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How does Blockchain technology work?


As we mentioned in our guide „What is Blockchain technology?”, there are three main technologies that combine to form blockchain. None of them appear for the first time. It is rather their new organization and application.

Technologies are:

1. private key cryptography,
2. distributed register system,
3. motivation to perform transactions via the network, keeping records and security.

Below is an explanation of how these technologies work together to secure digital relationships.

Cryptographic keys

Two people want to make transactions via the Internet.

Each of them has a private and public key.

The main purpose of this blockchain component is to create a secure reference to digital identity. The identity is based on having a combination of private and public cryptographic keys. The combination of these keys can be seen as a functional form of expressing acceptance, creating an extremely useful digital signature. In turn, this digital signature provides strong control over ownership.


However, strong ownership control is not enough to secure digital relationships. While the authentication problem is resolved, it must be combined with the transaction approval and permissions (authorization) measures.

In the case of a blockchain it starts with a distributed network.

Distributed network

Benefits and demand for a distributed network can be understood on the basis of the thought experiment „if the tree falls in the forest”.

If the tree falls in the forest and the cameras record its fall, we can almost be sure that the tree has fallen. We have visual evidence, even if the details (why and how) can be unclear.

Most bitcoin blockchain values are that it is a large network in which the verifiers (similar to cameras analogous to the experiment) reach agreement that they are witnesses of the same thing at the same time. Instead of cameras they use mathematical verification.

In short, the size of the network is important to secure it.

This is one of the most attractive bitcoin blockchain features – it is large and has accumulated a lot of computing power. At the time of writing, bitcoin is secured by 3,500,000 TH / s, which is more than over 10,000 largest banks in the world combined. Ethereum, is still less developed, is protected by about 12.5 TH / s, more than Google, and is only two years old and basically still in test mode.

Recording system

When cryptographic keys are connected to this network, a highly useful form of digital interaction appears. The process starts with the collection of the private key, and as a result – in the case of bitcoin, we send the sum of cryptocurrencies – and attach it to the public key B.


The block – containing a digital signature, time stamp and relevant information – is then transmitted to all nodes in the network.

Network service protocol

A realist can challenge a tree in a thought experiment in the following way: why would there be a million computers with cameras waiting to record the fall of a tree? In other words, how do you attract computing power to handle the network in such a way that it is safe?

In the case of open public blockchains, this includes mining. Mining is based on a unique approach to the ancient economy – the tragedy of a common pasture.

Thanks to blockchain, which offers computing power for your computer for network support, there is a prize available for one of the computers. The private interest of the individual is used to help meet public needs.

Bitcoin aims to eliminate the possibility of using the same bitcoin in separate transactions at the same time, in such a way that it would be difficult to detect.

In this way, Bitcoin tries to behave like gold, like property. Bitcoins and their base units (satoshi) must be unique to be owned and have value. To achieve this, nodes serving the network create and maintain a transaction history for each bitcoin, working to solve mathematical problems with proofs of work.

Basically, they vote using processor power, agreeing to new blocks or rejecting incorrect blocks. When most miners come to the same solution, they add a new block to the chain. This block has a time stamp and can contain data or messages.

Here’s blockchain:

The type, quantity and verification can be different for each blockchain. This is a matter of the blockchain protocol – or rules for what is and what is not a valid transaction, or the correct creation of a new block.

The verification process can be adapted to each blockchain. All necessary rules and motivations can be created when a sufficient number of nodes agree on how to verify transactions. This is a choice based on the question of taste, and people are just starting to experiment. We are currently in the development of a blockchain in which many such experiments are conducted. The only lessons learned so far are that we need to fully understand the dexterity of blockchain protocols.

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