It's no secret that understanding blockchain technology can be complicated. Wrapping your head around exactly how blockchains work, what they do, or how one can use them is a bit of a mind-bender, especially if you're not very tech-savvy.

Fortunately enough, you can still understand how blockchain technology works by thinking about it in simpler terms. So, let's get into a clear breakdown of how blockchains work.

What Does a Blockchain Look Like?

blue blockchain simple graphic

Blockchains are virtual, and therefore, they have no physical form. However, we've illustrated a simple diagram that helps people understand how they work better. The graphic above shows a line of blocks, each containing data in the form of a distributed ledger.

This is essentially a database that can be shared among multiple devices or institutions, and information is shared instead of copied or transferred. The blocks that make up this ledger are arranged in chronological order.

Related: Decentralized vs. Distributed Networking Explained

The parties with which the information on a blockchain is shared are called nodes. You'll find several different features within each block, including the previous block's hash (or unique algorithm) and its own hash (which passes on to the next block in the chain). Each block must contain its hash, but it can also have whatever necessary information the network's developers want. But we won't get too deep into the contents of a block here.

Blockchains exist in a peer-to-peer network (as you can determine by their distributed structure) and can be either public or private. In a private blockchain, all users are anonymous. In a public blockchain, they are not. You can also get consortium blockchains in which multiple organizations, and their data or assets, can exist.

So, now that we know what a blockchain consists of, let's look at how exactly they operate.

How Do Blockchains Work?

purple blockchain diagram

Any movement of an asset within the blockchain, also known as a transaction, is recorded within a block. The addition of each block and transaction is irreversible, keeping the chain completely accurate.

When the first block in a blockchain is created, its hash is created simultaneously. More blocks are needed to keep recording these transactions, which wouldn't be possible to create without the help of miners.

Miners help build upon a blockchain by mining new blocks. A miner adds data to a new block and creates a new hash, thereby adding it to the chain. A miner must complete a mathematical equation to verify blocks and ensure their accuracy.

When a mining node creates a new block, it is instantly sent to every other node, or user, in the network (in other words, it is distributed). It is then up to the nodes to validate the block's transaction. This entire process is known as the proof of work mechanism.

Read More: Proof of Work vs. Proof of Stake: Cryptocurrency Algorithms Explained

This process, along with the structure of a blockchain, makes the data within each block secure and immutable. A blockchain is complicated to hack, which is why such technology is becoming increasingly popular in data storage. This is because of the cryptographic signature each transaction has, which always remains unchanged.

Uses of Blockchain Tech

What's exciting about blockchain technology is that it is extremely versatile, and we can use it in a wide range of industries. Of course, blockchain technology is mainly known for its use in the cryptocurrency market to record transactions. However, blockchain tech is also now utilized in some other sectors.

Today, you'll find blockchains being used in real estate, medical data storage, voting systems, and many more kinds of organizations. Several huge companies use blockchain technology, including Microsoft, Amazon, and J.P. Morgan. Its list of applications is truly endless.

The Future Is Bright for the Blockchain

Regardless of whether cryptocurrency survives over the next few decades, blockchains will undoubtedly continue to serve in several ways. Their ability to provide enhanced security levels and a transparent, trusted network of data makes them a top choice for a range of different companies. Who knows, one day, blockchain technology could replace all other data storage and record-keeping options.