Understand Blockchain in 3 Minutes! Complete Blockchain Guide

This article focuses on the aspects which are essential to know about blockchain, its working, different types of blockchains, what are the best-case scenarios to use Blockchain, why is it being called the future of data centres, and more. So let’s learn more about this technology…



3 years ago | 10 min read

With the evolution of human beings over thousands of years, from the stone age to the digital era that we are in right now, we can most certainly state that we have come a long way. Human beings evolve, the technology associated with them also evolves, and so do the financial models over hundreds of years. We are moving from fiat currencies to digital currencies.

The fiat currency used a physical ledger, such as books to keep records of transactions, but these were prone to various errors. Although ledgers are now in the form of servers, they are still centralized and under the authority of banks or institutions. Hence automated digital ledgers were sought after to address all the issues related to the centralized ledger, this is where blockchain technology kicks in.

With changing trends in finance, many major financial institutions like banks, and governments have started adopting technology to bring transparency and efficiency to their day-to-day operations. These integrations of the worlds of finance and technology have been coined as FINTECH or Financial Technology

This article focuses on the aspects which are essential to know about blockchain, its working, different types of blockchains, what are the best-case scenarios to use Blockchain, why is it being called the future of data centres, and more.

So let’s learn more about this technology…

Table of contents

What is Blockchain?

  Unless you have been on a long nomadic trip or, have been living under a rock, you would have come across a term called Crypto-currency, the likes of Bitcoin, and Ethereum. The Transactions of these crypto-currencies are carried out digitally since these are virtual currencies. This is where Blockchain technology comes into play.

Blockchain is a decentralized, distributed ledger technology that records the origin and existence of digital assets using a peer-to-peer network. 

In simple words, a large set of a database that permanently records all the Digital currency transactions. Transactions take place on a peer-to-peer basis unlike on centralized data systems of banks. These data blocks are added only after all the other nodes authenticate the transactions and reach a common consensus.

 It is sometimes referred to as Distributed Ledger Technology(DLT), which aids the distribution of digital asset transactions (not copied or transferred). This revolutionary technology is a saviour, which the digital assets rely on for transparency. Blockchain reduces the risk of fraud and dependence on third-party verification.

Block consists of data related to digital asset transactions, a unique hash number, and a Unique Blockheader. The succeeding block consists of the hash number previously formed block. These blocks are connected such that it becomes a chain of blocks. Hence named Blockchain.

Let’s consider an Analogy: 

Blockchains can be considered as a large set of Data storing structures that are identical to spreadsheets, but you cannot edit the data once that enters, and any changes to that data should constitute a new block, or append!!

These sets of data are not stored in one single centralized server but on a lot of its user’s devices, hence distributed. Of course, there are more functionalities to the blockchain, but this must give you a very simple idea to define this not so easily definable technology. 

History of Blockchain

The idea of blockchain protocol was first proposed by Cryptographer David Chaum in his 1982 dissertation “Computer Systems Established, Maintained, and Trusted by Mutually Suspicious Groups.

However, the year 1991 was regarded as important for the blockchain, when computer scientists Stuart Haber and W Scott Stornetta introduced a practical solution for timestamping digital documents so that they could not tamper.

 The technology or the system uses the secured chain of Blocks backed by the cryptography method to store the timestamp documents. MERKLE TREE in 1992 came up with the Blockchain’s Design to make it more efficient by allowing several documents to be collected and stored in one block. 

But unfortunately, the patent lapsed in the year 2004. After this, Stefan Konst published his theory of cryptographically secured chains, plus ideas for implementation. Computer scientist Nick Szabo works on ‘bit gold’, a decentralized digital currency. Hal Finney, a computer scientist, and Cryptographic analyst introduced the Reusable proof of work (R PoW). It can be considered as the earliest prototype for Blockchain technology.

However, it took almost three decades to see the first blockchain implementation in the real world by a person (or group of people) known as Satoshi Nakamoto in 2008. Nakamoto significantly improved the design using a Hashcash-like method to timestamp blocks without requiring them to be signed by a trusted party.

Types of Blockchain

There are at least four main types of blockchains that are in use: Public blockchains, Private blockchains, Hybrid blockchain & Sidechain.

