codete blockchain technology explained what is it and how does it work main e9f533775a
Codete Blog

Blockchain Technology Explained: What Is It and How Does It Work?

Karol Przystalski c529978f2b

09/02/2021 |

11 min read

Karol Przystalski

Blockchain has one of the strongest buzzwords in the tech industry for at least a few years now. The technology grabbed the limelight with the rise of cryptocurrencies like Bitcoin. So far, we have mostly seen practical applications of blockchain in the financial services sector. But blockchain advocates claim that technology could disrupt many other areas. 

What is blockchain all about? How does it work? How many companies are building solutions with blockchain?

In this article, we take a closer look at this exciting technology to show you what it is, how it works, and how it's used today across different sectors.


Table of contents:

  1. What is blockchain?
  2. How does blockchain work?
  3. How does blockchain differ from a traditional database?
  4. Blockchain – trends, adoption, and future
  5. Key use cases of blockchain


What is blockchain? 

Sometimes referred to as a distributed ledger technology, blockchain promises to make the history of the digital assets transparent and unalterable by using decentralization and cryptographic hashing. 

The key idea behind blockchain is that digital assets are decentralized and stored in a transparent ledger that tracks changes to preserve their integrity, which in turn creates trust in those assets. 

Blockchain is a revolutionary technology that could help businesses to reduce risk, eliminate fraud, and increase transparency in a scalable way for a wide range of use cases. 

The purpose of blockchain is to allow the sharing of valuable data and assets in a secure, tamper-proof way. 

This is how blockchain could potentially remove costly intermediaries from transactions. For example, when buying a property, we would no longer need a notary to handle the transaction.

How does blockchain work?

To understand what blockchain is all about, you need to learn the three key concepts behind it: blocks, miners, and nodes.



Every chain consists of a number of blocks. And every block includes three basic elements:

  • Data stored in the block,
  • A 32-bit hold number called nonce – this number is randomly generated when a user creates a block,
  • A hash – a 256-bit number embedded in the nodes. The hash must be extremely small and start with a large number of zeros.

When you create the first block in the chain, the nonce generates the cryptographic hash. At this point, the data and the block will be considered assigned. They will be forever connected with the nonce and hash (unless it's mined). 



Miners are used to create new blocks on the chain via a process called mining

In a blockchain, every block comes with a unique nonce and hash. However, it also references the hash of the previous block in the chain. This makes mining a block very difficult, especially when we're talking about large chains. 

To find a nonce that generates an accepted hash, miners need to solve an incredibly complex mathematical problem. Naturally, they use software to do that. 

A nonce is 32 bits, and a hash is 256 bits, so we're looking at around 4 billion possible nonce-cash combinations that need to be mined before finding the right one. 

When that happens, we can talk about finding the golden nonce – and the block is added to the chain. 

Note that applying a change to an end block located earlier in the chain requires re-mining the block with the change and all the blocks that come after it. That's why blockchain technology is considered to be difficult. 



A key concept in blockchain technology is decentralization. The idea behind it is that no computer or organization can own it. Instead, a blockchain works like a distributed ledger using nodes connected to the chain. 

A node can be any kind of electronic device capable of maintaining copies of the blockchain and keeping the network functioning. Every node includes its own copy of the blockchain. The network needs to algorithmically approve any new block on the chain to be updated, trusted, and verified. 

Blockchains are transparent, so users can easily check and view every single action in the ledger. Moreover, every participant is given a unique alphanumeric identification number that displays their transactions. 

By combining this type of public information with a smart system of checks and balances, blockchain maintains its integrity and creates trust among users.

How does blockchain differ from a traditional database?

  • Traditional databases are central ledgers that use the client/server network architecture. Users can communicate and transact through a central server and commitment. Blockchain, on the other hand, is a distributed ledger, which is shared, replicated, and synchronized by every participant in the network. It supports peer-to-peer communication and transactions among individual users.
  • Note that in a blockchain, all users have equal control of the administration and network via consensus. They need keys and cryptographic signatures to do that. In a traditional database, on the other hand, this is the administrator's job. This is the person responsible for managing everything, including permissions, and for reading, writing, updating, or deleting operations in the database.
  • Another important issue relates to transparency. In a blockchain, all of the participants act as public witnesses to transactions happening there. That's why cyberattacks are much harder to carry out than in a regular database. Moreover, all the blockchain transactions are time-stamped and secured by cryptography. For an attack to be successful, all nodes would have to be attacked and compromised - and that's very difficult to do to accomplish.
  • Contrary to the blockchain, a traditional database makes forging data relatively easy once the attacker gains access to one or several servers on which the data is stored centrally. Forging documents and changing their ownership is much easier here than on a blockchain.


Is blockchain a perfect solution? It comes with some disadvantages over a traditional database. 

The most important one is the price. For starters, blockchain is highly redundant because it relies on an extremely high number of copies. As a result, the requirements for storage and scaling can be problematic. 

Databases reduce such redundancies by keeping data as a single or just a few copies. They also come with a shorter time required for development and maintenance – contrary to a distributed architecture where users need to approve changes. 

Blockchain is hard to maintain and develop because everyone needs to agree. Traditional databases are easy to maintain and upgrade since only one central authority is needed to approve the upgrades. A traditional database can be considered as more dictatorial if there is a misuse of power. Blockchain, on the other hand, is more democratic and participatory because every single user participates in consensus-building.

