News Karnataka
Tuesday, October 03 2023

How Bitcoin’s Blockchain Technology Works

Photo Credit : Pixabay

Even the most ill-informed investors know about Bitcoin. It is the originator of cryptocurrency, with millions tracking the price of Bitcoin on a daily basis. The funny thing is that most people have no earthly idea how Bitcoin works in the first place.

The key to everything is the blockchain, but what does that even mean? There is a lot of ground to cover, so let’s get to it. We’ll cover things like what the blockchain is, how it works, and what kind of impact it might have in the future.

What’s a Blockchain?

Let’s start with the basics first. What even is a blockchain? When you make it simple, the blockchain is similar to a database or a ledger. The blockchain can be shared among the nodes in a computer network. Basically, it is a way of recording decentralized, secure transaction records made within the blockchain.

The blockchain makes it so that any information within can’t be altered after the fact. This effectively takes all the trust issues out of a transaction. With no need for third parties like a bank or centralized government, it means that people can perform transactions with one another without the middleman being involved.

Blockchain technology was introduced when Bitcoin was created way back in 2008. Blockchains have since become prominent because of the rapid creation of new cryptocurrencies, non-fungible tokens (NFTs), smart contracts, and decentralized finance (DeFi) applications.

How Does it Work?

You might be thinking, “what does any of that mean?” It can all sound like a load of gibberish without an explanation. Think about a database, or even something simple like a spreadsheet. The blockchain is similar because it is simply storing information.

The main difference between a blockchain and a spreadsheet is how that data is both accessed and structured. There are scripts within a blockchain that handle the tasks a database normally would. Things like entering information, saving it somewhere, storing it, and eventually accessing it. The blockchain makes copies across several machines, and they all have to match exactly in order to be considered valid.

All of this information is entered onto a block, similar to a cell on a spreadsheet. After the block fills up, it goes through an encryption algorithm, then it gets a hexadecimal number – called a hash. That has then goes into the block header and gets encrypted with all the other information on the block. All the blocks together form the chain.


The blockchain spreads all of that information out among the various nodes, each in a different location. This is the built-in redundancy and maintains fidelity of the data. So, if someone tried to alter a record, all the other nodes would keep it from happening.

That makes all history and information – transactions, essentially—totally irreversible. The record could be a list of transactions, sure, but the blockchain can hold other things, too. Think about things like company inventory, legal contracts, and even state identification.

The goal is two-fold. The first is to make information readily available and trustworthy. There will be no concern about altered transactions or documents because the redundancies of the blockchain simply won’t allow it to happen. That safety would be invaluable for any number of reasons and change how we share data.

The second goal is to eliminate that third party or middleman. We know those as banks and other financial institutions, all of which take a fee for handling and processing our data. Those financial institutions – the third parties – won’t be needed anymore. It puts the power back in the hands of the user.

Pic: Pixabay

Note: Newskarnataka advises its readers to consult experts / professionals and research further on this subject, be aware of the risks involved, and comply with all locally applicable laws and regulations in this regard.

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