What Does Blockchain Record Do and How Does it Work?

What does blockchain record do and how does it work? Blockchain is a technology that can be defined in simplest words as a decentralized and a distributed ledger.

The primary function of it is to record all transactions made on it as well as the provenance of the digital currencies.

By the virtue of its design, the data stored in it is immutable and cannot be modified.

This design and functionality of this technology makes it a rightful disruptor for several industries such as payments, cyber security, healthcare and more.

The blockchain technology is an enormous shared and encrypted list.

It contains all the addresses called crypto wallets that hold the digital assets. And since this list is shared and the general public can see it, this technology is called a digital Distributed Ledger Technology or DLT.

Every new block is included in it which represents a set of related transactions that take place within the same time. These new blocks are also created after the process of mining takes place.

Each of these new blocks is dependent on the previous one and is stacked on top of each other.

This creates a chain of blocks, which is why the name ‘blockchain.’

When information of a transaction is presented to the blockchain network, it is passed on through all the nodes in the network.

These nodes are all those computers that are interconnected on the blockchain at the same time.

However, there is a lot more to know about it apart from this in order to understand what it really is and what it does.

This article will walk you through it all.

What Does Blockchain Record Do and How Does it Work?

What Does Blockchain Record Do and How Does it Work

Blockchain is that which allows one to know the history of a crypto transaction.

This is a transparent distributed ledger that uses cryptographic hashing and decentralization.

If you consider the analogy of blockchain, you will see that it involves three crucial ideas of the technology such as:

  • It is a large database that stores blocks of data in an encrypted form. It links them together to form a chain which then becomes one single source for the data.
  • The records are shared or distributed and not copied or transferred. This makes all the records immutable.
  • Everything is decentralized which makes it transparent and preserves the integrity of the records. This creates trust and also allows easy access in real time.

It is quite hard to hack or make changes in the records of a blockchain. Therefore, this is perhaps the most secure way to deal with each other directly.

There is no need for any government regulations or intermediaries such as a bank or any other third party.

Apart from that, there are also a few other concepts of blockchain technology that are worth noting at this point.

  • One, this is a shared ledger. This means that it is an append-only distributed ledger where transactions can be recorded once only. This eliminates the chances of duplication and fraud. It is good for business networks.
  • Two, it needs permissions before entering any transaction record. This ensures that all the entries are secure, authentic, and verified. This means that it can limit network participation and help different businesses to comply with regulations regarding data protection such as HIPAA or Health Insurance Portability and Accountability Act, and GDPR or the EU General Data Protection Regulation.
  • Three, it stores smart contracts which is a set of rules or an agreement that oversee a transaction and is automatically executed.
  • Four, it follows different consensus mechanisms such as Proof of Stake, Practical Byzantine Fault Tolerance, and multi signature. This helps all parties to agree to a transaction that is verified on the network.

In order to make a blockchain work, there are different roles played by different participants in the network. Some of these players among a lot of others are:

  • The blockchain users – They are typically the business users on the blockchain who have permission to join the network to conduct transactions with other participants in it.
  • The regulators – These are the users who have special permissions and oversee all transactions that happen on the blockchain.
  • The blockchain network operators – They are individual users who also have special permissions to participate. They have the authority to create, define, monitor, and manage the blockchain network.
  • The certificate authorities – They are the individuals responsible for issuing and managing different types of certificates that are necessary to run a blockchain.

Blockchain is quite secure, promising, and a revolutionary technology.

It is one of the most hyped technologies which was initially developed for supporting Bitcoin and therefore is also termed as Bitcoin blockchain sometimes.

It is the backbone for several crypto coins today but the developers are trying hard to integrate it into other sectors of business and industries as well such as art, medicine, and finance.

It can be a very useful and effective technology in the legal, real estate and a host of other industries as well.

All these features of the blockchain technology makes it a suitable tool to use in different sectors today since the world has moved literally to a digital age where everything is done online.

History of Blockchain

The blockchain technology is relatively new and therefore there is not much of a history of it available.

However, if you look at its path of journey you will see how steadily and rapidly it has proved its growth potential and how promising it is in terms of returns.

Here is its interesting and rich history of its brief timeline for you along with some of the notable events that happened over the years.


‘Bitcoin: A Peer to Peer Electronic Cash System’ is published by Satoshi Nakamoto, a pseudonymous person or a group.


Satoshi Nakamoto makes the first successful Bitcoin transaction with Hal Finney, a computer scientist.

