How does blockchain function? Explained simply for beginners

While blockchain made its way into the public eye through cryptocurrencies, its potential goes far beyond that.

At its core, blockchain resembles a public electronic ledger, keeping information safe on a network of computers. Rather than depending on a central authority—such as a government database or a bank—it shares control with thousands of separate parties. The framework is designed to be open, decentralized, and virtually unchangeable.

Imagine that blockchain is a book, and every page in it contains a group of transactions. In blockchain, each such page is referred to as a "block." After the page is filled with information, it's locked and appended to the last page, building a chain of things—hence the name "blockchain." Each block includes a list of transactions, a date, and a code that uniquely identifies it as a "hash." Each block also includes the hash of the prior block, making it secure and tamper-proof.

Why blockchain is revolutionary is that it is decentralised. Rather than relying on one server or organisation to store and manage the information, a copy of the entire ledger is distributed among a network of computers referred to as "nodes." All nodes can see the entire history of the blockchain. If an attempt were made to alter one block, it would be necessary to alter all blocks subsequent to it on over half of the nodes within the system. That amount of coordination and computer power is close to impossible, which renders the blockchain highly secure.

When there is a new transaction—like a Bitcoin transfer—it's propagated out to the network to be validated. The network computers verify that the transaction is valid, like that the sender does have sufficient funds. After being verified, the transaction is combined with other transactions into a new block. The network first needs to reach consensus, or the majority need to agree that it is correct, before the block can be added to the chain. Consensus can be achieved through various means, such as proof of work or proof of stake. After agreement, the block is added to the blockchain for good.

While blockchain made its way into the public eye through cryptocurrencies, its potential goes far beyond that. It's being used today to make supply chains more transparent, secure digital identities, safeguard medical records, and even boost voting systems.

Since each block of data is time-stamped and cannot be altered, blockchain can establish trust in systems that were dependent on central authorities or middlemen before. Why it matters

Simply put, blockchain is a fresh method of data recording and sharing that eliminates the middleman. Blockchain enables individuals and organizations to exchange value or information in a secure and open manner. For anybody just beginning to venture into the realm of digital currency, knowledge of blockchain is the initial crucial step.