What is a Blockchain?

An investor might give a simple answer. "It's the underlying technology of cryptocurrency." A techy, on the other hand, would define it as "a distributed, immutable ledger that operates on consensus to process the recording of transactions in a network."

From a marketer, you’d probably hear, "Blockchain is the future of the internet because it enables Web3", and from the mouth of a visionary, it might sound something like "It's a revolutionary, decentralized ledger mechanism that will make the web more democratic and minimize fraud." There's a pinch of truth in all the answers. So let's sort out the blockchain jumble, shall we? You're likely seeking an explanation meaningful to you rather than jamming your head with abstract knowledge. We'll therefore illustrate what blockchain actually accomplishes.

The Blockchain Concept

First things first. Blockchain is a technology, but it’s also a concept, and it’s entirely different from anything we know.

We are looking at a digital ledger mechanism. Its purpose is to authorize, validate and store transactions on a computer network.

What is a ledger? In accounting, a ledger is a book or database for recording transactions such as debits and credits in an account. In this day and age any type of money is basically a ledger because we don’t actually exchange coins with real value, but simply add or subtract amounts in our accounts. Think about your bank account, your credit card statements, or online payment methods. A ledger could be an Excel sheet or a database in which numbers represent a value.

When we talk about transactions in a blockchain context, the term is not limited to finance. Keep that in mind as you read on.

What makes the mechanism unique is that:

  • it's not owned by any one organization or authority, meaning it's decentralized and
  • the records can’t be changed or altered; in other words, they are immutable.

Why Blockchain?

The blockchain concept was invented to break financial monopolies. At the same time, a system that doesn't rely on any external authority to ensure data integrity was created. If that sounds huge and revolutionary to you, you’re right. But no worries, we’ll explain what it means. In the current situation, no one has control over their assets.

What is an asset? An asset is anything that has value to somebody. Investors consider real estate, stocks, pieces of art, gold, or precious stones to be assets. However, in trade, anything from luxury cars to bags of rice or raw steel and bubble gum are assets.
In theory, anything you own and can potentially sell is an asset. For example, right after the fall of the Berlin wall, people were ready to pay hundreds of dollars for a piece of that wall. These chunks of concrete suddenly became valuable assets. The value was determined by how much people were willing to pay in view of their scarcity. We’re getting ahead of ourselves, here. But keep the concept of value in mind.

Assets are governed by institutions. Take a bank as an example. Bank customers pay them to keep their money safe and carry out transactions on their behalf. Ownership of other assets is represented in certificates registered in databases - or ledgers - such as the land registrar, pension funds and insurance companies, or even private entities.

People have no alternative but to trust them with their valuables while they make up the rules. The only choice is to either abide by the rules or not own anything they govern.

The idea behind the blockchain invention was to take back ownership of asset management by enabling peer-to-peer transactions without anyone biting off fees.

Personal data and content are assets

Remember, we said transactions aren't limited to financial or physical assets. On the internet, new tradable assets have emerged. User data and attention (or traffic) have become very valuable for businesses that want to succeed online. However, a user has no control over how the data is used. It’s in the hands of internet giants such as Facebook, Google, and Amazon. They make up the rules and users can either abide by them or stay away from the internet. That isn’t really an option, is it?

Blockchain lets users keep ownership of their data and activities on the internet. You can share information, images, or personal data, and no one can manipulate or use it to their advantage and capitalize on it.

That's why blockchain-based Web3 apps are gaining popularity. As a business, you can now offer your customers more safety and control over their own data. At the same time, you can provide something of value in return for their loyalty or as an imcentive.

How does blockchain work?

Get ready to rethink how the internet in general, and databases in particular, work. Contrary to databases stored and managed on conventional servers owned by organizations, the blockchain ledger is distributed across a network of individual computers. Machines autonomously check and validate every transaction of users. Approval is based on consensus, meaning the majority needs agree the data is correct and the transaction is valid. So far, nothing that would make you go wow (unless you are a true idealist).

The next step is the permanent and secure storage of the data. The transaction is added to a block that is sealed using practically irreversible cryptography. With this type of data protection, information is visible to anyone on the network, but only the owner has the unique key to unlock it.

