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Blockchain Technology Explained: What is it and how does it work?

Estimated reading: 2 mins

 What is the blockchain

The blockchain is a decentralised network that connects information and allows for total transparency. All transactions on the blockchain can be logged and viewed online. The identities of the people transacting as well as their location cannot become disclosed.
The blockchain takes out the middleman, meaning there is no use for a bank. However, there still needs to be a system to prove payment of goods and services purchased. The blockchain does this by storing all transactions at the same time so if anyone were to try and trick the system the payment would not go through.
Cryptocurrency and blockchain technology is a cheaper, faster and more efficient was to spend money even across national borders.
Each block contains the history of every block that came before it, successfully chaining the blocks together hence ‘blockchain’. Everything on the blockchain uses encrypted technology with a unique cryptographic signature that is almost impossible to falsify. Computers around the world are maintaining the files and coordinating them to update the blockchain in a lock-step fashion.

How a Transaction Works

The blockchain has trust and transparency for example if Jill were to transfer $50 to Bill the bank would have to make sure that Jill was $50 poorer and Bill was $50 richer. Blockchain technology does not have a need for banks, complete blockchain technology is used.
The processing of payment uses ‘distributed trusted consensus’ which approves the transaction is valid, because of the proof of work it means that Jill and Bill will be able to see the wholesale online. When making a deal, the sender will receive a TX ID (transaction ID). TX ID's track the transaction through a blockchain explorer ( a wallet address is another tool that works).
The blockchain never lies, you will have proof of your deposits and withdrawals before receiving the coin.

Block Times

Different coins have different block times; this refers to how long your transaction will take to get to your wallet.
Bitcoin has a block time of 10 minutes (this is the first confirmation. However, BTC needs six confirmations, so it normally takes around 1 hour).
Litecoin has a 2.5 minute block time.
Ripple has a 4 second block time.
However, bear in mind that if the network is busy the block times will take longer.

Advanced Technology

Advanced versions of blockchain technology have been developed with examples such as IOTA, which works on the users validating the previous transaction meaning the user is actively participating in the consensus. IOTA utilised a newly designed trinary hash function called Curl, which is quantum immune (Winternitz signatures) and is more decentralised than any blockchain.
Another example is EOS, which uses blockchain technology designed to enable vertical and horizontal scaling of decentralised applications. The software provides authentication, databases, asynchronous communications, accounts and the scheduling of applications across multiple CPU cores and clusters.
Due to blockchain technology such as IOTA and EOS, this has the potential to scale to millions of transactions per second, gets rid of fees and coins can be quickly developed on the blockchain.


Want to know more about blockchain technology?

See this post to learn about the 5 Key Differences Between Hard and Soft Forks.

Learn about some of the main encryption techniques used in crypto.

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