Skip to main content
what is blockchain

What is Blockchain? Absolute detailed guide for pure beginners

Open source software is going to rule the world of technology sooner than ever. If you are paying close attention, the era of open source software became a part of our IT infrastructure years ago. Java, Python, PHP, WordPress, you name it. These software have changed the course of history to create technological advancements that have made further technological advancement easier. One of the biggest innovation of recent times that we are going to talk about in this post is, ‘Blockchain’.

As part of this post, you will learn the following:

  1. What is Blockchain?

  2. How do Blockchain works?

  3. Who’s behind Blockchain?

  4. How does Cryptocurrency utilize Blockchain?

  5. Where is Blockchain used in real time?

Without further ado, let’s dive in.

Read also: What is Cryptocurrency? An ultimate beginner’s guide to get started.

Note: Though there are many applications of the blockchain, for the sake of this post, we will consider ‘cryptocurrency’ to explain the working of the blockchain.

What is Blockchain?

The blockchain is a public ledger of transactions of cryptocurrencies that are irreversible, secure and completely anonymous.

The blockchain is public, that is anyone with an internet connection can access it. It is continuously updated miners across the globe. The blockchain is a decentralized network that is connected to peer-to-peer. Many beginners think that the Bitcoin and blockchain is one and the same, but it’s not true. Bitcoin is an application of blockchain technology, or in other words, Bitcoin runs on blockchain technology.

Imagine Bitcoin as an Android app and the blockchain is the Android OS. However, blockchain is more of like an OS for cryptocurrencies to ‘run’. If you don’t already know, Bitcoin was invented by an anonymous developer, Satoshi Nakamoto in 2008. It's after this that people came to know about the blockchain technology.


Now that we have your attention, let’s get deeper.

To better understand the concept, let’s break the word. It contains two words, ‘Block’ & ‘Chain’. A block is a group of cryptocurrency transactions that are yet to be verified. And by 'verified', we are referring to the process of mining that we will be explaining it in subsequent sections.

‘Chain’ is a chronologically arranged ‘verified’ blocks which are publicly accessible by anyone. The blockchain is not editable by anyone, not even the inventor of the cryptocurrency.

Furthermore, the blockchain is maintained by ‘miner’, that’s what you will be called if you spend your time and money to verify the ‘unverified transactions’. To help you visualize, a blockchain is the internet of users that have access tothe same list of transactions and continuously verify the transactions.

To understand the details, let’s understand

How does blockchain work?

Source: Blockgeeks

Blockchains are database, robust and decentralized databases. Unlike the traditional database, it’s not restricted to a few users. Each block is connected to two blocks, one previous to it and other next to it.

Major steps involved in the process of working of blockchain are as follows:

The process begins soon after a sender sends a certain amount to the receiver. And then the following steps follows.

  1. Verification of transactions: Depending on the block size, a certain number of transactions are grouped in a block. Miners take each transaction and run it through the algorithm that further runs many tests to verify that transaction. Each cryptocurrency has its own algorithm, in case of Bitcoin, it’s SHA256. Likewise, each cryptocurrency have their own algorithm that verifies the transaction.

  2. Creation of block: Once the transaction is verified, the algorithm generates something called ‘Hash”, which can be visualized as a transaction ID. Once the hash is created, the block is published to the blockchain which acts like a public ledger.

  3. Transaction completes: As soon as the transaction is marked ‘verified’ by the algorithm and the hash of that transaction is created, the recipient received the amount. Furthermore, the time taken for this process to finish is different for the different cryptocurrency. Bitcoin, for example, takes 10 minutes on average to verify a transaction.

So the blockchain is like the traditional payment system, it’s just that the whole structure of blockchain is decentralized. Instead of middlemen of the traditional payment, the blockchain has the miner who does the job of verification. However, unlike the traditional payment system, the process isn’t slow, is private and the fee is comparatively less.

Who’s behind the blockchain technology?

Many people think that Satoshi Nakamoto is the inventor of the blockchain technology. It’s not true if you go through the whitepaper of Bitcoin, you’d notice one thing that there’s no mention of blockchain in it. Which is pretty evident to conclude that Satoshi isn’t the inventor of this technology. Bitcoin has implemented the concept of technology, or in other words, utilized it for its existence. However, the cryptographic and algorithmic structuring of bitcoin might have Satoshi behind it.

The first appearance of this concept was seen in 1976, in New Directions in Cryptography. Though, the term ‘blockchain’ didn’t exist back in those days. However, it has mentions of the distributed ledger that puts cryptography in action. Based on this work, another whitepaper, How to Time Stamp Digital Documents was released in the late 1990s. Time stamping is one of the processes that’s done to the ‘unverified’ transactions by the algorithm.

This years later became cryptocurrency. Now you know what is blockchain, you know what is cryptocurrency, let’s see

How does cryptocurrency make use of blockchain to function?

Okay, this is going to be nice and easy. You already know about blockchain and cryptocurrency. Pick any cryptocurrency out there, reach the atomic level of it and you’ll find blockchain there. You can say, cryptocurrency is so far the best application of blockchain technology.

So, the functioning part is pretty simple.

  1. Person A sends X to B

  2. This transaction is broadcasted in the blockchain

  3. Miners pick this transaction, run it through the algorithm, get the hash and

  4. The transaction is successfully completed.

This process of verifying the transactions results in generating new units of cryptocurrency. In other words, miners invest their time, money and efforts to generate new units of cryptocurrencies. A portion of which is awarded to them as an incentive. This process is called mining.