  1. Public blockchains

As the name suggests, these types of blockchains have no access restrictions. These are usually open-source and are transparent to everybody with Internet access. Anybody can take part in the process of validation to submit the proof of work and maybe incentivized proportionately!! 

Another very important feature of a public blockchain is that it is designed to be not owned by an organization or an individual, hence completely decentralized. 

Ex: Bitcoin blockchain, Ethereum blockchain, etc. 

  1. Private blockchains

Private blockchains, also called permissioned blockchains, unlike public blockchains, have restrictions on who can access the network. These are administered by an administrator, who approves the access of users in the ecosystem.

 Primary users may include individuals or companies who want their transactions or data to be secure and only accessible by the selected few, Hence centralized. The advantage of private blockchain over the public blockchain is that the consensus or verification mechanism takes less time.

The similarities between blockchain are that these perform similar functions :

  • Both function as an append-only ledger- where no data can be altered or edited once validated.
  • Both blockchains types have a complete set of transaction ledgers on each node, Hence distributed over peer-to-peer.
  • Validation is only approved after the majority of the nodes reach a consensus.

Examples: Ripple (XRP) and Hyperledger

  1. Hybrid blockchain

Hybrid blockchains are a combination of public and private blockchain systems depending on the needs of the users and the applications. These types are best for companies that are working on some secret projects hosted on a private blockchain, but also have a product that needs to be used by their customers, hence should be a public blockchain.

  1. Sidechain

Sidechains can be classified to be blockchain ledgers that can run in parallel with the primary blockchain. Entries from primary sources can be stored and linked if needed, with a different algorithm. It could be used as a backup blockchain.

How does Blockchain work?

 Blockchain is a distributed, decentralized public ledger which is a continuously appending list of records that are stored in the form of blocks. These blocks in a blockchain are secured through cryptography, which keeps the confidentiality of the transactions intact.

A blockchain is a time-stamped series of immutable (tamper-proof) records of data that is not managed by a central authority but managed by a cluster of computers, called nodes.

So imagine, John wants to invest in digital assets, so he has to carry out transactions, and he does that on an electronic device! When John requests blockchain for a transaction, he gets connected to a person directly without the interference of any third party like a bank. This is called a peer-to-peer system.

A Block is initiated for storing the transaction details. The data formed at this level is sent throughout the network to identify the transaction’s authenticity. The first Device(node) that verifies the transaction gets awarded.

When John’s transaction gets verified, it becomes a part of this database permanently that stores all the transactions. This database is used additionally to validate other such transactions on a peer-to-peer network, if necessary. 

If John wants to sell his digital assets to another person, the original block created while he purchased the digital assets, will remain the same. To record the new transaction between John and the buyer, a new Block will be created on the Blockchain network with another unique number.

Let’s consider an example: A Scientific Research Lab, that is conducting trials for a vaccine against a deadly virus! Every iteration of the vaccine trial is to be recorded to observe the progress! If the data of vaccine trials are saved on a server database, there are chances that the data stored may get formatted, deleted or can be erased/manipulated by Hackers.

 But in Blockchain, one can neither erase the data that is once stored nor can they manipulate it. It is so safe, that it has not been hacked despite all the efforts. Any changes to the data result in the creation of a new block, and the previous version of that data remains in its original form. Mainly, this data can be accessed from any part of the world, if the system is connected with the blockchain platform.

Also, the transaction when completed produces data related to transactions and will be stored in blocks, which are chained together with the help of the Hash number of the previous block.

Regarding safety, the network is decentralized, no single person can alter the asset according to their specific needs but has to be validated by the majority of the nodes. As long as a single organization or a person owns the majority of the assets over the blockchain network, the assets on the network cannot be modified or altered. Hence it is safe.

Evolution of the Blockchain technology

All the inventions need timely upgrades to solve the issues related to the previous version and for better performance, blockchain technology also has been modernized over time and requirements.


Cryptocurrency, mainly Bitcoin, is the first use case of blockchain technology. It allows financial transactions based on DLT. 

Smart Contracts 

After the blockchain technology was separated from bitcoin to discover more use cases, the Ethereum blockchain came into existence aiming to execute smart contracts. It is intended to reduce the cost of verification, execution, and fraud prevention. Smart contracts are the predefined computer programs that contain the terms and conditions of the agreements between the two parties. They cannot be altered or changed.


