How Does A Blockchain Work?


Heard people talking about how blockchains work but not sure what they mean? In this blog we will simply define and explain it.

A Simple Explanation Of How A Blockchain Works

A blockchain is like a database with each block representing a new batch of data. When a transaction or a new record is made, a new block is added to the chain to be verified. If successful, blockchain uses cryptography to link the new block to the previous block, making a permanent and immutable record. The transaction is then processed.

What is a Blockchain?

The concept of a blockchain was first envisioned in a paper tabled way back in 1991. Two researchers, Stuart Haber and W. Scott Stornetta, were exploring how to timestamp documents so they could not be manipulated. That’s 18 years before blockchain first came into widespread use with the birth of Bitcoin, the world’s first cryptocurrency. Blockchain technology is now used in everything from DeFi (decentralized finance), smart contracts and NFTs (non-fungible tokens). Many other platforms have emerged since Bitcoin with Ethereum the next biggest, designed specifically to use blockchain technology in a transactional capacity. The three key features of blockchain which make the technology work are:

Distributed – proof of transactions appear across the entire network.

Consensus – all participants in the network must agree to the validity of any new record or transaction.

Immutable – transactions are cryptographically time-stamped and cannot be altered or deleted once they have been created, increasing trust and reducing risk and fraud.

The Five Main Parts Of The Blockchain

There are five main components to the entering and verifying of a transaction on the blockchain.

Transaction – a transaction is entered into the network. It may be the purchase of cryptocurrency or some other asset or the entry of a new record.

Block – the transaction or record is grouped with others creating a new block which is then sent to a network of peer-to-peer computers on the blockchain. These computers may be scattered all over the world.

Verification – in the case of Bitcoin which uses the proof of work consensus mechanism, “miners” solve complex mathematical equations to confirm the transaction is valid. When consensus is reached, which equates to a 51% majority of them, the transactions are considered verified.

Hash – when the block is verified, it is time stamped with a cryptographic hash. The hash of each new block contains a reference to the hash of the previous block which produces an unbreakable chain. Falsifying the data in that block would create a different hash and break the chain.

Execution – with the transaction verified, it is executed. In the case of a cryptocurrency purchase, this would involve the transfer of funds.


Blocks may be verified in one of two ways, Proof of Work or Proof of Stake Bitcoin uses the highly energy-intensive Proof of Work method. Each block takes about 10 minutes to verify. The Ethereum blockchain, along with many others, use the proof of stake consensus mechanism. This is normally much quicker (between 15 seconds to five minutes) and uses much less energy than proof of work but is potentially more susceptible to fraud because of its lower ongoing costs. This risk is offset by blockchain’s security features. If someone attempted to change the data in a block, every block in the chain would need its hash to be recalculated to successfully conceal the manipulation. That’s because the hash of every new block is calculated from the hash of the previous block. Depending on the size of the blockchain, this process could take years and is considered impossible. In the event of a fraud attempt, consensus in the network is lost and the problem becomes visible to all users. No new blocks are added until the problem is solved.

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