Understanding Blockchain Technology: How It Works, Uses, and Benefits

Since the introduction of blockchain technology, how companies operate and conduct business has been revolutionized. As the blockchain environment evolves, it continues to experience intense growth, optimizing the chances for innovation and transformation. Cryptocurrencies and non-fungible tokens (NFTs) optimize the power and benefits of blockchain technology, causing professionals in all lines of business to investigate whether it could also solve their problems. 

Chances are good that your company or sector of work will need or want blockchain soon if it hasn't already. Familiarizing yourself with its history, how it works, its uses, and how it can benefit you can help you make informed decisions about incorporating blockchain technology. 

Read more: What Is a Blockchain Developer (and How Do I Become One)?

What is blockchain technology? 

Blockchain technology is a shared database that stores records on a distributed and decentralized ledger. Once you record and store your data on the blockchain network, you typically cannot change or modify it, making it transparent and trustworthy. Transactions duplicate and distribute across the blockchain network to every user connected to the blockchain. A digital signature from the original owner of a transaction adds to the ledger, authenticating the information and protecting it from tampering. 

The importance of blockchain technology 

Blockchain is essential because businesses run on the information they receive from various sources. For the information to be most helpful, companies must receive it quickly, securely, and accurately to make the most informed decision possible. Blockchain provides the immediate transfer of information businesses desire through a shared and immutable ledger. This data is placed on the blockchain in the exact order it was received to ensure its security. Any change to a block would cause a succession of changes in all the blocks connected to it, so it would not go unnoticed. 

The blockchain ledger gives all users the same end-to-end view of information, promoting full transparency and trust. Businesses can benefit from new efficiencies in their operations, possibly leading to new opportunities for success. You can use blockchain for various purposes, including payments, production, order tracking, and more. 

Key features of blockchain technology to learn

Distributed ledger technology is a crucial feature of blockchain that allows all users on the network to access the immutable record of transactions and the distributed ledger. Transactions are only recorded once on the shared ledger. Because of this technology, duplicating a transaction recording is unnecessary, saving businesses time. 

Immutable records are an additional key feature of blockchain technology. When a transaction is initially recorded on the shared ledger, no user can change or alter it. If an error occurs in the recorded transaction, you must record a new transaction with the correct information. This process makes both records visible. 

Smart contracts execute automatically based on rules designed to speed up transactions. Smart contracts are versatile and are utilized in various situations, including corporate bond transfers, supply chain transparency, travel insurance terms, and more. 

Read more: Blockchain Certification: Which To Choose?

How does blockchain technology work?

Blockchain technology is based on three ideas or concepts: blocks, miners, and nodes.

Blocks

A block contains data from a transaction that shows an asset’s path or movement. Depending on the situation, these blocks can contain various information, such as who is doing the transaction, what is included, and when it is happening. 

Miners

Miners in a blockchain network utilize mining to create new blocks for the chain. They do this by using advanced software to find the solution to complex math problems that generate a hash. A hash is a 256-bit number permanently connected to a nonce, a 32-bit whole number assigned to every block once created. Once miners successfully find an accepted nonce and hash, their block adds to the greater blockchain network.

Nodes

Nodes in blockchain technology can be in the form of any electronic device that can keep the network running and maintain the chain through a copy. Each node must accept and approve new blocks for the overall blockchain to update. 

Read more: Careers in Blockchain Technology: Solidity Developer

Types of blockchain

Different types of blockchain networks serve specific purposes for users and businesses. Each blockchain network's construction is slightly different to effectively serve its defined purpose.

1. Private blockchain networks

A private blockchain network has one organization that oversees the entire network, having a full say on who can join and participate, govern the ledger, and execute protocols. Private networks are peer-to-peer and decentralized. Users in these networks trust in their security because of the overseeing organization. Corporations can host their own private blockchain networks behind a firewall or on-premises. 

2. Public blockchain networks

A well-known example of a public blockchain network is Bitcoin. Public networks allow anyone to join and participate, making them susceptible to privacy and security issues. Public networks also require strong computational power, which only applies to specific purposes. 

3. Permissioned blockchain networks

Permissioned blockchain networks combine the attributes of public and private blockchains. They are commonly used by businesses that are setting up their own private network and are only used by that company. However, public blockchain networks can also be permissioned. These networks require permission or an invitation to join, and multiple people are given abilities on the blockchain. 

4. Consortium blockchains

Consortium blockchains have multiple governing bodies or organizations maintaining the network and determining who can access it and its data. These types of networks are most valuable in situations where multiple organizations are responsible for the blockchain and where all participants in the network need permission. 

Uses of blockchain technology and where you can get jobs

Although blockchain is commonly associated with Bitcoin and is mainly used to record and store data on monetary transactions, it is applicable for storing data in many different sectors of business and life. Companies worldwide integrate blockchain technology into their operations to improve the efficiency of their business and ensure the protection of their assets. Some of the most common blockchain applications are:

• Automotive industry: Blockchain helps automotive manufacturers trace the supply chain securely, conduct trustworthy transactions, and create reliable records for mobility services.

• Banking and finance: Blockchain helps banks and financial institutions exchange funds between institutions more quickly and securely.

• Currency: Cryptocurrencies like Bitcoin and Ethereum are created on blockchain technology.

• Entertainment and media: Blockchain virtually eliminates copyright infringement on music, film, and other artistic creations. It also reduces costs and increases transparency for transactions like royalty payments.

• Government: Local, state, and federal governments use blockchain to reduce data leak risks, foster confidence with constituents, and remove barriers to technological advancements.

• Health care: Health care providers use blockchain to store medical records securely, ensuring patient privacy. 

