How Does Blockchain Work?

Blockchain had its big breakthrough with Bitcoin in 2009. When blockchain comes up, most people start thinking about Bitcoin and cryptocurrencies, but it is a broad technology for handling information that can be used for almost anything. Many believe that blockchain will lead to a revolution and break through on a broad front throughout society.

How blockchain works

To explain blockchain, it is easiest to start from how everything works today. Let’s say you buy a product online. Lots of different parties are involved. First of all, there is a factory where the product is manufactured. Then there may be various intermediaries and of course the retailer from whom you bought the product. In addition, one or more banks and freight companies are also involved. All these players have their own databases, their own versions of transactions and so on. Then there is updating, synchronization and verification based on each individual player’s system. If something happens in the chain, different databases and documentation must be updated, and there must be ways to check that the information is really correct.

Blockchain is instead about a decentralized data chain. Everyone in the chain has access to complete information from all the different parties that relate to their particular task. It can be seen that everyone has access to a copy of the same “digital logger”. When a transaction occurs, all copies of this log are updated. In practice, this means that all the different computer systems included in the chain will be updated.

The information added to the chain is arranged in blocks. Each individual block is encrypted and linked to the previous block. To achieve this, an encrypted code called hash is used, as well as a time code.

The result is that the blockchain can be verified in a completely secure way. No blocks can be deleted either, which means that none of the parties involved can make changes on their own, without it being noticed by all other parties. Blockchain technology also allows a restriction on how digital information can be replicated. Usually, this can be done indefinitely through copying, but blockchain may require unique digital content, which is one of the reasons why the technology works so well for cryptocurrencies such as bitcoin.

Pros and cons of blockchain

The fact that it is a decentralized blockchain means that there is no central administrator, similar to how, for example, a bank has a central database. Instead, it can be seen as a whole network of identical databases that are either private or public. Private means that membership is limited.

Public means that anyone with an internet connection has the opportunity to gain access. For cryptocurrencies such as bitcoin, a private key and a public key are used. Everyone has access to the public key and can verify that a transaction is correct, but only the holder has access to the private key.

The following are some key benefits of blockchain technology:

  • Provides a more efficient workflow with fewer intermediaries.
  • Secure transactions with strong encryption.
  • It becomes extremely difficult to manipulate data without it being detected.

The most obvious disadvantage is that it is still a relatively young and relatively untested technology. If the use of technology increases, it is likely that more shortcomings and problems will begin to emerge.

Different uses for blockchain

The most obvious area of ​​use today is for transactions and cryptocurrencies. Everything is verified and should anyone try to manipulate the blockchain, it would be detected immediately. Other areas where today’s experts in blockchain see great opportunities are:

Authorities – One of the major problems for authorities is managing identities securely and quickly. This may, for example, be an application for citizenship, a car inspection or if in the future it will be allowed to vote online. When the administration is simplified, the costs for different authorities are reduced.

Healthcare – In some countries, it is already possible to access your patient record online. However, there have been some security issues with unauthorized access to other people’s records. Blockchain technology is perfect for sensitive tasks that require high security and total control over who has access to them.

Information – When it comes to information such as terms of use, contracts and registers, a common problem is that the content may have been tampered with without being discovered until much later. If blockchain technology is used, it will be much more difficult to hide the original source or change the content, without it immediately becoming clear what has happened.

Banks – For banks, there are many electronic services that could utilize blockchains.

A natural area is if they start allowing cryptocurrency trading. With the environment in focus, it may also be relevant to use blockchain technology to promote emissions trading or in various ways to support investments in renewable energy in a safe way.

What does the future hold?

Several major banks have already begun collaborations on blockchain technology. Should cryptocurrencies have an enormous impact, the banks’ existence is threatened, as they become less important as an intermediary when transactions have the potential to be handled quickly, securely and securely without their participation. They may need to adapt and change their range of services.

At the same time, such a scenario is probably quite far away. Cryptocurrencies currently see far too large and rapid changes in value to be able to function as a secure means of payment.

Shipping companies have already started to implement blockchain technology to be able to avoid unnecessary links which in turn leads to lots of unnecessary documentation. It may be one of the first areas where blockchain results in major improvements.


We monitors and writes about new technologies in areas such as technology, innovation, digitization, space, Earth, IT and AI.

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