DApps or decentralized applications work similar to other normal applications but, the only difference is that Dapps work on peer-to-peer networks such as blockchain.

Blockchain for Business 

Blockchain 4.0 aims at implementing blockchain 3.0 in real-life commercial usage. Some of the real-life use cases are supply chain management, financial sectors, and healthcare.      

Different types of consensus protocols used for validating transactions on the blockchain

A consensus algorithm is a procedure through which all the peers of the Blockchain network reach a common agreement about the present state of the distributed ledger. In this way, consensus algorithms achieve reliability in the Blockchain network and establish trust between unknown peers in a distributed computing environment. New blocks in the blockchains are added only after the transaction details are verified and the consensus is reached.

Here are some of the algorithms designed:

  1. Proof of Work (PoW)
  2. Proof of Stake (PoS)
  3. Delegated proof-of-stake
  4. Proof-of-Authority(PoA)
  5. Proof-of-Elapsed-Time(PoET)

Benefits Of Blockchain in Cryptocurrency

  • The need for a physical or trust-based validation process is eliminated.
  • Better speed of transactions. 
  • Better connectivity in a peer-to-peer system.
  • Transactions may be carried out irrespective of time, location, unlike banking processes.
  • Accessible from anywhere in the world.
  • Lower transaction charges. Lower transaction failure risks.
  • No risk of double-spending.
  • Less fear of account suspensions.
  • No need to secure a minimum balance to carry out transactions.

Future of Blockchain

Blockchain has advanced over years and has proved it’s trustworthy technology. It is easily scalable as a data structure. Blockchain can be used by banking sectors, as Card payment transaction ledgers, in stock markets for keeping a record of stock delivery and verify with ease. 

Blockchain enables us to perform more transactions digitally and reduces the risks involved in the present system. The current financial system works on the trustworthiness of the financial institutions or the governments. 

The Blockchain system reduces the transaction charges significantly since the verification is done by algorithms in a matter of minutes. without third parties such as banks and financial institutions.

Possible use case scenarios of Blockchains in the Future: 

  • Maintaining medical records of the patients in hospitals
  • Payments or asset transfers around any parts of the world
  • Real-time IoT operating systems
  • Personal identity security
  • Anti-money laundering tracking system
  • Supply chain management and logistics monitoring 
  • The voting mechanism for democratic countries
  • Keeping records of governance or history
  • Advertising insights Original content creation
  • Cryptocurrency exchange
  • The real estate processing platform

Final Thoughts:

Blockchain, since its inception in 2008, has proved its worth over the current systems in place which is less efficient. Understanding the importance of technology, many central banks and governments have shown interest to study and adopt blockchain for good.

Although there is room for improvement, it is to be observed how technology will be implemented by various beneficiary industries!!


How secure is business data in a blockchain?

The record on a blockchain is theoretically immutable to change. Sensitive or non-public information can be protected through the use of smart contracts, but this has yet to be put into practice outside of financial institutions.

Who establishes the governance model for determining what users may or may not join the blockchain ledger?

Blockchain governance is determined by those who set up the system. Changes to the governance can take place through voting similar to the resolving algorithms of transaction consensus.

Is Blockchain technology restricted only for use in the cryptocurrency market?

No, It depends solely on the business and kind of data you want to store looking at the economics, importance of the data stored, and viability of the business.

What is consortium blockchain?

These Blockchains are designed to be administered privately by multiple administrators or organizations, who may be working on the same kind of subjects that may be of mutual interest. These blockchains are not made public unless deemed by the administrators.

What is encryption and why is it important in Blockchain?

Encryption is the process of converting the easily readable and interpretable data into unreadable data for the common user, using targeted encryption algorithms. The people who only have access to the decrypting algorithm can access the data. Since blockchains can be used to store and keep records of data related to finance, the internal security of organizations, or any other sensitive information, to be kept secure from potential hackers who could misuse the information.


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An expert in technical analysis and risk management in cryptocurrency market. She has 10+year experience in writing - accordingly she is avid journalists with a passion towards researching new insights coming into crypto erena.







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