Now it gets interesting. A block doesn't only contain the encrypted data of the new transactions but also that of the previous block. If the data doesn't match up, the transaction is rejected. If you were wondering what and how the computers verify, this is your answer - or part of it, anyway. Each new block directly links to the data in the previous block. The result is a growing chain of permanent, immutable blocks of data.

And another thing, If anyone tries to tamper with any block in the chain, this would be immediately detected because all following blocks in the chain would be affected.

Understanding blockchain technology

Pffff, isn't there anyone in the world who can make this sound simple? Sorry, not at the moment. (If you find someone, let us know). But think about it this way: there are endless technologies we use every day, every hour, every minute without giving it a thought. Few people understand - or even ask - how a microwave or iOS work. We use them because we know they do the job. One day that's going to be the situation with blockchain.

Blockchain in everyday life

So let's take blockchain into real life. Imagine you want to make your mom happy and buy her a sizeable rare diamond over the internet. No? O.k., fine, you purchase the sparkling giant as an investment and to show off. In today's Web2 environment, the relevant databases are updated. You receive a digital receipt and a diamond certificate. The files move from the seller's account on the AWS cloud to your account on the AWS cloud.

Service providers and financial institutions cut their share of the deal, and you need to trust them with your sensitive data.

A chain made of glass vaults

In a blockchain setting, copies of the transaction data and the certification verifying ownership are kept in dozens, maybe hundreds of computers worldwide. Gewalt! Why would anybody want this? Because each one autonomously checks and verifies the data is correct and the transaction valid, but no one can touch or alter it. Also, no intermediary cuts into your deal.

To visualize this, imagine your data is placed in a vaul made of unbreakable glass. Everyone in the networks can see the information about the diamond, the seller, the buyer, and the transaction. However, you - and only you - have the key to access it. The worst thing that can happen is you lose it.

Diamonds aren’t forever

Now let's say you're tired of the diamond, or your friends aren't impressed. "Why didn't you buy a Lamborghini instead?" You sell the precious stone. What happens on the blockchain? The network members take one look at the glass vault and see the diamond is yours to sell. The transaction gets approved and placed in another sealed glass box. You get the full amount because no middlemen are involved in the transaction. And it's indisputable.

Not the end of the story

Here's a more interesting end to the story: You wake up in the middle of the night, disturbed by a suspicious noise downstairs. By the time you reach the living room, all you see are the rear lights of the getaway car. Someone stole your computer, your dollars, and your diamond.

A few days later, someone tries to sell your diamond. Would they succeed? In a blockchain setting, no. The entire network would reject the transaction attempt, seeing that it wasn't made by the owner. Flop!

In a regular non-blockchain network, the thief would hack your computer, pull the certificate and receipt from your cloud storage and sell your treasure to the highest bidder. End of story. No diamond, no computer, and no way to prove anything. On top of that, the hacker demands a $50K ransom to release all your other data. Not pleasant.

O.k., you're right, no one would be stupid enough to try and sell a stolen diamond on the internet, but you get the picture.

Handle with care

The diamond in our little fairytale could be any valuable tangible asset. The certificate functions as its digital representation. This is where tokens and NFTs come into play. But a certificate could also be a medical record, a shipping document, or a personal ID - anything that authenticates a physical truth.

The important thing to understand is that blockchain technology can store digital assets and contracts of physical assets in a decentralized ledger where it will always be yours. Only you control and manage your assets, including data and content. No financial institution can speculate on it and no social media enterprise can sell your search preferences to an ad network. And whenever you decide to transfer something to your auntie, it’s just between the two of you, peer-to-peer. Even the picture of your cat.

Now that you understand how blockchains change the way we handle and secure data, you can start imagining the endless possibilities for various industries. Today, blockchain technology is already used in the health sector, supply chains, gaming, and of course, finance - to name just a few. So dig in and learn how you can use blockchain technology to improve your business proesses. Find out more about blockchain use cases here.


"Hey, you haven't said anything about cryptocurrency.” Yes, that deserves an article in itself. Read here about the role of cryptocurrency in a blockchain technology.

In this article

The Blockchain Concept

Why Blockchain?

How does blockchain work?

Blockchain in everyday life

Handle with care