stornetta first introduced the concept in 1991. The founder of blockchain, however, was the currently unidentified person or group known as Satoshi Nakamoto.

What is an example of blockchain?

Bitcoin is one of the most popular examples of blockchain. Other possible real-world uses include safe voting systems, supply chain management, and decentralized forms of finance.

Why do we need blockchain?

The main purpose of blockchain is to share information in a traceable, verifiable way that’s virtually hackproof.

What are the disadvantages of blockchain?

Because of the complexity of the technology, it’s an inefficient process that may be difficult to scale. Immutable data and high costs of processing can limit its widespread use.

How many Blockchains are there?

Since 2008 and the launch of Bitcoin, there have been over 1,000 blockchains created on four different types of networks.

Can blockchain be hacked?

Unfortunately, there are ways that hackers can alter blockchain. This can result in stolen cryptocurrency, stolen personal information, and other issues.

What are the types of blockchain?

The four main types of blockchain are private, public, consortium, and hybrid. The type chosen affects how transactions are recorded and how data is added to a chain.

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