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First ever purchase using Bitcoin was made by Laszlo Hanycez, a Florida-based programmer. He paid 10000 BTCs for two Papa John’s pizzas. It was worth around $60 at that time which is about $80 million now.

In this year the official market capitalization of Bitcoin was more than $1 million.


Bitcoin got parity with the US dollar in the ratio 1:1.

Also, in this year WikiLeaks, Electronic Frontier Foundation, and other organizations started accepting donations in Bitcoin.


Blockchain was injected into pop culture and crypto and blockchain technology are mentioned in The Good Wife and other popular TV shows.

Vitalik Buterin also launched Bitcoin Magazine this year.


The market cap of Bitcoin exceeded $1 billion and for the first time its value reached $100/BTC.

Vitalik Buterin published ‘Ethereum Project’ paper this year. This paper suggested that there are lots of other possibilities of blockchain apart from Bitcoin such as smart contracts.


The Ethereum Project of Vitalik Buterin is crowdfunded through an ICO or Initial Coin Offering. It collected BTCs worth more than $18 million. This opened up new possibilities for blockchain.

The D Las Vegas Hotel, Zynga gaming company, Overstock.com all start to accept BTC as payment.

PayPal announces that it is going to integrate Bitcoin in its payment system.

R3 was formed. This is a group of more than 200 blockchain firms. Their objective was to find out new ways in which blockchain can be applied in technology.


There are more than 100,000 merchants accepting Bitcoin as payments.

San Francisco-based Blockchain Company Chain and NASDAQ team up to experiment blockchain technology in share trading in private companies.


Tech giant IBM declares that they will follow a blockchain strategy for their cloud-based business solutions.

The Japanese government accepts the legitimacy of cryptocurrencies and blockchain.


The value of Bitcoin goes up to $1,000/BTC for the first time and the crypto market cap increases to $150 billion. The value of Bitcoin also reached its all time high this year up to $19,783.21/BTC.

Jamie Dimon, the JP Morgan CEO, gave his vote of confidence to Blockchain from Wall Street saying that it is the future technology.

The Dubai government announced that they will use blockchain in their systems by 2020.


Facebook hints at the likelihood of creating their own crypto coin and also commits that they will start a blockchain group.

Blockchain based banking platforms are developed by IBM for major banks and Barclays and Citi signing on.


The Central Bank of China said that it is working on creating its own crypto coin as the Chinese President Xi Xinping embraces blockchain publicly.

Jack Dorsey, the CEO of Twitter & Square, announced that Square has made future crypto plans and will be hiring blockchain experts to work on it.

The NYSE or New York Stock Exchange announced the creation of Bakkt. This is a digital wallet company that also deals with crypto trading.


By the end of this year, Bitcoin value reaches nearly $30,000.

PayPal said that the users can buy, sell and hold crypto coins.

The Bahamas launched its central bank digital currency ‘Sand Dollar’ becoming the first country in the world to do so.


In the fight against COVID 19, blockchain became a key player and mainly stored patient info and medical research data.

The overall market capitalization of crypto reached $3 trillion based on CoinGecko pricing.

Functions of Blockchain

The primary function of a blockchain is more like a public ledger.

It accounts for all economic transactions and at the same time offers a way to verify the fact that every user on the network is provided with the same information.

It allows every participant to download a copy of the ledger so that they can trace the path of the currency transacted from one address to another.

The primary objective of a blockchain is therefore recording and distributing the info to every participant in the network.

The data architecture is crucial in a blockchain which does not allow modifying the records.

A blockchain can store a large number of data points of different types such as:

  • Crypto transactions
  • Votes in an election
  • State identifications
  • Product inventories
  • Deeds to homes and lots more.

This transparent record of payments and transactions is available in each node of the network.

This means that, if there is an error in one node, there are thousands of other nodes that it can use as a reference and correct itself.

This is the beauty of its immutable feature.

Types of Blockchain

There are different types of blockchain available right now. Each of these differs in their features and functionality while keeping the basic purpose the same.

Private Blockchain:

Private Blockchain networks typically function in a closed network. This type of blockchain works best for private organizations and businesses.

They can use it for authorization preferences as well as to tailor their accessibility.

It also helps them to customize the parameters of accessing the network along with other crucial security options.

The most notable feature of a private blockchain network is that there is only one authority to manage it.

Public Blockchain:

The Public Blockchain networks are typically the ones from which Bitcoin and other crypto coins originated.

This played a significant role in making the DLT or Distributed Ledger Technology popular.

