Blockchain: Easy to Understand What It Is and How It Works

The global financial crisis of 2007-08 showed the world how easily a common person could be affected by the wrongdoings of some greedy financial institutions and banks. The common people were also the most affected, as governments bailed out the financial institutions.

That is when the first blockchain news was heard as a mysterious entity named Satoshi Nakamoto came up with the Bitcoin whitepaper in 2008.

Since the launch of Bitcoin in 2009, thousands of cryptocurrencies operating on blockchains have come into existence. They have made life-changing money for millions of people globally. In this article, we will discuss what blockchain is and how it works.

What Is a Blockchain in Simple Words?

A blockchain is a digital database or a ledger that stores information in a distributed peer-to-peer network. The devices on which the data is stored are called nodes and can be located anywhere in the world. Hence, no single entity or individual can have control over a blockchain. It combines three technologies:

  • Cryptography;
  • A shared ledger in a peer-to-peer network;
  • Computers that act as nodes.

In a database, data or information is stored in the form of tables, etc., but in a blockchain, it is stored in “blocks.” Each block of data is connected to another, forming a chain known as a blockchain. The most common uses of blockchains are for cryptocurrencies and making transactions.

The Principle of Operation of Blockchain Technology

Blockchains work on the principle that data or information stored on them is immutable. Therefore the transactions or data stored on them can not be edited, deleted, or destroyed.

When a new transaction is created on a blockchain, it has the digital signature of the creator and is sent to the block. The blocks containing the information are then verified by nodes. Upon verification, the blocks are added to the blockchains and available for everyone to see at any point.

5 Types of Blockchain Networks

The transactions of blockchains are verified primarily by two methods, namely, Proof-of-Work (PoW) and Proof-of-Stake (PoS) mechanisms. In a PoW mechanism, the transactions and information in a blockchain are verified through mining. Whereas in a PoS mechanism, the verification process is done through staking. These networks can also be divided into 5 major categories depending on who owns and controls them and what purposes they can be used for.

Public Blockchain Networks

Public blockchains are the backbone of cryptocurrencies and brought decentralized distributed ledger technologies to the forefront. They are public networks accessible to everyone and can become a node to verify transactions and data.

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They can use either PoW or PoS consensus mechanisms for verification, and the information stored on them is accessible to everyone. These networks are not under the control of any entity or individual. Bitcoin and Ethereum networks are two of the best examples of public blockchains. Bitcoin works on the PoW mechanism, whereas the latest blockchain news about Ethereum is its move to the PoS mechanism.

Private Blockchain Networks

Unlike public ones, these networks are not open and have a governing entity that controls them. Anyone who wants to join these networks is required to get permission from the network administrators. These are centralized blockchains that can not be accessed by just a computer.

These networks are used mostly by private businesses and corporations. Every network parameter, including its security, functioning, authorization mechanisms, etc., is controlled by the entities governing it.

Hybrid Blockchain Networks

These networks are the ones where the developers or the enterprise developing them can create private and public networks together. These networks combine the best aspects of both a public and a private network. The information and transactions stored on them are private but can still be verified.

In a hybrid network, the entity governing them can grant permission to people who can access these blockchains, but their identity is kept a secret. Only the people who interact and make transactions know about each other’s identity. The transactions to be made public can be handpicked.

Blockchain Consortiums

When multiple private blockchains governed by different entities or organizations come together, it forms a consortium. Each of the private networks forms a node in the consortium, and if anyone wants to join or leave the consortium, they need permission from all other stakeholders.

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The organizations within the consortium network control their nodes, but the information stored on them can be accessed by other nodes as well. Business organizations having their own private blockchains can come together and benefit from them.


A sidechain is a separate network built upon the parent blockchain known as the main net. They can be used to scale and improve the parent blockchains. Sidechains can have their own consensus mechanism that can be different from the main net.

These chains are used to make transactions and transfers between the mainnet and sidechains faster. This allows the various protocols to work together and expand their ecosystem. Sidechains operate smoothly using “two-way peg” and “smart contracts.”


Blockchains have come a long way from being just an experiment in the 1990s to becoming a reality in the 2000s and revolutionizing the finance world in the late 2010s. The real-world use cases for the technology are yet to be explored completely.

The latest crypto news is about many corporations and business conglomerates deploying blockchains in their everyday operations. Once mass adoption truly happens, technology has the potential to transform the way the world makes transactions or handles information.

Brett Shapiro
Brett Shapiro
Brett Shapiro is a co-owner of GovDocFiling. He had an entrepreneurial spirit since he was young. He started GovDocFiling, a simple resource center that takes care of the mundane, yet critical, formation documentation for any new business entity.

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