What is Blockchain and How Does it Work?

If you are not living under the rocks and are fairly active on the digital media, then you must have heard about bitcoins and cryptocurrencies.

This digital currency, bitcoin is making the headlines quite often in the recent times and the tech world is going gaga over it. However, very few know what exactly bitcoin is and fewer people know why it is creating such a sensation in the tech world.

But not anymore, here we decode blockchain and offer details about its functioning.

Let’s start with the foundation.


Blockchain is a simple concept with complex mathematical problems, it is basically an algorithm and distributed data structure that manages digital currency by eliminating the need of a central administrator to approve transactions. Putting it in simple words, blockchain is a digitized, decentralized, and public ledger of cryptocurrency transactions.

Blockchain is called public ledger as it is a public register where transactions between two users of the same network are permanently stored in a secure and verifiable way. Transaction data is stored inside cryptographic blocks that are connected to each other in a hierarchical way, making it an endless chain of blocks, known as blockchain. Thus allowing you to track and verify all the transactions you have made.

Blockchain’s primary function is to certify transactions between two people. However, for Bitcoin, the blockchain verifies the transactions of cryptocurrency between two users, but it is only one of the many possible uses of this technological structure. Not just this, but there are many other uses of technological structure of blockchain like certifying the exchange of shares and stocks, operating as a notary or making the online voting more secure and impossible to alter votes casted.

The biggest advantage of blockchain is cryptographically secured transactions, which once certified and saved in a chain of block, cannot be altered. Each block holds a pointer connecting the two successive blocks, transaction data and timestamp that certifies the time of even occurrence. All these ensure the uniqueness and immutability of each element of the blockchain, thus any attempt to modify the block data or timestamp would lead to the change in all the subsequent blocks. The reason behind this is the pointer, which is created depending on the previous block data, that triggers a real chain reaction. In order to successfully make changes to the blockchain it would be mandatory that the 50%-plus-one of the network must approve the change, which is hard to achieve because blockchain is worldwide distributed between millions of users.

Benefits of blockchain for enterprise application data:
1. User controlled network that eliminates the risk of backdoor transactions, thus making it trustworthy.
2. Real-time updating and data consistency.
3. Transparent systems that allows to trace data from start to end, limiting the chances of fraudulent activities.
4. Elimination of the need of middle men to validate transactions makes it cost-effective.
5. Allows business-to-business and peer-to-peer transactions to be completed without any intermediaries.
6. Increased industry process efficiency with low auditing costs.

What is Blockchain


It is a computer code that runs on top of a blockchain featuring rules for interaction between users. Once pre-defined rules are met, the agreement is enforced.

The term Smart contract can be misleading as it is not smart and isn’t a legal contract.

• The smartness of the smart contract depends on smartness of users.

• Smart contracts can become legally accepted documents but only when specific conditions are met. This will happen in future when digital world becomes more mature.

Smart Contracts are smart because they are self-verifying, self-executing, and tamper resistant. These contracts provide better security, reduces transaction costs, can make legal obligations an automated process, and reduces the dependence on intermediaries.

What is smart contract

How Smart Contracts Work

Ethereum lets developers to program their own smart contracts as per the requirement. The entire process of creating smart contract is automated and acts as a substitute to traditional contracts, where the terms of contract are in the form of code, which states the benefits, obligations, and penalties, as in a traditional contract. Unlike traditional manual processing, smart contracts are automatically executed by a distributed ledger system.

1. Coding the smart contracts

Smart contracts are computer programs, and hence are automatic, and execute the way parties involved in the contract want them to. The code works in a predefined way according to the logic written by the programmer.

2. Sending smart contracts

The code (smart contract) is encrypted and sent out to other systems through a distributed ledger, including permissionless, hybrid or permissioned distributed ledger platform.

3. Processing Smart Contracts

When the code is received by computers that are a part of the network of distributed ledgers, then each system comes to an individual agreement on code execution results. The network then updates the distributed ledgers for recording the contract’s execution. Such system does not allow single party manipulation.

The Advantages of Smart Contracts:

Speed – Smart contracts are paper free and automatic, thus reduces the time consumed in manual processing.

Autonomy – Smart contracts eliminate the intermediaries (brokers, lawyers) by allowing you to make the agreement. The system is programmed that in turn reduces the third party manipulation risks.

Accuracy – Smart contracts are automatic, which are not just quicker and inexpensive but also error free. Manual filling has greater chances of error, while automatic process brings it to minimal.

Trust and Safety – Your contracts are encrypted on a public ledger that can be accessed when required. Cryptographic encryption of the data makes it hacking-proof.

Backup – As blockchain data is pooled on a shared ledger, your documents are duplicated multiple times. So you never lose your documents.

Savings – automatic contracts are faster and help you save big money as they eliminate the need of an intermediary.


Ethereum is a blockchain-based distributed computing platform and operating system featuring smart contract functionality. There are major technical differences between Ethereum and Bitcoin and it must be noted that both differ in terms of purpose and capability. Bitcoin offers one specific application of blockchain technology, a user to user electronic cash system that offers online Bitcoin payments. The Bitcoin blockchain can be used to find out the ownership of digital currency which is bitcoin, while the Ethereum blockchain is keen on continuing the programming code of any decentralized application.