Public Blockchain networks typically eliminate several issues and specific challenges such as centralization and security flaws.

Data is not stored in a single location in this case but is distributed across a P2P network with DLT.

The most significant feature of a public blockchain network is that it uses a consensus algorithm to verify and authenticate information and transactions.

Two of the most frequently used ones are a Proof of Stake or PoS consensus mechanism or a Proof of Work or PoW consensus algorithm.

Permissioned Blockchain

The permissioned Blockchain networks are also referred to as hybrid blockchain networks.

These networks are also private blockchain networks but allow access to individuals who have special authorizations.

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Organizations can also set up and use these types of networks to make the best out of it.

This allows them to build a better structure to assign people who can participate in the blockchain network and for specific types of transactions.

Consortium Blockchain

Finally, the consortium blockchain network, which is very much the same as the permissioned blockchain networks, comes with both private and public components.

The significant feature of it is that multiple organizations are allowed to manage one consortium blockchain network.

These types of networks are more complicated to set up. However, if you can get it running then it will offer a much better security and will optimally help in collaborating with several organizations.


There are several uses of blockchain technology over and above cryptocurrencies, the most common and perhaps the most controversial one.

Blockchain technology can also be used to store other types of information that may help in tracking products in transit right from the moment it is shipped out and all through the entire journey till it reaches the final destination.

It can also be used to track the source of any contamination outbreak very easily.

This will help the government to make further plans to restrict contamination.

Blockchain technology is a useful tool used in money transfer and payment processing.

It can be done in a matter of minutes and at the same time reduce the cost of transaction needing no intermediaries.

This technology can also be used to monitor supply chains so that any inefficiency or issues within the chain can be detected and dealt with fast.

It also helps to track how a particular product is performing when they travel from the manufacturers to the retailers, a very crucial aspect from the quality control perspective.

Controlling digital IDs can be made easy with blockchain technology.

In addition to that, it will also give the users more control over the data restricting the people who can access it.

Blockchain technology can act as an efficient and more productive intermediary while sharing data.

It will store and move data securely between enterprises and industries, and that too very quickly.

This technology can also be used to protect copyright and royalties by creating a decentralized database.

This will ensure that the artists and musicians get their due royalty. It can also help the open source developers in the same manner.

Internet of Things or IoT network management could be easier with blockchain technology.

It will be able to identify the devices connected to the wireless network very easily and quickly.

It can also monitor the activities of these devices to find out their trustworthiness automatically, especially if there are any new devices added to the network.

Perhaps the best use of blockchain technology can be in the healthcare industry.

This will help both the healthcare providers in their job as well as the payers.

With better management of clinical trials and maintaining electronic medical records everything will be regulatory-compliant.

How Does it Work?

As said earlier, the whole idea of blockchain is to allow people, especially those who do not have much trust in others, to share valuable information in a quicker and more secure way which is tamperproof.

For this, blockchain works in a specific way that consists of a few specific elements.


There are multiple blocks in each blockchain and there are three basic elements in each of these blocks including the data in it.

Another element in a block is a whole number of 32-bit which is called nonce or number once. This number is generated randomly when a block is created. This further creates a block header hash.

The other element is a hash which starts with a large number of zeroes. This indicates that the hash is extremely small. This is actually a 256-bit number linked with the nonce.

Ideally, when the nonce creates the cryptographic hash, the first block of the chain is generated. As for the data in the block, it is tied to the hash and the nonce perpetually and is considered to be signed, unless the block is mined.


Miners refer to those users who are involved in mining crypto coins. In this process they create new blocks that are included on the blockchain.

It is not easy to mine crypto coins, especially on a large scale, because each new block created in the process must have its own unique hash and nonce as well as references of the previous blocks on the chain.

In the mining process, the miners use special equipment to solve extremely complicated mathematical problems. And, all the miners compete with each other. One who solves the puzzle first is rewarded with new coins.

The main idea is to find the nonce that creates the hash that will be accepted. This is not easy because the miners need to mine billions of nonce-hash combinations and find the right one among them.

If you consider the math, the 32-bit nonce and 256-bit hash creates about four billion combinations!

If a miner needs to make a change in an earlier block in the chain, the process is all the more complicated. Then they will not only need to re-mine the block that needs the change but also all of those blocks that come after it.

And, when a block is mined successfully, it needs to be verified and accepted by all the nodes participating on the network for the miner to receive the reward. This needs a lot of energy, computing power, and time.

That is why it is extremely difficult to manipulate the records of a blockchain.


