Do You Really Know How Blockchain Works?

Beyond iconic Bitcoin and Ethereum, the dizzying range of blockchain use is only starting to be fully explored.

Yet the things that makes blockchain so revolutionary are also the things that make it so difficult to grasp—its lack of tangible assets, and huge network of linked virtual users.

Solution? A beginner’s guide to blockchain. Get the basics right and the sky really is the limit.

Okay, so what is blockchain?

Blockchain is essentially a database, where information can be added but not removed.

Conventional servers use a centralised model to store financial data in one place, with those running the server—eg banks—empowered to manage accounts and funds.

The blockchain runs via decentralised finance (DeFi), with no single point of control. The system is distributed, with vast amounts of data shared and stored across a huge computer network. Each computer ‘node’ works in collaboration with other nodes to assess and add new information.

Each new ‘block’ of data links into the existing network of blocks, creating an ever-expanding chain—or blockchain—of information.

Ah. So, why is this better than banks?

Well, for a few reasons.

  • It’s more democratic, with the majority of nodes having to reach consensus agreement to new block additions.
  • Rather than trusting each other, users place their faith in the infrastructure of the blockchain itself.
  • User error or deception is minimised, with trust resting on computers rather than the people who use them.
  • ‘Bigger means better’ in the blockchain world. The more nodes joining the network, the more decentralised and secure the blockchain becomes—the opposite of banking monopolies.

Got it. How do I control my personal info?

Easy. You are given a private key, which is like a long password. This gives you access to your own digital wallet, where your personal data is stored. You can keep a whole range of things here—everything from cryptocoins to health and property details. You know your private key is super-secure. It can’t be hacked because it’s not stored on a central server, as Google and Facebook are.

Right. How about distributed ledger technologies then?

Distributed ledger technologies (DLT) encompass a whole group of technologies, including blockchain. Other types include:


Digital coins native to blockchain, they were first deployed to reward users for keeping the network secure.


Digital assets quick to create, they ride on top of the existing blockchain.

Smart contracts

These virtual contracts are executed more quickly and cheaply than traditional contracts.

Digital assets

Real-world assets can be digitised on the blockchain.

Internet of Things (IoT)

Blockchain can automate and assist processes within the growing network of internet-enabled devices.

Digital identity

Blockchains offer safer, more secure storage of personal information.

Supply chain management

While blockchain was originally public, companies are now starting to privatise their own blockchains.

Following Bitcoin—the first public blockchain—new blockchains are constantly emerging to make it quicker, easier and cheaper to do business.

With Microsoft, IBM, American Express and the World Bank all busy crafting their own solutions, the future of blockchain looks bright.

Photo by Launchpresso on Unsplash


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