In the Ethereum blockchain, miners do not mine bitcoin, they focus on earning Ether which is a crypto token that runs the network. Apart from being a tradeable cryptocurrency, application developers use Ether to pay for transaction fees and services on the Ethereum network. Every blockchain possess ability to process code but most of them are highly limited. Ethereum on the other hand, does not offer limited operations. It enables developers to create any operations which they wish to which allows developers can create hundreds of various applications that surpass imagination.

Decentralized applications can be built using Ethereum. A decentralized application or Dapp offers a certain particular purpose to its users. Bitcoin is such Dapp that provides users a user to user electronic cash system that stimulates online Bitcoin payments. As decentralized applications are made using code that runs on a blockchain network, there is no control of any person or a central authority.

Ethereum enables decentralization of any centralized services. It can include numerous intermediary services which run across several industries. Common services including loans offered by banks and compels services which often miss the public eye like title registries, regulatory compliance and election systems, come under it.



Solidity is a programing language used for writing smart contacts and it was developed by Gavin Wood, Yoichi Hirai, Alex Beregszaszi, Christian Reitwiessner, Liana Husikyan, and several ex Ethereum core contributors.

It is similar to JavaScript and it implements smart contracts on numerous blockchain platforms. It also verifies and enforces constraints at compile-time. Smart contracts work without middlemen and are ideal for conducting various exchanges.

Solidity uses programming concepts existing in other languages. such as variables, functions, classes, and arithmetic operations.

Solidity has several advantages when compared with other languages-

1. Complex member variables for contracts are supported.

2. Contracts assist inheritance that includes multiple inheritances.

Restrictions on Solidity

As a language, Solidity comes with several limitations. Such as-

1. Compared with Python and Javascript, Solidity offers limited liberty and expressiveness to programmers.

2. No standard library.

3. Data from outside the blockchain cannot be used.

4. Migrations are possible but contracts cannot be upgraded.

Types of Blockchain

Public Blockchain

The public blockchain is open to all masses. It can be downloaded easily to check contract history, and create smart contracts. Some public blockchains feature mining but it is like a reward for users.

The information is stored in blockchains which are stored in millions of devices by users. Hence, hackers cannot access or alter the information.

Public blockchains can enable groups across the world to share data safely. Common uses are insurance pools and ledger of school diplomas.

The public approach has its own cons, which in multiple ways are tied to blockchains’ decentralized nature. In public blockchains there are chances to modify the rules, but that too it not easy, as to make a slight change in the rules every memeber has to accept a bug fix or make an update. Now, we can say that public blockchains are definitely very slow, as a minute change involves multiple level change or complete community.

Private Blockchain

Private blockchains are simply an opposite of public ones. They offer limitless control to the users and are highly flexible. Hence changing rules is easy. Private blockchains is a trust based system. Users enjoy limitless access, but trust relation between its members is a must. Public blockchains are slow and do not run on trust, Private blockchains are faster and trust based.

types of blockchain

We must mention that we are experienced and have developed private blockchains for our clients.

What are TOKENS in Blockchain

Tokens represent a specific asset or utility which lies on top of another blockchain. Basically tokens represent all assets that are fungible and tradeable and include commodities, loyalty points and even other cryptocurrencies.

A new cryptocurrency or token is released for funding the development of project and these tokens are offered to masses through a crowd funding known as Initial Coin Offering (ICO).

Any asset can be represented by tokens, such as an insurance policy, currencies (Euro, Rupee, Dollar etc.)

Now, the question is how tokens are used? They can be used in a number of ways, including software license, token of ownership, access pass, stock certificates, crowdfunding, financial instruments, rewards program and more.

What is ECR20 TOKEN

When requests for improvement to Ethereum network are made, they are proposed using the protocol, for Ethereum Request for Comments. (ECR). The number 20 is unique proposal ID number.

ERC20 are rules which need to be followed when a token is accepted. These tokens can have value and can be transferred just like any digital currency. They can be traded like other cryptocurrencies but they don’t have blockchains.

With ERC20 Token System
• Uniform and quick transaction.
• Lesser chances of contract breaking
• Gets confirmations efficiently.
• ER20 initiates efficient interactions between clients and block chains.

tokens in blockchain


In cryptocurrency world, the digital currency platform exchange crypto-tokens that are already mined for platform which is under development with digital currencies such as bitcoin and Ethereum. This crowdfunding process is known as crowdsales.

The funds earned from these crowdsales are used for developing the platform. The crypto tokens which participants buy from crowdsale is equal to rewards and equity.

The Bottom Line

Courtesy of its secure database and superlative safety features, blockchain systems can offer solutions for conducting safe, legal and systematic financial transactions across the globe in various domains. Cryptocurrencies can become a mainstay in future if they are handled properly. And the decision about which type of blockchain should we accept-private or public should be based on the nature of our need and facets such as how much flexibility is required and number of users.

1 Thoughts on What is Blockchain and How Does it Work?
    09 February 2021, 11:56 am

    Nice Article