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An Overview of Blockchain Technology and its Functionality

  • Aileen Scott 
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Adobe Stock, 2022

As blockchain innovation continues to grow and become user-friendly, the onus is on every individual who wants to learn this emerging technology to prepare for the future. If one is new to blockchain, then this is the right platform to good foundational knowledge.

In this article, one will learn about blockchain technology and the way it functions.

Blockchain Technology

Blockchain technology is simply defined as a decentralized, distributed ledger that records the provenance of a digital asset. By inherent design, the data on a blockchain is unable to be modified, which makes it a legitimate disruptor for industries like payments, cybersecurity and healthcare.

Blockchain, which can also be referred to as Distributed Ledger Technology (DLT), makes the history of any digital asset unalterable and transparent through the use of decentralization and cryptographic hashing. 

A blockchain is a database that stores encrypted blocks of data then chains them together to form a chronological single source-of-truth for the data. Digital assets are distributed instead of copied or transferred, creating an immutable record of an asset. The asset is decentralized, allowing full real-time access and transparency to the public

A transparent ledger of changes preserves the integrity of the document, which creates trust in the asset. Blockchain innovation inherent security measures and public ledger make it a prime technology for almost every single sector.

Functionality of blockchain technology

Blockchain consists of three important concepts: blocks, nodes, and miners.

· Blocks

Every chain consists of multiple blocks and each block has three basic elements:

  • The data in the block.
  • A 32-bit whole number called a nonce. The nonce is randomly generated when a block is created, which then generates a block header hash. 
  • The hash is a 256-bit number wedded to the nonce. It must start with a huge number of zeroes (i.e., be extremely small).

When the first block of a chain is created, a nonce generates the cryptographic hash. The data in the block is considered signed and forever tied to the nonce and hash unless it is mined.  

· Miners

Miners create new blocks on the chain through a process called mining. In blockchain technology every block has its own unique nonce and hash, but also references the hash of the previous block in the chain, so mining a block isn’t easy, especially on large chains.

Miners use special software to solve the incredibly complex math problem of finding a nonce that generates an accepted hash. Because the nonce is only 32 bits and the hash is 256, there are roughly four billion possible nonce-hash combinations that must be mined before the right one is found. When that happens miners are said to have found the “golden nonce” and their block is added to the chain. 

· Nodes

One of the most important concepts in blockchain innovation is decentralization. No one computer or organization can own the chain. Instead, it is a distributed ledger via the nodes connected to the chain. Nodes can be any kind of electronic device that maintains copies of the blockchain and keeps the network functioning. 


Blockchain’s most well-known is in cryptocurrencies. Cryptocurrencies are digital currencies (or tokens), like Bitcoin, Ethereum or Litecoin, that can be used to buy goods and services. Just like a digital form of cash, crypto can be used to buy everything from your lunch to your next home. Unlike cash, crypto uses blockchain to act as both a public ledger and an enhanced cryptographic security system, so online transactions are always recorded and secured.

To date, there are roughly 6,700 cryptocurrencies in the world that have a total market cap of around $1.6 trillion, with Bitcoin holding a majority of the value. These tokens have become incredibly popular over the last few years, with one Bitcoin equaling $60,000.

Types of Blockchain

There are four different types of blockchain. They are as follows:

· Private Blockchain Networks

Private Blockchainoperates on closed networks, and tends to work well for private businesses and organizations. Firms can use a private blockchain to customize their accessibility and authorization preferences, parameters to the network, and other important security options. Only one authority manages a private blockchain network.

· Public Blockchain Networks

Bitcoin and other cryptocurrencies originated from public blockchain, which also played a role in popularizing DLT. Public blockchain also helps to eliminate certain challenges and issues, such as security flaws and centralization. With DLT, data is distributed across a peer-to-peer network, rather than being stored in a single location. A consensus algorithm is used for verifying information authenticity; proof of stake (PoS) and proof of work (PoW) are two frequently used consensus methods.

· Permissioned Blockchain Networks

Also sometimes known as hybrid blockchain, permissioned blockchain networks are private blockchains that allow special access for authorized individuals. Organizations typically set up these types of blockchain to get the best of both worlds, and it enables better structure when assigning who can participate in the network and in what transactions.

· Consortium Blockchain

Similar to permissioned blockchains, consortium blockchains have both public and private components, except multiple organizations will manage a single consortium blockchain network. Although these types of blockchain can initially be more complex to set up, once they are running, they can offer better security. Additionally, consortium blockchains are optimal for collaboration with multiple organizations.

· The Process of Transaction

One of blockchain technology’s cardinal features is the way it confirms and authorizes transactions. For example, if two individuals wish to perform a transaction with a private and public key, respectively, the first person party would attach the transaction information to the public key of the second party. This total information is gathered together into a block.