Blockchain – trends, adoption, and future

  • According to the International Data Corp. forecast, the global spending on blockchain solutions will reach $11.7 billion in 2022. (Source)
  • IBM already has 1500 employees working on over 500 blockchain projects. (Source)
  • In 2019, the United States accounted for 56% of the global blockchain investments. (Source)
  • The country's spending on blockchain-based products and services is projected to reach $41 billion by 2025. (Source)
  • It's estimated that blockchain could reduce investment banks' infrastructure costs by 30%. (Source).
  • Today, 9 out of 10 major banks in North America and Europe are considering using blockchain. (Source).
  • 75% of Internet of Things-based companies were set to adopt blockchain by the end of 2020. (Source).
  • The adoption of blockchain could save the healthcare industry up to $100-$150 billion per year by 2025. (Source)

Key use cases of blockchain

A blockchain consists of blocks that store data about monetary transactions. However, blockchain offers a reliable method of storing data about other types of transactions as well. Companies that have already incorporated the technology include Siemens, Unilever, AIG, Pfizer, and Walmart.


Financial services

No other industry stands to benefit more from blockchain than banking and financial organizations. Today, they operate only during business hours, five days a week. For example, if you try to deposit the check on Friday late afternoon, you're likely to wait until Monday morning to see the money in your account. But even if you make your deposit during business hours, the transaction might still take even three days to verify given the sheer volume of transactions that banks need to settle. 

Blockchain can process transactions in as little as 10 minutes, regardless of the time or day of the week. 

Banks can use it to exchange funds between different institutions quickly and securely. And in the stock trading business, the settlement and clearing process that takes up to three days could be faster, too, releasing the money and shares that are frozen during that time. 

Capgemini estimates that consumers could save up to $16 billion in banking and insurance fees every year thanks to blockchain-based applications.


Real estate

The process of recording property rights is time-consuming and inefficient. Today, the consumer needs to deliver a physical deed to a government employee at a local recording office. The employer manually enters the property into the county's central database and public index. And in the case of a property dispute, all the claims of the property need to be reconciled with the public index. 

This takes time, and many, but also presents the risk of human-made errors. And tracking property ownership is even more difficult. Blockchain could potentially eliminate the need to scan documents and track down physical files in local recording offices. If the information about property ownership was stored and verified on a blockchain, owners could be sure that their deed is permanently recorded and accurate.



The healthcare industry can leverage blockchain in many ways. But the most important one has to do with the secure storage of patient medical records. For example, when an institution generates and signs a new medical record, that record could be written into a blockchain. This would provide patients with the confidence that nobody can change it. 

These personal health records could then be stored on the blockchain with a private key. That way, they could only be accessed by specific individuals, ensuring full privacy.


Supply chain

This sector could benefit from blockchain in many ways. For example, IBM developed the Food Trust Blockchain to trace the journey food products take to get into their locations. 

Where did this project come from? The food industry sees many outbreaks of different diseases and hazardous materials being accidentally introduced to foods. In the past, it would take weeks to identify the source of these outbreaks and the cause of sickness among populations. By using blockchain, brands can track food products from their origin through every stop and final delivery. If the product is found to be contaminated, it's possible to trace it all the way back to each stop and even its origin. This allows identifying the problem sooner and potentially to save the lives of people. 

Suppliers could use blockchain to record the origins of items and materials they purchase. This will allow them to verify the authenticity of their products and give meaning to labels such as "Local," "Organic," and "Fair Trade." The food industry is increasingly adopting the blockchain to track the past and safety of food products throughout the farm-to-user journey.



Blockchain could be a solution for modernizing the voting system. Thanks to blockchain, we could finally eliminate election fraud and increase voter turnout. Blockchain was tested in the November 2018 midterm elections in West Virginia, proving that it could be the right technology for the job. 

By using blockchain, governments could make votes untamperable. The blockchain protocol would also ensure transparency in the electoral process and reduce the number of personnel needed to carry out an election. Instant results are just the cherry on top. There will be no need to recount votes or be concerned that fraud could threaten the election.


Blockchain technology - conclusion

We hope that this article answered your most pressing questions about blockchain technology. Every year brings more and more applications and uses cases, so it's worth keeping an eye on the blockchain scene. Do that, and you'll quickly see that blockchain is about much more than just cryptocurrencies. 

Keep an eye on our blog, where our blockchain experts share their knowledge on this potentially revolutionary technology and learn how it could help your business build its competitive advantage. And if you need blockchain specialists for your next project – don’t hesitate to contact us!

Rated: 5.0 / 1 opinions
Karol Przystalski c529978f2b

Karol Przystalski

CTO at Codete. In 2015, he received his Ph.D. from the Institute of Fundamental Technological Research of the Polish Academy of Sciences. His area of expertise is artificial intelligence.

Our mission is to accelerate your growth through technology

Contact us

Codete Global
Spółka z ograniczoną odpowiedzialnością

Na Zjeździe 11
30-527 Kraków

NIP (VAT-ID): PL6762460401
REGON: 122745429
KRS: 0000983688

Get in Touch
  • icon facebook
  • icon linkedin
  • icon twitter
  • icon instagram
  • icon youtube
  • icon github
  • Kraków

    Na Zjeździe 11
    30-527 Kraków

  • Lublin

    Wojciechowska 7E
    20-704 Lublin

  • Berlin

    Bouchéstraße 12
    12435 Berlin