What is Blockchain & How It works
A blockchain is a decentralised digital ledger that records transactions securely across multiple computers. It is best known for powering cryptocurrencies, but its use goes far beyond that. Blockchain ensures data cannot be altered, making it highly valuable for industries that rely on secure, tamper-proof records.
Unlike traditional databases, where a central authority verifies transactions, blockchain operates on a trustless system. Once data is entered, it is permanently recorded and cannot be changed, removing the need for intermediaries like banks, auditors, or legal authorities. This not only cuts costs but also reduces the risk of human error and fraud.
Why Blockchain Matters
In a typical financial transaction, such as a property sale, both buyer and seller keep their own records. Disputes can arise if one party claims they haven’t received payment, even if they have. To prevent such conflicts, a trusted third party – like a bank or legal body – usually steps in. This process adds extra costs, delays, and risks.
Blockchain solves this problem by creating a shared, real-time ledger where every transaction is verified and recorded across multiple nodes (computers) in the network. No single entity controls the data, making it transparent and secure. If anyone tries to alter a past transaction, they would have to change the entire blockchain – something that is nearly impossible due to its decentralised nature.
This level of security and transparency is why blockchain is being adopted in finance, healthcare, supply chain management, and digital identity verification.
How Blockchain Works
Blockchain follows a simple but powerful process:
- Transactions are recorded as blocks – Every new transaction is stored in a digital block. This block contains key details like the time, date, participants, and asset information.
- Blocks are linked together – Each new block is cryptographically connected to the previous one, forming a continuous chain. This ensures transactions happen in the right sequence and cannot be changed.
- The chain becomes permanent and tamper-proof – Once a block is added, it strengthens the security of the entire blockchain. Any attempt to change past data would require altering the entire network, making fraud virtually impossible.
Who Created Blockchain?
Blockchain technology was first introduced in 2008 by Satoshi Nakamoto, the anonymous creator (or group of creators) behind Bitcoin. Nakamoto designed blockchain to solve the double-spending problem in digital transactions – allowing people to exchange money without relying on banks or financial institutions.
While Bitcoin was the first real-world use of blockchain, the technology has since expanded into many industries, powering smart contracts, digital assets, and secure data storage solutions.
How Secure is Blockchain?
Blockchain is often considered one of the most secure technologies, but no system is completely hack-proof. However, it is extremely difficult to tamper with blockchain due to its design:
- Decentralisation – Unlike traditional databases, which rely on a single server, blockchain is spread across thousands of computers worldwide. To hack it, an attacker would need to control more than 50% of the network, which is highly unlikely for established blockchains like Bitcoin or Ethereum.
- Immutability – Once a block is added, it cannot be altered. Any attempt to change past transactions would break the entire chain, alerting all participants in the network.
- Encryption – Every transaction is protected by advanced cryptographic algorithms, making unauthorised changes nearly impossible.
While blockchain itself is highly secure, individual applications built on it (such as smart contracts or private blockchain networks) can have vulnerabilities, so security measures must always be in place.
Real-World Uses of Blockchain
Beyond cryptocurrency, blockchain is transforming industries in ways that improve security, efficiency, and transparency.
- Supply Chain Management – Companies like IBM and Walmart use blockchain to track food and products, ensuring quality control and authenticity.
- Healthcare – Medical records are securely stored on blockchain, preventing fraud and ensuring patient privacy.
- Ticketing & Identity Verification – Blockchain prevents fake event tickets and enables secure digital identities.
- Finance – Banks and fintech firms use blockchain for fast, low-cost international transactions and fraud prevention.
With its ability to provide trust, security, and efficiency, blockchain is set to reshape industries worldwide, proving it’s far more than just the technology behind Bitcoin.
Bitcoin vs Blockchain
Blockchain technology was first conceptualised in 1991 by researchers Stuart Haber and W. Scott Stornetta. Their goal was to create a system where document timestamps could not be altered, ensuring authenticity and security. However, it wasn’t until nearly two decades later – with the launch of Bitcoin in January 2009 – that blockchain found its first real-world application.
Bitcoin
Bitcoin operates on blockchain technology, but the two are not the same. In 2008, Satoshi Nakamoto (a pseudonymous creator or group of creators) introduced Bitcoin as a peer-to-peer electronic cash system that eliminates the need for intermediaries like banks.
