Blockchain explained

What is blockchain technology?

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Every day, cutting-edge technology changes the way we connect, engage and improve the world around us. Most of the time, these innovations come to life in ways that we couldn’t have imagined, allowing us to make progress faster, smarter and more efficiently than ever.

Blockchain is one of those advancements. As one of the most buzz-worthy topics today, there is still a lot of uncertainty and skepticism about what blockchain is and how it will impact our day-to-day lives. To show that blockchain is far more than just hype, here is a guide breaking down how it works and how the capabilities of blockchain are disrupting so many industries.

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What is blockchain?

Simply put, blockchain is a shared, immutable ledger that lets you record the history of transactions. By establishing trust, accountability and transparency, it transforms the way we carry out transactions and can be adapted to virtually any contract, deed or payment. Blockchain can be used across businesses, industries and even the world.

How blockchain is different from traditional databases

To start, it’s important to know that blockchain isn’t a database but a network. On this network, permissioned users are able to manage, adjust and restore new entries. To make sure that all transactions are valid, nodes (network members) confirm that all participants are in agreement. Once this consensus is reached, the records are recorded permanently, prohibiting users and system administrators from deleting records at any time. Inherently secure, a blockchain creates one unified version of the truth that can be easily shared with network members ultimately saving time and reducing extra work.

On the other hand, a traditional database uses a central server that allows users to alter items. Unlike a blockchain network, these edits make changes to the original version. This means that subsequent users will see an entirely updated version and won’t be able to see a history of the transactions. Another key difference between a blockchain network and a database is that with a database, administrators are the ones with full control. These forms of authority are responsible for delegating access and granting permissions to their users.

Building blocks of blockchain

Even when discussing blockchain in its most basic terms, understanding how it works can be tricky. Here are some key blockchain terms and their definitions to get you started.

Distributed ledgers

A distributed ledger enables each network member or node, to personally hold and edit its records. This is different from a traditional database where the administrator distributes to distinct nodes. In a distributed ledger, they are created and kept by each participant — nodes create consensus by looking into each transaction and drawing conclusions from the records.


A node can be any device, including a computer or cellphone, that has internet access and its own IP address. A node autonomously keeps a copy of the blockchain and carries out user-defined transactions.

Smart contracts

Smart contracts include all of the original terms and conditions agreed upon by the stakeholders in an agreement, and all of the transaction information kept on a blockchain. This makes it easier to digitally exchange money, property and other valuable assets. Smart contracts eliminate the need for middlemen, reduce extra costs and streamline processes. Even without a middleman, they uphold complete trust and transparency between the relevant parties.

Public and private networks

There are clear differences between public and private blockchain networks. A public blockchain is entirely available to the masses, meaning anyone can get involved and collaborate on the network. Another sign that a network is public rather than private, is whether or not there is an incentive for people to participate. For example, Bitcoin is one of the most popular public blockchain networks. In a private network, users must be invited to join. Limits are put into place to define who can participate on the network and what transactions that individual can interact with. Ultimately, the members of the blockchain network who handle the participant on-boarding process, must reach a consensus of who is and isn’t allowed to join.


When a network is decentralized, it means there is no one main source of authority. Since the responsibility to carry out business isn’t tied to one person, a blockchain becomes more secure. This is because a decentralized network reaches consensus through a system of nodes. These nodes are used to verify exchanges, record the collected information and share truly correct data.


In its simplest form, immutability in the context of blockchain means that once a block is created, it can’t be changed. Users can trust that information on a blockchain is authentic and unchanged.

Security of blockchain

Aside from the fact that a blockchain is decentralized and immutable, blockchain data is protected by cryptography. Cryptography is a unique set of private keys like a digital signature that’s attached to transactions. The signatures maintain security since, if someone tries to change an entry without peer approval, it will become invalidated. If something does go wrong, all members of the network will be notified. The inherent transparency of the blockchain stops immediate issues from becoming bigger problems.

Industries poised for adoption and transformation

The beauty of blockchain is that it can be applied to almost any business, industry or application. Here are some examples of how traditional industries are using blockchain to challenge the way we interact, think and progress.

Banking and financial markets

Financial service industries are frequently faced with cases of fraud and crime. Blockchain can replace outdated processes to promote collaboration, transparency, efficiency and shared trust.


The insurance industry can create transparency for all parties with blockchain. Using technology that backs all transactions with security and trust features, a blockchain network can quickly and accurately verify data exchanges, making the process a lot less tedious.


Healthcare professionals can use a blockchain network to improve the quality of care. A blockchain can make it easier to send patient data from one place to another. It can also empower patients to take ownership of their own medical history data securely, particularly in today’s IoT environment.

Media and entertainment

In the wake of a digital revolution, a blockchain can foster trust in the media and entertainment industry. It can improve how users and professionals create, share and consume digital content.  Blockchain can touch industries from music, movies and television to use cases like advertising, loyalty points and more.

Blockchain use cases

Since blockchain technology can be applied to virtually any industry, hundreds of companies are transforming their business. Some of the most interesting use cases to date are identity, food safety, cross-border payments and supply chain. Here’s how blockchain is changing business.


When it comes to identity management with sensitive government-issued documents like IDs and licenses, each document must have enough traceable information linked to it so that it can be verified. With blockchain-enabled technology, government agencies can spend less time adjusting inconsistent files. By shortening document authentication processes, it’ll also create a better experience for everyone.

Food safety

Growers, distributors and retailers can enhance food trust in traceability, visibility and accountability from farm to fork. The network allows workers from every stage in the food supply chain to quickly respond to recalls, publish tracking data and share inspection certifications, creating a secure network of food influencers and innovators.

Cross-border payments

Global payment settlements that once took days can now be cleared and settled in seconds with new advancements in blockchain universal payment processing. Solutions work with normal payment systems to increase transparency in an affordable way. By streamlining the payment process, lowering costs and increasing efficiency, blockchain is changing the financial services landscape in real time.

Supply chain

Security, speed and efficiency are critical in the world of logistics. A blockchain network can help a supply chain reduce fraud, delays and courier costs. This makes it easier to identify problems, manage inventory and establish consumer and partner trust. In addition, networks can be implemented at scale to improve businesses and trade relationships worldwide.

Even though blockchain is still relatively new, it has already left a mark on almost every aspect of our lives and revolutionized some of the most basic industries we do business with each day. In light of these milestones, there is no telling how large it will grow, who will adopt it and what industry it will touch next. The only thing that is for sure, is that blockchain is developing the next generation of transaction systems. So there’s no better time for you to get an answer to the question, “What is blockchain and how does it work?” than now!

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Marketing Team - IBM Blockchain

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