Many people often confuse blockchain with Bitcoin (BTC), the first cryptocurrency. The reality is far from it. To clear the confusion before we delve into the concept of blockchain, let’s differentiate it from Bitcoin.

Bitcoin (BTC) is a digital currency or a cryptocurrency supported on a blockchain network called Bitcoin, the first practical implementation of blockchain technology. Simply put, Bitcoin is a blockchain that acts as a peer-to-peer payment system where anyone can transact in BTC. 

Then, what’s a blockchain? Let’s explore. 

What is a Blockchain?

Recordkeeping is a critical aspect of our day-to-day lives. Whether we speak of money transfers or the exchange of texts between two friends, every form of transaction is recorded in enormous databases. Traditionally, the databases that record our transactions are centralized and require middlemen for operation. This makes the operation process slow, cost-intensive, and prone to errors and cyberthreats

Typically, a blockchain is a form of database categorized as distributed ledger technology, or DLT, that operates without an intermediary and can be accessed from anywhere in the world. It can process transactions in a decentralized manner and record them in a cryptographically secure ledger that is immutable and transparent. A public blockchain allows anyone to check the records stored on it and verify its authenticity.

With the absence of an intermediary, blockchains rely on network participants called nodes (explained later in the article) to verify transactions using a pre-defined algorithm called consensus protocol. The nodes of a blockchain are responsible for maintaining the genuine record of transactions and protect it against fraudulent modifications.

As blockchains need no intermediaries, transactions on a blockchain are often cheaper and faster than traditional systems. Additionally, blockchains are global ledgers, meaning an international transaction on a blockchain requires the same time and cost as a national transaction.

The Key Elements of a Blockchain

On the surface, blockchain is a database that operates differently than traditional databases and transaction infrastructures. But that doesn’t suffice to explain the concept of blockchain. For a better understanding, it is critical to know about the key elements that make it unique.


When users request transactions on a blockchain, the blockchain accumulates several requests and bundles them together in what is called a block. The number of transactions that a block can store depends on the block size of a blockchain network. For instance, the Bitcoin blockchain has an average block size of 1 MB, and each block can store approximately 2,500 transactions. Alongside that, the blocks also contain a unique address (called a hash) of their own and the address of the previous block.

Cryptography and Hash

Cryptography is an encryption technique to secure information by converting it into arbitrary text. But it is possible to decrypt a cryptographically encrypted text. 

This is why blockchains implement a one-way cryptographic hash function/algorithm that takes the transaction details as input and produces output of a fixed length called the hash. This output cannot be decrypted to generate the input. By doing so, the blockchain ensures that the sensitive information of a transaction is encrypted and not readable by the public.


Nodes are the caretakers of a blockchain network and record the transactions on their individual systems. The more the number of nodes in a blockchain, the safer and more decentralized the network is. In the absence of any central entity to approve and record transactions, the blockchain nodes together verify the authenticity of transactions. Once authenticated, the nodes add thee new set of transactions (stored in blocks) to the already verified transactions. This adding of new blocks of transactions to previously verified blocks creates the “blockchain.”

Consensus Protocol

A consensus protocol is an algorithm that defines a process using which blockchain nodes spread worldwide can verify transactions without communicating with each other. For any transaction to occur on a blockchain, a majority of nodes must reach a consensus through the defined steps. The same is applicable for changing any pre-recorded data on the blockchain. This ensures that no node or a group of nodes can tamper with the transaction records unless a majority of them agree to it. 

There are various types of consensus protocols, but the two most common protocols are proof-of-work and proof-of-stake.

How Does Blockchain Work?

Now that you know the core elements of a blockchain, it would be easy to understand how blockchains usually function. You must, however, note that different blockchains may operate differently. But for the sake of simplicity, we will consider the example of the Bitcoin network.

The Bitcoin network operates on a proof-of-work consensus protocol. Whenever a new set of transactions are requested on a network, the network creates a cryptographic puzzle. The nodes must then solve the puzzle to prove the authenticity of the transactions of the new transactions. The only way to find the solution to the puzzle is by random guessing. So, the nodes employ high computing power devices that randomly run millions of possible solutions per second to find the right one.

When a node finds the solution, they share it with the other nodes on the network for approval. If a majority of the blocks approve the solution, the new block of transactions is processed and the block is added to the blockchain. The blockchain then rewards the node that found the solution with its native cryptocurrency. 

In the case of a proof-of-stake blockchain, the nodes need to stake the native cryptocurrency of the network to become a validator. The network then randomly chooses validators to approve new blocks of transactions. This process offers higher transaction speed to the blockchain alongside consuming less energy and being more sustainable in the long run.

Blockchain is the Future

Due to the benefits it offers in the transaction and storage of value and data, businesses of all sizes across large-scale industries are today developing their blockchain solutions. It is estimated that the blockchain market will grow to a $163 billion valuation by 2027. Thus, we can say that it is only a matter of a few years before blockchain attains mainstream adoption.

Written by Katya Richardson

Written by Katya Richardson


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