The blockchain is distributed across all the computers linked with the network. These computers are called nodes.

The primary function of these nodes is to maintain copies of the blockchain. This keeps the network running.

At the nodes any new block mined by the chain needs to be updated, trusted and verified before it is approved algorithmically.

Every action performed at every node can be viewed and checked because the blockchain itself is transparent.

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Every participant here is provided with a unique alphanumeric identification number that helps to identify the transactions made by them.

It is due to this complex working process of blockchain technology that combines public information with several checks and balances systematically that this technology can maintain integrity.

It results in creating trust among the users. In fact, blockchain can be considered as scalability of trust through technology.

Information Contained

The information is contained in each of the blocks in a chain that are arranged in a sequential order depending on the order of transactions. As for the information, there are two parts of it contained in a block.

The first part of the information comprises the header elements. These are the location of the user as well as all other data related to the transactions.

It also contains the hash in the header points of the preceding block unless it is a genesis block since it does not have any predecessor.

Apart from that, there is also another hash that contains timestamp information which includes the time and date on which the block was created, the nonce which is solved by the miners, and the difficulty level of the problem.

The second part of the information is the details of the identifier. This is once again a cryptographic hash function and is usually produced by hashing the elements in the header point twice in succession.

Features of Blockchain

Blockchain is a distributed ledger that is exceptionally long and transparent. It has a complex working process and helps the users to maintain anonymity while making a transaction.

The anonymity is maintained by the blockchain because it does not contain any personal and identifiable details of the user but simply the wallet address relevant to the transaction.

A blockchain is in fact more anonymous in comparison to the accounting ledger of a traditional bank.

However, blockchain is not 100% impenetrable. It is also quite vulnerable because every transaction is verified and logged publicly.

If there is a single breach in the ownership identity, it may result in the revelation of several other owners when the transaction is followed back.

Blockchain Security

Blockchain is believed to be very difficult, if not impossible, to hack. However, the integrity of the ledger can be compromised when there is a 51% attack – where more than half of the computational power of the blockchain is compromised.

Though this is a very difficult and expensive process, a 51% attack can forge entries made on the blockchain, allow double spending, and even fork a new chain.

The security level offered is different for two different types of blockchain, private and public.

The public blockchain networks validate transactions via computers that are connected to the public internet, but the private blockchain networks usually only allow known users who have access and permission to join.

This means that a public blockchain may not be safe for the enterprises to use because the confidentiality of information moved may be compromised at any point within the network.

On the other hand a private blockchain is more secure since it is a permissioned network and consensus is obtained via a special method called ‘selective endorsement’ which is done by known users.

However, there still may be some issues in it such as threats from insiders if the security infrastructure of the business is not of the highest standard.

Therefore, from the security standpoint, blockchain apps and services should have ground-breaking security.

A few of these include performing regular risk assessments, doing code analysis, creating different threat models, testing security of interactive apps, and software composition analysis.

Impact on Society

Blockchain technology has made a huge impact on society. To name a few, the list would include:

  • Helping people through financial services
  • Providing microloans and allowing micropayments
  • Creating trust in international transactions
  • Decentralizing P2P network for apps and organizations Uber and Airbnb and lots more.

Pros and Cons

Finally, here are a few advantages and disadvantages of blockchain technology that are worthy to take note of.

  • It is decentralized with no government agencies or intermediaries involved
  • It is faster to make a transaction using blockchain
  • It reduces the cost of transactions
  • It allows making anonymous and transparent transactions
  • It is accurate
  • It is highly secure
  • It provides the under-banked to transfer funds without needing an intermediary at a low cost
  • There are lots of public and private blockchain applications
  • The entries are immutable and
  • It offers automation.

As for the downsides of blockchain, one of the most significant ones is due to the privacy that it provides. This feature makes it a favorite tool for the criminals to transfer funds illegally across the globe anonymously and quickly.

In the crypto space, volatility is very high which makes blockchain investment quite risky, especially with little trading and investing knowledge.

Blockchain is still at the nascent stage and it lacks mass adoption.

In addition to that mining crypto is a complex process which needs a lot of computational power and high energy cost.

And Bitcoin blockchain is pretty slow combined with scalability issues.

Another significant downside of blockchain is that it involves using two sets of keys – public and private keys.

While public keys are okay, issues are there with the private key. If you lose them you lose access to your wallet and ownership of your crypto.


Blockchain technology is the backbone of thousands of cryptocurrencies. The application of this technology is growing fast which may change the functioning of the industries dramatically. Through this article you now know why and how.