What is Blockchain & how does blockchain works? Fundamentals of blockchain

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Hi guys, are you looking to make some money from cryptocurrency or looking for a better career prospect? If yes, you are in right place. Today we will be talking about blockchain, primarily its fundamentals or how it works & important concepts around it.

We are not going to address cryptocurrency trading here but the concept powering these cryptos because unless you understand what blockchain is, you can’t make much sense of crypto world or NFTs.

We will cover them later videos but if you want me to priorities anything, just leave your comment and let me know.

I have to put it in simple terms, I will say blockchain is the mother and father of web 3.0.

History & Origin of Blockchain

You might have heard about facebook revealing metaverse recently. Metaverse is part of web 3.0 which will power the internet for next couple of decades so if you want to learn about web 3.0, let me know.

Alright so coming back to blockchain, a crucial technology which is going to power web 3.0, cryptocurrencies & NFTs.

So, what is blockchain.

If you are here, you are most probably already aware of bitcoin.

Now Satoshi nakamoto created bitcoin in 2008 and published a paper on peer-to-peer financial transaction or transfer.

Now in traditional world, there are lots of intermediaries involved in a money transfer. It could be bank, it could be services like paytm or paypal but there are more than concerned parties involved in a money transfer transaction.

There are only two concerned parties in a money transfer transaction.

First the person initiating the transfer

Second the person receiving the money

But due to constraints in current banking system, you will usually have more than concerned parties.

Now Satoshi nakamoto created bitcoin to solve this problem.

He used few preexisting technologies like hashing, decentralized networks & proof of work.

Now these are three distinct concepts which were used to create Bitcoin.

All these come together to build a technology which is called blockchain.

It seems everybody wants to own bitcoin, ethernum & hundreds of other cryptocurrencies today. And nobody cares what they are or how they do whatever they do.

In fact, if you speak to average people talking about cryptocurrency, most of them won’t even care about the technology powering these currencies & token. 

Everybody just want to buy these cryptos for few dollars & rupees and sell them for millions of dollars & rupees.  This is one of the reason why most people fail to make significant money in crypto trading. 

They are just following the herd and hoping & praying that they make some money.

So in this post, we are trying to solve this puzzle. What is blockchain & how does it work. If we understand the fundamental concept behind blockchain, it will be easier for us to make sense of these currencies.

I will continue to post these informative posts about blockchain and cryptocurrencies & more so create YouTube videos. So please subscribe to my channel using this link;


What is Blockchain?

Ok so back to original question, what is blockchain?

To put it simply;

Blockchain is a technology used to store a transaction data.

What is Blockchain

Blockchain is a technology used to store a transaction data.

Hmm, probably you don’t even understand a database. 

So going back to basics;

A database system can be defined as a software application which is used to collect & store data for a web application.

what is blockchain & how does blockchain works

So when you create your Facebook or gmail account, your data is stored in a database. A database in its simplest form will look like this. 

Product Name





Title 1


1 Piece

Store Name

Title 2


1 Piece

Store Name

Title 3


1 Piece

Store Name

Title 4


1 Piece

Store Name

In this simple form, it contains a table with columns and rows with data. I am not going to get into details of variety of databases here but today we have very advance technology in databases and we can store all kind of data like text, images and videos etc. 

When you write a email or post on Facebook, it is saved in a database. Or for that matter, any activity on web, whether you like a post, comment or subscribe to a YouTube channel, everything is stored in a database. It could be a text, image or video content, everything is stored in these databases. 

Think of this activities as data transactions where data is submitted through your computer or phone but it is then submitted to databases and you & others can read or react to it through their phones & computers. So it’s a complex of data transactions & interactions. 

Databases are owned by the owner of the web application like owner of Facebook will be owning your Facebook data, similarly google owns the data related to your activities on google.

So the current setup is CENTRALISED.

Big companies will usually have lots of data centres whereas smaller companies will lesser data centres but ultimately all companies will have finite number of data centres.

This posses a security risk so if you hack a data center, you will have access to privately held information in that data center.

If a data center goes down, application will be become unavailable. For example WhatsApp, Facebook & Instagram were down globally in first week of October. You can find more details here- https://www.livemint.com/technology/tech-news/whatsapp-instagram-facebook-down-globally-report-11633362636616.html

Similarly on 19th nov 2021 also, few users reported that these services were down.


Now there are variety of reasons why a website could crash but keeping everything in few datacenter or databases is bound to make them vulnerable. 

Now same setup is used by banks, government organisations, auto makers and other industries to store and move data online. 

So when you buy a car or a house, same data management techniques are used which makes the entire process slow, inefficient & insecure. 

Blockchain is a revolutionary new technology which changes the way data is handled online. 

What is blockchain

Blockchain is a revolutionary new technology which changes the way data is handled online. 

Blockchain is distributed database technology that lives on a computer network. A traditional database system lives on a server owned by a company but blockchain lives on its user’s systems. 

So we can say that blockchain is practically a live ledger which is continuously getting updated with each transaction. 

