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Blockchain! Can we rely on it?

Updated: May 18


“Whereas most technologies tend to automate workers on the periphery doing menial tasks, blockchains automate away the center. Instead of putting the taxi driver out of a job, blockchain puts Uber out of a job and lets the taxi drivers work with the customer directly.” – Vitalk Buterin, Co-founder of Ethereum


We’ve already talked about “What is Blockchain” before and now we’re going to see how it works.


In simple words, Blockchain is a P2P digital system of recording information in a way that makes it difficult or impossible to hack, change or cheat the system. Blockchain is a “Decentralized” Platform.


The main goal of Blockchain is not to permit anyone to edit without permission, unlike normal databases like SQL databases where we’ve permissions to delete, drop or alter data.


Now, the question is


How does Blockchain work?


Before knowing the procedure first, we need to understand some terms.


  • Decentralized Network: A decentralized network distributes workloads among several machines, instead of relying on a single central server. Think about a bank transaction, there bank needs to validate the transaction which means there’s a third party in between. Bank transaction is the best example of a centralized network whereas blockchain is the best example of a decentralized network where there is no middle man.


  • Block & Chain: Block is the place where the valid transaction information is stored and encrypted. Chain links two blocks. Think about a train, two compartments have passengers and there are connected with coupling. Here, the passengers are valid transaction information, the compartments are blocks and the coupling is a chain.


  • Node: Blockchain exists on nodes. Nodes are actually the users on which the blockchain is standing. Usually, nodes can be computers or servers.


Now, Let’s talk about the process and make this blockchain working process easy.

Let’s take an example: Bitcoin Blockchain. The bitcoin blockchain is the oldest blockchain.



There are four friends, John, Jack, Jim, and James went for lunch at a restaurant. John paid for the lunch and they split the expense amongst each other.

The next morning,





Jim gave 1 bitcoin, James gave 2 bitcoins and Jack gave 3 bitcoins to John.


When each one gave bitcoins sent to John, means when transactions have taken place, each transaction record permanently has been saved in a form of a “Block”. Each block is linked with the other as each one of them takes reference from the previous.





This chain of records or “Blocks” is called Ledger. This Ledger is distributed between all of them, which means now John, James, Jim, and Jack have the whole transaction details, including how many bitcoins each of them has – This is called Distributed Ledger Technology (DLT).


Simply we can explain that Blockchain Technology is the collection of records, linked with each other which is strongly resistant to manipulation and is protected using cryptography.


Blockchain transactions are recorded with an immutable cryptographic signature called “Hash”.


Now, you must be thinking that


How does this system give security?


Well! Let’s have a closer look at the transactions, you’ll understand “How it works”.

Every user in transactions has two keys.


  • Public Key- This is the information that is known to all. Let’s think of an E-mail address that everyone knows. It is used for encryption and decryption.


  • Private Key– It’s unique information which is only the user knows. You can think of it like a Password.




Jack sent 3BTC to John along with the wallet address through the hashing algorithm. The transaction is encrypted using an encryption algorithm and Jack’s Private key. Now the digital signature is created which indicates that the currencies are coming from Jack. The output is transmitted throughout the world with John’s Public key. But these details can only be decrypted by John’s Private key.


Bitcoin uses the SHA256 hashing algorithm whereas Ethereum uses ETHASH.


These kinds of transactions are happening every day all over the world. Verification of new transactions is called “Mining”.


What is Mining and how does it work?


Blockchain mining is the process to secure and verify bitcoin transactions. The transactions are validated and put into blocks on a blockchain, done by a group of people called “Miner”. Miners solve complex mathematical problems and put the blocks into the blockchain to make the transactions secure. The solving of a mathematical algorithm is called “Proof – of – work” (PoW).





A miner who solves the complex mathematical puzzle and put the block on the blockchain is rewarded with 6.25 BTC.


Why do you need to mine?


Mining is used to validate existing transactions and help to create new coins. Mining reduces fraud and increases user confidence in coins.


So, undoubtedly Blockchain is a futuristic technology on which we can rely.


“The old question ‘Is it in the database?’ will be replaced by ‘Is it in the blockchain?” – William Mougayer

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