What is cryptocurrency mining?

The process of generating new units of cryptocurrency while verifying the existing transactions is called cryptocurrency mining.

Anyone can get into mining with a decent internet connection and a computer. Since the blockchain runs algorithms continuously, the CPU, GPU, and the whole systems is expected to be super powerful, which doesn’t come cheap. Depending on the cryptocurrency you are intending to mine, and the algorithm in use by that cryptocurrency, the power required to mine would vary.

Bitcoin uses SHA256 and the number of transaction pass through the approval process is ‘one’ every ten minutes, Bitcoin mining has become a job of very few. Just a handful of people dominate the market. Since it’s too expensive to afford the gadgets required for mining cryptocurrencies, there’s something called mining pool. Where a group of people together, invest time and money earn a decent amount from it.

Electricity consumption for mining cryptocurrency is a bomb. That’s why very few people are able to afford mining Bitcoin. Other cryptocurrencies like Ethereum, litecoin or Bitcoin Cash are fruitful when it comes to mining. The algorithm those cryptocurrencies use it faster and more energy efficient. However, the price of it is low which pretty much cancels out the whole point or mining these instead of Bitcoin.

So, basically, blockchain is the replacement of the middlemen we have in the traditional payment system. It does exactly the same job as the centralized servers do, but it does much better and at comparatively low cost. Cryptocurrency is a peer-to-peer payment network that uses cryptography to encode the whole transaction. To make this transaction available across the globe, maintain anonymity, to decentralize the whole process and to eliminate the middlemen, nothing is as powerful as the blockchain.

Cryptocurrency is not the only application of blockchain. Let’s have a look at

Applications of blockchain technology

Smart contracts: Smart contracts are the pre-defined functions that are triggered when specified conditions are met. Misusing the anonymity, people from the criminal background are using cryptocurrency to make payment of their illegal activities and goods. It is the smart contracts that keep it in check while still maintaining the very essence of the blockchain. Smart contracts are the lawyers of blockchain space. Smart contracts not only govern the blockchain to avoid illegal activities but it also not process such transaction(s) too.

Shared ecosystem: Companies like Uber and AirBnB are to grow exponentially in this decentralization era. Shared pooling options while taking a ride offered by Uber is already a big hit for the company. Similarly, AirBnB lets you share your unused real estate space/property and earn from it yet keep it under your control. The peer-to-peer payment network will sure prove to be a plus point in such ecosystems.

Crowdfunding: Raising funds to feed an idea and make it big is one of the biggest challenges for an entrepreneur. What if we tell you that you don’t have to rely on venture capitalists to agree to fund your idea, you don’t have to be afraid of your idea being stolen. It’s better than ever. In 2016, Ethereum ran an experiment in this regards. And Ethereum based DAO, raised a whopping $200 million in just two months. Sure, Ethereum is brand now, but it’s not that you cannot raise funds using blockchain.

Governance: This is something that will further change the course of history. The government we want to rule us will be chosen exactly the way we want it. Blockchain will make the election process fully transparent, publicly accessible and justifiable. Since the votes are publicly accessible, there’s a little to no chance of forging or tampering the results to make personal benefits. Ethereum smart contracts can be used to automate the process, also it will ensure there’s strictly one vote from one user ID, no matter what.

File Storage: Ever used torrent? It was a revolutionary idea of decentralizing file storage across the globe and make the file accessible to anyone. The data is distributed across the network and yet be accessible as a whole. The bits and pieces of a particular file is available on the network, whenever one wants to access it the network brings those bits and pieces connecting the nodes and making it available. Moreover, there’s point of attack. Even if unauthorized access is made, they will only have one fraction of the whole thing. It’s that amazing.

Copyrights of intellectual properties: Accessing information has been revolutionized since the internet happened. The Internet has been an amazing place for marketers to market their business. Marketing is nothing without content and content that are copyrighted are also on the web. Therefore, there are chances of losing the credit for that copyrighted content. Not anymore. Blockchain, along with smart contracts can now make sure your copyright content stays yours. An example, Mycelia, founded by UK based singer & lyricist Imogen Heap. Mycelia uses blockchain to sell songs directly to the music lovers. Furthermore, even producers can have the license sample just to be sure they’re producing the right piece. Smart contract doing the trick here, it ensures that no content is copied and reproduced without credits. Also, the blockchain takes care of the payment to artists without having middlemen in the system.

There are a ton of applications of blockchain, these were to name a few.

Final thoughts on the blockchain

This is the right time to gear up and be a part of something big. Sure blockchain has already made its image as the future of the internet, one of it’s most famous application, cryptocurrency is finding it difficult to set roots.

While the legality of cryptocurrency is still swinging between green and red signal, there are 1600 plus cryptocurrencies already in the market. Many countries are finding ways to regulate cryptocurrency without affecting its core essence of decentralization.

However, blockchain is widely accepted/implemented globally. Considering the potential this technology has, one can anticipate what amazing things can in future that would make the world nothing but better.

What do you think of blockchain? How do you imagine it changing your own life directly? Let us know your say in the comment section below. It can be a simple Hi, we’ll wave back.

Share this on your social media profile to help people in your network understand this technology. Sharing will motivate us to produce more content like this.

