Blockchain For Dummies: The Ultimate Guide

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Are you wondering why blockchain is being spoken of in every technological innovation related to crypto, NFTs, or Metaverse of late? Since the emergence of Bitcoin, every technology enthusiast has been trying to explore how blockchain can be deployed across various applications and businesses. While this technology offers numerous benefits to the world, most people have yet to learn what it is or how it works.

This article will simplify the blockchain for dummies to explain concepts and their workings so that you can get a fundamental idea about it.

Blockchain: What does it exactly mean?

Firstly, going by the name, one can say that it is a chain of blocks. Each of these blocks is linked sequentially to store digital information virtually.

The standard definition states that it is a shared and distributed digital ledger that primarily saves transaction information and other digital data in a decentralized manner. Each block in this network is analogous to a ledger page or record book, holding an immutable record of transactions that don’t necessitate a third-party authority to validate the data’s authenticity and integrity.

The best example to understand blockchain technology is bitcoin (we will discuss the working in the following section).


This technology has its root in the Journal of Cryptography, where Scott and Stornetta published “How to Time-Stamp a Digital Document” in 1991. But, it was in 2009 that blockchain technology rose to popularity. One of the solid reasons for its fame is the Great Recession that occurred in 2008.

Thus, one can infer that blockchain technology was developed and popularized to counter the 2008 recession crisis. Bitcoin is the foremost example that used this technology and is still in vogue.

Although this technology monitors and records economic transactions, it is not limited to finance alone. Instead, one may use it to store any digital data, track and save land ownership details, medical records, and even votes.


The blockchain is made up of numerous blocks, where each block consists of three significant parts as given below:

  • Data: It is nothing but the information that is stored and depends on the blockchain’s purpose. For instance, in the case of cryptocurrency, the data comprises transaction information such as sender and receiver details, number of coins, and other information.
  • Hash: This is a unique signature akin to a fingerprint that recognizes a block and what it entails.
  • The hash of the previous block: As the name implies, this part of the blockchain stores the preceding block’s information. Additionally, this particular element makes the blockchain secure.

To better understand what a blockchain is, one must first understand what it is not. This is because people misinterpret the concepts of blockchain and make some mistakes. Thus, here are a few things that you must know:

Blockchain is NOT a:

  • Cryptocurrency
  • Cryptographic codification
  • Python framework or library
  • Programming language
  • Machine learning technology or AI

Features of blockchain:

  • Enhanced security and capacity
  • Immutability
  • Decentralized network
  • Consensus

Types of blockchain

Various types of blockchains are in use today. Each of them has an application, benefit, or advantage that makes it desirable for specific tasks. There are four main types of blockchains based on the type of decentralization:

Public blockchain

As the name implies, this type of network is accessible to all and has no owner as such. Anyone with a secure internet and computer can join this network without restrictions. Each node in this network retains a copy of transactions that happen in this network. This blockchain is anonymous and secure, with a slow processing speed.

Example: Bitcoin and Ethereum

blockchain explained for dummies

Private blockchain

This network is private, where only selected nodes are employed to record and store transactions. Thus, anyone using this network experiences higher speed, enhanced privacy, improved blockchain scalability, and balanced network performance. However, these networks are a bit centralized and have some risk factors due to the reduced number of nodes.

Examples: Corda and Hyperledger

blockchain technology definition

Consortium blockchain

Also known as the federated blockchain, this type of network works on the hybrid model. It incorporates both public and private blockchain features. Numerous organizations govern the blockchain network, and a few nodes conduct transaction verification.

Thus the network is faster and more decentralized, offering privacy and flexibility to the users. Additionally, the network addresses various issues such as transparency, differences in vision, and vulnerability.

Examples: Multichain and Tendermint

blockchain technology explained

Hybrid blockchain

As the name suggests, this network entails both public and private blockchain network features. It also has fewer nodes than public blockchains and dedicated nodes that verify transactions. The structure of these blockchain networks is highly configurable.

Furthermore, the network has the ability to select which transactions and participants to be made public. While it has some significant advantages, it still has disadvantages in efficiency, transparency, and lower incentive for participation.

Examples: XRP tokens and Ripple

blockchain for dummies

Explain the workings of a blockchain technology

A blockchain works similarly to a database, but the main difference lies in the way it is structured. To elaborate further, the blockchain’s information or details is stored in blocks which is not the case with a database. The information or data in a database is recorded in tables.

As discussed above, one can record various types of information on blockchain networks in addition to transaction details. Let us see how transactions work in a blockchain:

  • Facilitating transactions: This is the first step in the transaction process. Any information that is to be transmitted is double-encrypted with the help of private and public keys at this stage.
  • Verification of transaction: Next, the encrypted information is transmitted to the peer-to-peer network of computers that is widespread across the world. The network’s nodes validate the transaction’s validity (such as determining if there is enough balance to perform the transaction).
  • Creation of new block: A blockchain consists of numerous nodes where a number of transactions get checked and approved simultaneously. Thus, transactions that are validated as such at a specific node form a mem pool. Also, new verifications that are performed at that particular node get added to that mem pool. Furthermore, numerous mem pools that are formed as such constitute a block.
  • Consensus algorithm: Every node that is involved in the formation of a block will try adding it to the blockchain to make it permanent. However, if each node is enabled to add blocks, the working of the blockchain network gets disrupted. Thus, to avoid such issues, a consensus mechanism is employed by the node.

This mechanism makes sure that the blocks incorporated into the blockchain are the only true version that all nodes agree on and that only valid blocks are connected securely to the blockchain. Furthermore, whichever node gets selected to add a block receives a reward and is termed “miners.” This algorithm creates a hash code for the block, which is necessary to attach the block to the network.

  • Addition of new blocks: A newly created block gets its hash value once it is validated. Next, it can be incorporated into the blockchain. Just remember that every block in the network has a hash value of the previous block, which helps in cryptographical linking and, in turn, aids in creating a blockchain. Thus, as and when a new block gets created, it is secured to the open end of the blockchain.
  • Transaction complete: Once a transaction is successfully completed, it gets attached to the blockchain network. Furthermore, the transaction details get permanently recorded in the network. Thus, anyone can go through the information and verify the transaction.

Let’s see how transactions work with a Bitcoin:

Step 1: Facilitating transaction – Suppose you want to send 10BTC to Person B through the blockchain network. You initiate it on your end.

Step 2: Transaction verification – Once the transaction is initiated, the verification message gets transmitted to all nodes in the network. Thus, the nodes start the validation process and check if you have a registered node and sufficient balance to transfer the 10BTC transactions. Furthermore, the node also verifies if the node of Person B is registered or not.

Step 3: New block creation – All successful verifications are stored in the mem pool and recorded in a block.

Step 4: Consensus algorithm – 

Proof of Work is the consensus algorithm that we have to use as we have used bitcoins as an example. In this mechanism, a target hash value is allocated to a node, which helps generate a hash that’ll be assigned for the new block. Typically, the node must generate a hash value that is less than the target value.

Step 5: Addition/Insertion of a new block – The blockchain gets a new block once a new block gets authenticated by the consensus algorithm and gets a new hash value. 

Step 6: Transaction completion – The transaction is deemed complete after the block is added to the blockchain. Thus, Person B will get 10BTC, and the new block gets attached to the open end of the blockchain. Furthermore, the transaction information gets permanently stored on the blockchain.


Blockchain technology is ever-evolving and is going to bring many more innovations to the fore. This technology addresses the inadequacies of the centralized system by offering a decentralized solution. By now, you would have a basic understanding of how this technology works and the various types of blockchain that are to be used for certain applications.

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