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What Is Blockchain and How Does It Work?

In 1494, the Italian mathematician and Franciscan friar Luca Pacioli published the first detailed account of double-entry bookkeeping, a method that would become the foundation of modern accounting. Over five centuries later, another innovation quietly emerged that promised to redefine how we record, verify, and share information: blockchain.

While double-entry bookkeeping depended on centralized ledgers maintained by banks or auditors, blockchain removes this need. It enables a decentralized network of participants to reach consensus on the validity of data without relying on a central authority or intermediary.

Since Bitcoin’s launch in 2009, blockchain has evolved into a $3 trillion global industry. From supply chain traceability to smart contracts and digital identity, it changes the infrastructure of trust in the modern digital world. In 2025, engaging with this technology requires no specialized background. Visiting a single website offering blockchain-based services can provide a firsthand look at how it works in practice. Quietly but steadily, blockchain is transforming the very infrastructure of trust in the digital age.

Blockchain in Simple Terms

A blockchain is a type of database. But unlike traditional databases housed in centralized servers, blockchain operates as a distributed ledger spread across a network of computers. It means that no single person or entity has full control over the data.

To imagine how blockchain works, think of a shared document, something like a Google Doc. Multiple people can view it simultaneously, and each change is recorded transparently.

Similarly, a blockchain records transactions in a public or private ledger, visible to all participants and nearly impossible to alter once confirmed.

Every time a new transaction occurs, it is added to a digital “block”. Once the block is full, it is linked to the previous one, creating a chain of blocks. That’s where the technology gets its name: blockchain.

How Does Blockchain Work?

The process behind blockchain might seem complex at first, but its basic mechanics are straightforward when broken down. Let’s have a look at how it works below.

  • Blocks and chains
    • Each block in a blockchain contains three key elements: data, a unique identifier (called a hash), and the hash of the previous block.
    • This linkage forms a secure, chronological chain of records. Since each block references the one before it, tampering with a single block would require changing all subsequent blocks, an impractical task on a large network due to the immense computational power needed.
  • Decentralization
    • Blockchain data is distributed across a network of nodes - computers that hold a copy of the entire ledger. This decentralized structure ensures that no single point of failure can compromise the system. If one node is corrupted or goes offline, the others continue to operate seamlessly.
    • As of 2025, the Bitcoin network alone consists of over 22,000 active nodes globally, helping to secure the blockchain without a central authority.
  • Consensus mechanisms
  • To maintain accuracy and integrity, blockchains use consensus algorithms to validate new entries.
    • Two common methods are:
    • Proof of Work (PoW) - nodes, called miners, solve complex mathematical puzzles to verify transactions. It’s used by Bitcoin. This process requires significant computing power and energy. In fact, Bitcoin's annual energy consumption in 2021 was over 120 TWh, which is more than Argentina consumed in the same year.
    • Proof of Stake (PoS) - allows participants to validate blocks based on the number of tokens they hold and are willing to "stake" as collateral. Ethereum, the second-largest blockchain, transitioned to PoS in 2022, reducing its energy consumption by over 99.9%.

Why Blockchain Matters

Blockchain represents a paradigm shift in how data is stored, shared, and trusted. Because of its transparency and immutability, blockchain technology is adopted in diverse sectors.

In supply chain management, it helps track products from origin to consumer, which reduces fraud and improves traceability.

In finance, blockchain can streamline payments. The rise of the crypto payment gateway for business has enabled companies to accept digital currencies in a secure and borderless way.

author

Chris Bates

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Friday, July 25, 2025
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