Bitcoin uses blockchain to maintain a secure, decentralised ledger of transactions. Every Bitcoin transaction is recorded on the blockchain, making it transparent and tamper-proof. However, while Bitcoin was the first major application of blockchain, it is just one of many ways blockchain technology can be used.
Blockchain
Blockchain itself is a versatile technology that can store and verify any kind of data, not just financial transactions. It can be used to record:
- Property ownership – Land deeds and real estate transactions can be stored securely, reducing fraud.
- Voting systems – Blockchain can make elections more transparent and secure by preventing vote tampering.
- Supply chain tracking – Companies use blockchain to verify product authenticity and track shipments.
- Identity verification – Secure digital IDs can be stored on blockchain, preventing identity theft.
One of the most promising applications of blockchain is secure online voting. A blockchain-based voting system could give each citizen a unique digital token to vote for their preferred candidate. Since every transaction (vote) is publicly verifiable and cannot be altered, it would eliminate the risk of vote manipulation, human error, and fraud.
While Bitcoin is just one use case of blockchain, the technology itself is far more powerful and adaptable, with the potential to revolutionise industries beyond finance.
Bitcoin vs Blockchain – Key Differences
| Feature | Bitcoin | Blockchain |
|---|---|---|
| Definition | A digital currency that allows peer-to-peer transactions without intermediaries. | A decentralised digital ledger that records transactions securely and transparently. |
| Purpose | Primarily used for financial transactions. | Can be used for various applications like financial transactions, voting, supply chain management, identity verification, etc. |
| Ownership | Controlled by a decentralised network of users but follows the Bitcoin protocol. | Can be private (permissioned) or public (permissionless), depending on the use case. |
| Use Case | Acts as a store of value and a medium of exchange. | Provides a secure, transparent, and tamper-proof system for storing and sharing data. |
| First Use | Launched in 2009 by Satoshi Nakamoto. | Concept introduced in 1991, but gained popularity with Bitcoin in 2009. |
| Transactions | Uses blockchain to record Bitcoin transfers only. | Can record any kind of data, not just financial transactions. |
| Flexibility | Limited to Bitcoin-related functions. | Highly flexible – used in industries like finance, healthcare, logistics, governance, and more. |
| Security | Highly secure due to cryptographic encryption and decentralisation. | Inherently secure but depends on the implementation and consensus mechanism used. |
| Transparency | Every Bitcoin transaction is publicly recorded on the blockchain. | Can be public (transparent) or private depending on the blockchain type. |
| Examples | Bitcoin (BTC) | Ethereum, Hyperledger, Tezos, Solana, Cardano, and other blockchain networks. |
Types of Blockchain Networks
Blockchain networks can be structured in different ways depending on their purpose and level of access. The four main types include public, private, permissioned, and consortium blockchains.
1. Public Blockchain Networks
A public blockchain is open to anyone who wants to participate. Bitcoin and Ethereum are prime examples. These networks are decentralised, meaning no single entity controls them. However, they come with challenges, such as:
- High computational power requirements for maintaining the network.
- Limited privacy since transactions are publicly visible.
- Potential security vulnerabilities due to the open nature of the network.
While public blockchains work well for cryptocurrencies and decentralised applications (DApps), they may not be ideal for businesses requiring confidentiality and control.
2. Private Blockchain Networks
A private blockchain operates similarly to a public one, but access is restricted. One organisation controls:
- Who can participate in the network.
- How transactions are validated through a consensus mechanism.
- Who maintains the shared ledger.
Private blockchains offer greater security and privacy, making them suitable for enterprises handling sensitive data. They can be hosted on-premises or within a corporate firewall.
3. Permissioned Blockchain Networks
A permissioned blockchain requires users to obtain approval before joining. This model applies to both public and private blockchains, ensuring that:
- Only approved participants can access certain transactions.
- Access levels can be customised, allowing different roles within the network.
Businesses often use permissioned blockchains to maintain control, security, and efficiency, especially in finance, healthcare, and supply chain management.
4. Consortium Blockchains
A consortium blockchain is governed by a group of organisations instead of a single entity. This model is useful when:
- Multiple stakeholders need shared access to a blockchain.
- Trust is required between participants without relying on a single authority.
- Collaboration is needed across industries, such as banking, logistics, or healthcare.
Consortium blockchains balance decentralisation with control, making them more efficient than public blockchains while ensuring fair governance among participants.
