How Does Blockchain Works?

How Does Blockchain Works
How Does Blockchain Works

In our last blog, we explained “What is blockchain?” and how it allows value exchange with automated authenticity and authority. The goal of this blog is to explain how does blockchain works to help you to have a general idea of the underlying technology and mechanisms.

The most popular application of the blockchain technology is Cryptocurrencies. These are the digital currencies that can be used to exchange products and services, just like physical currencies- US Dollars (USD) or Euros. Let’s us understand this application of blockchain through the example of very popular Cryptocurrency- “Bitcoin”, to learn the mechanism of how blockchain works.

Bitcoin (BTC) digital currency, just like physical currency has no value by itself, it has value only because people agreed to trade goods and services with it.

To keep a track of the Bitcoin’s transaction a digital ledger is maintained, that keeps the track of the number of Bitcoins owned by an individual. This digital ledger is known as blockchain technology.

The ledger file is decentralized, not stored in a single data center. It is distributed via a network of private computers called as “Nodes”, each node in the network is responsible for storing data and executing computations.

If I want to send a Bitcoin to someone, a message will broadcast to the network that will say that the X amount of Bitcoins in my account should go down by X BTC, and the number of Bitcoins in another person’s account should go up by the same number. The same message will be received by each node in the network, thus updating the account balances in each ledger.

How does it work?

Blockchain works on three technologies:

  • Private key cryptography
  • A decentralized network
  • An incentive to service the network

Once a transaction happens on a blockchain it sends it to a decentralized network of nodes, in the chronological order in which transactions occurred. The network’s algorithm ensures that each transaction reaches every node available on the network.

There are several thousand nodes that make up the blockchain network. Once the majority of nodes reaches to the decision that all the transactions which were recently done are unique then the same transactions are cryptographically sealed and a block is created. This new block gets linked to previously created blocks to create a chain of the accepted time-stamped transaction, thereby saving a verified record of every transaction done.

Cryptographic keys

The main purpose of this is to create a secure digital identity reference. Every user on the blockchain possesses a combination of private and public cryptographic keys.

This creates an extremely useful digital signature, facilitating  user ownership

Safety and security on Blockchain

Safety and security on blockchain come from its decentralized network. The network is constituted of thousand blockchains available on the network of thousands of nodes agreeing on the authenticity of transactions. This ensures that the transactions are recorded without bias and are resistant to hacker’s attack. In fact, the larger the number of participating independent nodes, more will be the chances of the transaction to remain secure.


Blockchain rewards the participating nodes to create a consensus-building process. Every time a new block is settled and committed to the chain, blockchain randomly rewards one node with a fixed bounty. This process is called mining which is specific to the Bitcoin mining.

With time many useful applications of the bitcoin technology are coming up as the world just started experimenting with this brilliant innovation.


About : Binary Informatics is a Software Development Company based in Noida, India with development offices in Bay Area US as well. We are a team of 60 and we always strive to offer a high-quality work to our Clients. We provide solutions in Website Development, Web Application Development, Product Development, Mobile apps, Product Engineering, Enterprise Application, Big Data & BI solutions, Business Digitisation & Automation, Portals, eLearning, eCommerce, Social Networking, CRM, CMS, UI/UX etc

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