Blockchain: Meaning and How it works.

The Blockchain technology has been the powerhouse for Bitcoin and other cryptocurrencies till date. Recently, there has been recent growing interest from numerous industries in integrating this distributed ledger technology into their business and even at that, not many people truly know what blockchain is or how it works.

So, here’s a primer on what the blockchain is and how it works.

What is Blockchain?

A blockchain is a digital ledger where records are kept chronologically and accessible to the public. Simply put, it is a database on steroids.

Imagine having a MS Excel or Google spreadsheet document that is shared among numerous networks of computer and everyone can have access to them.  This spreadsheet contains details of the transactions made by real people and anyone has access to it, but nobody can alter what is already written to it. This is a valid representation of what a Blockchain is.

While spreadsheets work with rows and columns, a blockchain works with blocks and each block requires data from the previous block for data input to be valid – hence “Blockchain”.

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It is a database on steroids.

A blockchain is simply a structure of data that characterizes a record of a transaction, or a financial ledger entry. Each of this transaction is signed digitally to make sure it’s authentic and that no one can tamper with it. As a result, the existing transactions within the ledger and the ledger itself are thought to be of high integrity.

However, the main magic occurs when these digital ledger entries are distributed among an infrastructure, deployment.

The purpose of the extra layers and nodes in the deployment is to provide an agreement about the state of a transaction at any given time. Each node has a copy of the existing authenticated ledger that has been distributed.

How Does Blockchain Work?

First, a node begins a transaction by creating it and then signing it digitally with a private key that is created via cryptography. You should note that a transaction within a blockchain can represent numerous actions. However, most commonly, they are a data structure that represents the transfer of value, like Bitcoin, between members within the blockchain network.

A transaction structure usually has some sense of transfer of destination and source addresses, relevant rules, value, or any other validation information.

Once a transaction has been created, it is then propagated by using the Gossip protocol, which is a flooding protocol. This transaction is flooded to peers for validation using preset criteria.

Also, more than one node is usually required to validate a transaction.

After a transaction has been validated, it is then included in a block and propagated onto the network. It is at this point that the transaction is seen as confirmed.

The newly-formed block becomes part of the ledger and the next block that is created links itself back to this block via cryptography. At this point, the block gets its first confirmation while the transaction gets it second confirmation.

Every time a new block gets created, transactions are reconfirmed. Plus, up to six confirmations are usually required before a transaction is considered final.


Blockchain is an interesting technology that is built upon Transparency. Understanding the way Blockchain works makes way for more interesting use cases. Currently, Blockchain continues to thrive in payment services like Bitcoin and more and more applications are being built by the day. Hopefully with this article, you have a grasp of what blockchain is and how it works.

Disclaimer: This post has been contributed just for educational purposes and should not be regarded as financial advice of any sort.


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