Blockchain is peer to peer. So it stays on the network. Each node or user in the network serve as a publisher as well as subscriber. 

So each node will have ability to write or create transactions based on the preset rules and if other node or user initiate a transaction, user or node will have to approve it in order to complete the transaction.

To sum up, Blockchain is an online distributed ledger.

Earlier we saw a table with rows and columns while talking about a simple database. In traditional database, data is stored in these tables whereas in blockchain data is stored in blocks. 

A blockchain is immutable which means you cannot change a record. In case of a traditional database, you can update a record, change it or even delete it but in blockchain, you can’t do it. 

Every change is recorded as a new transaction. 

Blockchain is the underlying technology powering Bitcoin.

For now we will stay away from Bitcoin and focus on the blockchain because it is way more important than bitcoin. 

It is not only going to power bitcoin but every other cryptocurrency and NFTs. We will come to these later. But remember, 

Bitcoin and Blockchain are two different things. Blockchain is the technology powering bitcoin and many other cryptocurrency whereas bitcoin is just one application of blockchain.

So coming back to blockchain, it’s a decentralised network where data is hosted on the network. 

But before we move forward with what is blockchain, we need to spend some time understanding why blockchain is getting so much traction today.

Blockchain is popular not because it’s a DIFFERENT database technology but to solve a different problem. And that problem is related to the way transactions are handled traditionally especially in banking domain. 

Off course now we are talking about implementing blockchain everywhere but its origin lies in the inefficiencies associated with the financial transactions. 

Today financial transactions like money transfers are usually associated with following issues;

  1. Insecurity 
  2. Slow
  3. Expensive 
  4. Error prone

Now as you can relate, primary benefits of blockchain are around these issues.

Benefits of Blockchain

  • Safe
  • Fast
  • Low cost
  • Devoid of human errors

Let’s talk about functioning of the blockchain to understand how it delivers these benefits. 

Blockchain is a chain of blocks.

what is blockchain

There are two elements we need to understand;

  1. Building blocks which is block.
  2. How does transaction happens.

What is a Block

Blocks are building blocks of the blockchain. This is a block. 

Properties of block;

  1. Meta data - information about blocks
  2. Hash key- unique id of the block and id of previous block. 
  3. Information pertaining to transactions. This depends upon the application. Ethernum block contain information about timestamp, difficulty, parentHash etc.
  4. A block contain fixed number of transactions.
  5. Within a blockchain, different blocks can have different limits for example block 1 may contain 4 transaction, block 2 may contain 6 transaction & block 3 will have 3 transactions.
  6. A block is automatically created when previous block has reached its limit. So let’s say first block is created with 4 transaction and when 5th transaction take place, a new block is created with 5th transaction and so on. 
  7. A blockchain will continue to grow as long as new transactions are being added to it and new blocks are created to store them.

We will come back to block and discuss them in detail but for now let’s go through transaction to put both of them together. 

Blockchain Transaction

A transaction in this case could be anything, it could be financial transaction like money transfer or a real estate deal or car registration. 

For a transaction to happen;

  • A transaction must be approved by majority of the nodes/users. This is called consensus. This is usually used in business blockchain. Consensus mechanism will usually vary from blockchain to blockchain. But all blockchain network will have some kind of consensus.
  • Consensus ensures security and transparency. In a traditional database system, there is no oversight and control is centralised. 
  • Cryptography is used to complete transaction which means computer need to solve some kind of math puzzle to complete a transaction. 
  • A transaction happens through smart contract & Proof of work

Smart contracts

A smart contract is a set of rules which governs how a transaction happens in a blockchain. Smart contracts defines the conditions for example- you can have a rule that only user can create their data on the node. Data creation is a transaction in itself. Other users/nodes will have to approve the transaction if data is being created by the owner. 

If these conditions are met, a smart contract will be issued and a transaction will be created on the blockchain network. 

Proof of work

A blockchain network can be private or public. 

On public blockchain network like bitcoin, you need to complete a difficult task to mine or earn bitcoin which is equivalent to a transaction. 

In case of bitcoin, you need to solve a complex math puzzle to mine bitcoin. This is called Proof work. 

Now let’s combine everything to put together the full picture of blockchain. 

What is blockchain summary

  • A blockchain is an online distributed ledger.
  • A blockchain consist of blocks.
  • A block contains meta data and a set of transactions. 
  • Each block can have different limits for transactions.
  • Blockchain network can be public or private. 
  • Transactions happens in blockchain through smart contract & proof of work. 

If you have any questions, please leave your comment or share it with your friends & family on social media. And yes, please subscribe on my YouTube channel to get videos.

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About akhilendra

Hi, I’m Akhilendra and I write about Product management, Business Analysis, Data Science, IT & Web. Join me on Twitter, Facebook & Linkedin


  1. Each block in the chain contains a number of transactions, and every time a new transaction occurs on the blockchain, a record of that transaction is added to every participant’s ledger.

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