GuideNov 16, 2022

What is Blockchain technology? How it Works, Benefits, Use Cases & Real-World Applications

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What is Blockchain technology? How it Works, Benefits, Use Cases & Real-World Applications

Throughout the development and proliferation of Web3 technologies (of which you can read more about here), there is probably one term that keeps coming up: blockchain. The foundation of most Web3 technologies, the blockchain is a fundamental concept to understand when getting into Web3 development and awareness. What is a blockchain and what purpose does it serve? That question, and much more, will be answered throughout this guide.

Blockchain explained

A Blockchain is, in short, a digital ledger: a decentralized, online book of accounts and transactions that are tamper-evident and resistant. The big advantage of a blockchain is that it allows users to record transactions in a shared ledger within a group of users. The result is that no transaction can be altered  once it has been published on the blockchain under predetermined network functions. Conceptualized and merged with other technologies in 2008, blockchain technology was intended to function as a delivery device for modern cryptocurrencies.

One of the first applications of blockchain technology was with the progenitor cryptocurrency, Bitcoin, which allowed users of the currency to publicly share data in order for other users to verify the validity of individual transactions. All cryptocurrencies are built upon the backbone of blockchain technology, as it provides the ability to record transactions in a public and predetermined manner.

A Brief Overview of Cryptocurrency

Cryptocurrency is a digital currency protected by cryptographic processes instead of a centralized authority, like that of paper money. One of the main draws of blockchain technology is its broad functionality, being implemented with specific goals— like in the cases of smart contracts and cryptocurrencies.

All cryptocurrencies are built upon blockchain technology, as it is this technology that allows for cryptocurrency to function as a decentralized finance tool. One of the core appeals of Web3 development and blockchain technology in general is the decentralized nature of its structure and cryptocurrency is a huge part of that. Cryptocurrency is decentralized and democratized in a manner that conventional currencies are not, hence its denotation of heralding a new wave of decentralized finance.

Some cryptocurrencies that you might be familiar with include Bitcoin, Ethereum, DogeCoin, and Solara: all of which have reached incredible heights in the finance and Web3 spaces.

How Does the Blockchain Work?

The fundamental goal of the blockchain is to let people communicate with each other, though with extra protections and tamper-proof safeguards built into the technology. Across the various main concepts of blockchain technology, the main tenet of design and functionality is security. Now, let’s go over some of the moving parts within the blockchain and what purpose each serves.

Hash Function

In brief, a hash is a string of numbers and letters, produced by hash functions. A hash function is a mathematical function that converts a random number of characters into a string with a different, fixed number of characters. Just a small alteration in a string creates a completely new hash. With relation to the blockchain, hash functions are used as security measures: one-way functions that verify the information presented to the blockchain and/or authenticate the identity of a user accessing the blockchain. Hash functions are a core part of blockchain information verification and are thus important to understand in this context.

Blocks and Nodes

Blocks are data structures within a blockchain where, within that block, data about transactions or any other information is stored permanently. The actual structure of a block is a bit more complicated than this article requires us to be, but, briefly, there is a set storage amount/size for each block and components that verify it’s size and functionality there within.

Now, nodes are another vital part of the blockchain ecosystem: functioning as a validation component to the whole technology. Nodes are computers that run the blockchain software in order to validate and store the historical data of the blockchain and its transactions. Since the whole idea of blockchain technology is based around being decentralized, nodes allow the blockchain network to function as a peer-to-peer network: relying on individual nodes (computers) to house replicated data from the blockchain in order to consistently verify the accessible information is always correct.


Mining is the process by which users add new blocks to the blockchain. You’ve most likely heard of people “mining Bitcoin” or something of the like. What that means is that there is somebody using specialized software to solve hash functions (the aforementioned security function of the blockchain) in order to make a change to the blockchain and add another block. Adding blocks is tough work, requiring high-performance computing and a lot of math. This is why miners are rewarded with compensation when they successfully add blocks to the blockchain, reinforcing a cycle of constant mining.

Benefits and Drawbacks of Blockchain Technology

The majority of blockchains are built as a decentralized database that acts as a publicly distributed ledger. These ledgers keep track of and store data in blocks that are arranged in chronological order and linked by cryptographic proofs (what hash functions are used for), as we’ve already discussed.

