5 Steps: Blockchain Technology How Does it Work

The blockchain new technology, which is now so popular in the area of Decentralised  database. The first point I understand that the major application for Blockchain is Bitcoin and where the Blockchain stores digitally all crypto currency transactions.


According to Orelly, what is decentralised database?

Decentralised database
Decentralised database


The five key elements that are present in Blockchain

  1. decentralized consensus
  2. trusted computing
  3. smart contracts
  4. proof of work/stake.

This computing paradigm is important because it is a catalyst for the creation of decentralized applications, a next-step evolution from distributed computing architectural constructs.

In the Blockchain database anyone can verify that you have placed the data. Only header portion is visible. The inside of the container no other will see the data except you. Because you are having the private key.


Also read: The best books on BlockChain Technology

The architecture of Blockchain technology

Blockchain building
Blockchain building


Basically Blockchain is working on the concept of trusted computing. Due to the blockchain’s role as the unequivocal validator of transactions, each peer can proceed and trust one another because the rules of trust, compliance, authority, governance, contracts, law, and agreements live on top of the technology.

  • The blockchain is distributed database of public ledger-However, Blockchain technology itself is non-controversial and has worked flawlessly over the years and is being successfully applied to both financial and non-financial world applications. Last year, Marc Andreessen, the doyen of Silicon Valley’s capitalists, listed the blockchain distributed consensus model as the most important invention since the Internet itself.
  • Current digital economy is based on the reliance on a certain trusted authority. Our all online transactions rely on trusting someone to tell us the truth—it can be an email service provider telling us that our email has been delivered; it can be a certification authority telling us that a certain digital certificate is trustworthy; or it can be a social network such as Facebook telling us that our posts regarding our life events have been shared only with our friends or it can be a bank telling us that our money has been delivered reliably to our dear ones in a remote country. The fact is that we live our life precariously in the digital world by relying on a third entity for the security and privacy of our digital assets.
  • The fact remains that these third party sources can be hacked, manipulated or compromised.It has the potential to revolutionize the digital world by enabling a distributed consensus where each and every online transaction, past and present, involving digital assets can be verified at any time in the future. It does this without compromising the privacy of the digital assets and parties involved. The distributed consensus and anonymity are two important characteristics of blockchain technology.
  • The advantages of Blockchain technology outweigh the regulatory issues and technical challenges. One key emerging use case of blockchain technology involves “ smart contracts ”. Smart contracts are basically computer programs that can automatically execute the terms of a contract. When a pre-configured condition in a smart contract among participating entities is met then the parties involved in a contractual agreement can be automatically made payments as per the contract in a transparent manner.
  • Smart Property is another related concept which is regarding controlling the ownership of a property or asset via blockchain using Smart Contracts. The property can be physical such as car, house, smartphone etc. or it can be non-physical such as shares of a company. It should be noted here that even Bitcoin is not really a currency–Bitcoin is all about controlling the ownership of money.


According to IBM the below is the best practical example to understand Blockchain

To understand the value of a blockchain, consider a practical example. The diamond industry faces many challenges, including smuggling, fraud, counterfeit diamonds, and unethically mined stones. A blockchain can be used to mitigate some of those challenges.

The journey from mine to consumer covers a complex journey through legal, regulatory, financial, manufacturing, and commercial practices. Challenges exist every step of the way. Consumers run the risk of buying unethically mined diamonds. Governments must track diamond exports and pay export taxes. Customers want to be sure that they’re getting the diamonds that they’re paying for.

Blockchain journey

The use of a blockchain can eliminate vulnerabilities through transparent transactions. All parties have access to a secure, synchronized record of transactions. The ledger records every sequence of transactions, from beginning to end. Blockchain can record the mining, refining, and distribution of diamonds. A diamond’s path can be traced from the mine to the hands of the consumer with security and transparency.

The ledger keeps the diamond’s records, including high-resolution photos at each block of the chain, from where it’s excavated in the mine, to where it’s cut and refined, to where it’s sold. The blockchain holds certificates of authenticity, payment transactions, and detailed characteristics of the diamond, including color, cut, clarity, carat, and the diamond serial number. At the end of a buying cycle, the diamond has a complete, auditable, undisputable record of information.

All the transactions in Blockchain are stored irreversible manner in the database.

Author: Srini

Experienced software developer. Skills in Development, Coding, Testing and Debugging. Good Data analytic skills (Data Warehousing and BI). Also skills in Mainframe.