• Property records: Blockchain can store and verify property ownership. 

• Smart contracts: Blockchain can create smart contracts to facilitate, verify, and negotiate agreements. 

• Supply chains: Suppliers can use blockchain to authenticate products and their origins, giving customers full transparency of what they are purchasing. 

• Telecommunications: Blockchain increases network performance by making them faster and more agile, minimizing disputes, and automating reconciliation tasks.

• Voting: Blockchain can facilitate modern voting systems by eliminating election fraud. 

Cryptocurrencies and the rise of blockchain technology

Cryptocurrencies, such as Bitcoin and Ethereum, are the most well-known use of blockchain technology today. You can use crypto to purchase many things, like cash or credit. The difference is that crypto is built upon blockchain technology, giving it a cryptographic security system and public ledger to record and secure transactions properly. It is becoming increasingly popular because it reduces the need for country-specific currencies, eliminates the use of central banks, and enhances security to protect your assets. Blockchain makes all these popular features of crypto possible.

What are tokens?

Programmers create tokens to represent different types of digital assets. The ownership of the token is trackable, and it can execute a certain functionality based on its set of instructions. Tokens can be various assets, such as records, music files, tickets, contracts, and more. 

NFTs have grown in popularity over the past few years. NFTs are blockchain-based tokens that ensure the authenticity and protection of digital media ownership. 

Read more: Cryptocurrency: What Is It and How Does It Work?

Transaction process

Blockchain technology confirms and authorizes transactions. As described, a transaction's data gathers into a block with a digital signature, timestamp, and any other necessary information. Each block then uses nodes to travel through the network to another user who has the correct private key to complete it. Below are a few crucial concepts that facilitate the blockchain transaction process. 

Hash encryptions

Hash encryptions secure data and information through an advanced algorithm. The specific algorithm is primarily SHA-256, which transmits the transaction, the sender and receiver addresses, and the private key details. The algorithm nearly prevents hacking and simplifies the authentication process. 

Proof of work

Each block within the blockchain has four main headers: the previous hash, transaction details, nonce, and the block's hash address. A transaction is only completed when the correct hash value matches a predetermined condition. 

Mining

Blockchain technology uses mining to add transactional details to a digital or public ledger. Through mining, you can generate the hash of a block transaction. Mining additionally serves to ensure the safety of information. 

Blockchain vs. Bitcoin

Although the idea behind a blockchain system was first designed in 1991, it did not see its first use until 2009 with Bitcoin. Blockchain is the foundation for Bitcoin’s protocols, and it serves to record payments on a ledger transparently and immutably record data points. 

Blockchain vs. banks

The finance sector of business is experiencing disruptions due to the rise of blockchain technology. It specifically disrupts banking processes and payment functions. Although blockchain improves upon specific processes in banks, they are vastly different from each other. Blockchain has an advantage over banks in a few important ways, including: 

• Blockchain transactions can happen at any time.

• Transactions happen much faster.

• Anyone can participate in blockchain (ex. Bitcoin).

• Users are fully secured and private.

• You only need a device and an internet connection to initiate a transfer. 

Why blockchain technology is popular

Blockchain technology is popular because of the vulnerabilities of other transaction processes, such as transferring money to someone through online banking. Transactions through a bank are susceptible to being altered or tampered with very quickly. Blockchain provides a secure and decentralized network to log transactions and facilitate instant updates in the movement of a transaction, saving businesses time and money compared to alternative methods. Described below are some of the most significant advantages of blockchain technology.

Automation capability

Blockchain can be fully programmed to act automatically or generate events and payments once the programming criteria are met. This process provides instantaneous transactions and substantial time savings. 

Decentralized system

In typical systems, a government or bank acts as a regulatory authority to approve and manage transactions. Blockchain systems rely upon the mutual agreement between two parties to execute transactions, making them quicker and more secure. 

Highly secure

In blockchain transactions, the data is nearly unchangeable and incorruptible. The system includes a feature called digital signatures that ensures fraud is highly improbable. Other users in the system need a specific digital signature to access the data. 

Jobs in blockchain 

With the explosive growth in the evolving environment of blockchain technology, businesses of all kinds will likely be seeking highly skilled workers. Various types of jobs are available in the industry and are frequently being added as the prominence of blockchain expands. Currently, three essential jobs in blockchain include:

1. Blockchain developer

Average US annual salary (Glassdoor.com): $102,432 [1]

A blockchain developer uses programming to develop applications. This is one of the most popular roles in the blockchain industry, and top organizations in various lines of business are looking for top blockchain developer talent. 

2. Blockchain architect

Average US annual salary (Glassdoor.com): $127,448 [2]

Blockchain architects collaborate with other members of their organization, such as blockchain developers and designers, to design and connect solution parts for the blockchain. As a requirement, you must have skills and experience with specific programming languages for this position, such as CSS, React, and Python. 

Read more: What Is Blockchain Programming?

3. Blockchain project manager

Average US annual salary (Glassdoor.com): $86,865 [3]

Blockchain project managers are the liaison between an organization and its blockchain experts. In this role, you ensure that the project’s requirements are consistently being met and the final deliverable is on pace for completion. 

Read more: What's a Project Manager? And How to Become One

Learn more about blockchain technology 

With blockchain technology's growing importance, it is crucial to understand its key features, how it works, the types and uses of blockchain, and the popular industries you can find jobs. Typical careers include blockchain developer, blockchain architect, and blockchain project manager.

If blockchain technology interests you, consider taking a Blockchain Specialization course on Coursera. This Specialization features four different courses intended to help you gain the foundation you need to begin your career in blockchain. The topics covered include smart contracts, blockchain basics, decentralized applications, and more.