The proliferation  of blockchain technology has resulted in benefits across a wide range of focal points, including enhanced security in situations where trust might not be established. The decentralized nature of blockchain technology means that access to its functionality is ever-present and widely accessible, which is a net benefit for all parties involved. Data that is stored on a blockchain is of high-quality and protected by the blockchain’s increased traceability and simplistic ecosystem.

However, the fact that it is decentralized has significant drawbacks. For example, blockchains have restricted efficiency compared to typically centralized databases and require more storage space and computing power. The entire process of verification and identification is redundant and time-consuming, even if that function is by design. Energy consumption surrounding running blockchains and ,especially, mining operations is incredibly high, as are the associated costs with running a full-scale operation.

Blockchain Technology and Decentralization: Why is it important?

Blockchains are essentially types of distributed databases. The database is the blockchain, and each node on a blockchain network has access to the whole chain. There is no one person or node with total control over the entire blockchain. Each and every node can validate records stored on a blockchain This is all done without intermediaries who are in control of the whole operation.

A blockchain is architecturally decentralized, with no single point of failure that would bring down the blockchain. That makes its decentralization a critical component of blockchain systems. However, the nodes of a blockchain are logically centralized, as the blockchain network is a distributed network that performs certain programmed actions.

A blockchain is also structured around a peer-to-peer network, with communication across the whole database happening between individual nodes (users) instead of through a central intermediary. The true power of a decentralized database like a blockchain lies within this structure, where there is no boss or leader that users have to report to in order to complete actions. All of the processes on the blockchain can be done by any user at any time.

How Can Blockchain Technology be Used?

Now that we’ve talked about what a blockchain is and how the technology actually works, let’s talk about how you can use blockchain technology and what its real world applications actually are. The technology of a blockchain network is particularly ideal for a verification tool called “smart contracts”— defined and immutable contracts that are automatically enforced and discharged depending on the set criteria. Because of the structure of a blockchain, it allows for smart contracts to be distributed and enacted automatically.

From there, applications for blockchain technology are as follows:

NFTs (Non-Fungible Tokens)

You’ve probably heard of NFTs at this point, so you should be familiar with the fact that they are stored on a blockchain. NFTs (for posterity's sake) are an application of blockchain technology that renders a particular piece of data intrinsically unique and offers a verification process therein. The most common application of NFTs has been for artwork, where the blockchain can help to verify the legitimacy of a one-of-one piece of art.

Decentralized Finance (DeFi)

Decentralized Finance is simply the functions of banking and financial services as we know them but funneled through the ease of access and free-flowing functionality of the blockchain. Using blockchain technology for their financial needs, users can access funds, take out loans, invest, and do general financial upkeep without the oversight and approval from a centralized financial authority (within reason, of course).

File Storage and Archiving

The structure of a blockchain is nothing more than a cryptographically protected series of data blocks, so it is only natural that using blockchain technology as a method of protected data storage should be on the table. Centralized data storage methods, like Google Drive or OneDrive, have been prone to hacking and invasion of privacy. The application of blockchain technology to data storage would prevent breach of access and protect data more soundly.

Identity Verification

With a blockchain and its decentralized structure,  the verification of identity could be much quicker and potentially safer when doing so online. Keeping identity data in a central online  location/database would become a thing of the past with the use of blockchain technology , meaning hackers would no longer have centralized points of vulnerability to attack.

What’s Next for Blockchain Technologies?

The potential of blockchain technology is virtually limitless, with new applications for its functionality coming to fruition each and every day. Bringing a decentralized internet to the forefront of users is an important step and we should this happening more and more as businesses and individuals alike discover the possibilities of blockchain technology. The future of this technology appears to be unfathomably endless in possibility, so understanding how it all works is even more important.

Next Steps

If you’re looking to get into blockchain technologies and developing for the Web3 future, Datastax AstraDB will help you build your Web3 application of the future. Built on Apache CassandraⓇ with end-to-end security, AstraDB is the powerful solution to all of your Web3 needs. Get started with AstraDB and it’s numerous features, like:

  • The Ethereum Blockchain dataset has indexed every block in existence
  • Forget about dealing with difficult Ethereum or IPFS  nodes, complex RPC calls, or increased costs
  • Access the exact  blockchain data you need at a low, predictable cost
  • Build your application through our Stargate APIs utilizing tools familiar to every developer

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