Blockchain: Step By Step Definitive Simple Guide (Updated 2021)

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Blockchain is an electronic ledger usually built using a peer-to-peer  (P2P) system and is often defined to follow simple decentralized and Distributed Ledger Technology (DLT). 

    It is a block of unalterable records i.e once a transaction is recorded it cannot be changed or altered making it secure by design, blockchain follows write-once and append-many rule. 

    Every transaction using the blockchain is given a time stamp and a unique hash code linked to the previous transaction making it a chain of blocks (as the name suggests – Block Chain), as each single transaction is considered as a block.

    Blockchain has got three-3 major properties which helped for its widespread in the world of technology,

  • Transparency
  • Decentralization and
  • Immutability.

History of Blockchain

Satoshi Nakamoto (a group or a person who invented the Bitcoin) was the first to conceptualize the blockchain in the year 2008. 

       The concept of transactions or secured chain of blocks was first described by W.Scott Stornetta and Stuart Haber in the year 1991, later in the year 1992 Daver Bayer including Haber and Stornetta changed the design by incorporating Merkle Trees to the existing design. This change increased or improved the efficiency of the blocks in the blockchain.

     Later in the year 2008, Satoshi improved the design and turned the blockchain as a core component of Bitcoin transactions. 

   It serves as a public ledger for all the transactions of the network.

Blockchain Structure

Structure of Blockchain can be depicted as follows, blockchain has a number of blocks connected to each other where each and every block has a merkle root in its header.

   Each block holds the hash value of the previous block’s header, linking or chaining the blocks together. This ensures that a transaction of the blockchain cannot be modified or altered without altering the block that records it and all the other following blocks.

   In short, we can say that the input of one transaction is output of the other. A single transaction can create multiple outputs to be sent to multiple addresses, but each output can be used as an input only once.

  All the Outputs of the transactions are tied to the Transaction Identifiers (TXIDs), which are used as hashes of the signed transactions.

Types of Blockchain Networks

There are Four – 4 types of blockchain networks namely, private blockchain, private blockchain, hybrid blockchain and consortium blockchain.

Public Blockchain

All the public blockchains have no access restrictions, anyone with internet connection and required softwares can perform transactions and can also become a validator. This sort of environment is known as a Permissionless environment.

  As anyone can join the network some of the certain mechanisms must be incorporated in the protocol to prevent malicious gains by people on the network.

      There are many public blockchains, the most known or well known blockchains are bitcoin and ethereum blockchains.

Private Blockchain

The private blockchains are the permissioned blockchains as one cannot join this environment without any invitation by network administrators. 

   In contrast to the public blockchains, private blockchains are known as Permissioned environments. Transaction speed of Private networks is fast when compared to that of the public.

   Access of validator and participant is restricted. All the private blockchains are suited for enterprise settings, as every organization wants to enjoy all the properties without making the network accessible externally .

Consortium Blockchain

Consortium blockchain network is usually considered as the one sitting over the fence between private and public blockchain networks. It works as the combination of both the public and private networks.

     Consortium blockchain network allows only a few equally – powerful parties to function as validators unlike the open system and closed system where anyone can validate the blocks and only a single entity or person can validate the blocks respectively. 

      This network will surely be helpful where multiple organizations of the same industry require a common ground to carry out any required transactions or to share their insights with others of the same industry.

     Consortium networks are sometimes used to streamline the information among the organizations.

Hybrid Blockchain

Here comes another interesting type of blockchain which is the combination of centralized and decentralized features.

What is a Peer-to-Peer Network?

Peer-to-Peer network works on a distributed application architecture where a group of devices or nodes which act as individual devices are connected that collectively share files and store information.

    A peer-to-peer system usually allows all the sellers and buyers to perform trades without need of any intermediaries. 

    Peer-to-Peer networks are the core part of most of the cryptocurrency exchanges or any digital assets making a great portion of the Blockchain industry.

   If any of the devices gets disconnected from the network, all the other users will still have access to the blockchain and can make active transactions and if any new device is added to the network then data is propagated across the network so that everyone can access and update their own copy of ledger.

Consensus Algorithm

Consensus algorithms play a crucial role in every blockchain network as this is the mechanism through which a blockchain network reaches the consensus.

     These algorithms are responsible for maintaining the security and integrity of the distributed systems. We have many types of consensus algorithms, but the first one named Proof of Work (PoW) was designed by Satoshi Nakamoto to overcome Byzantine faults to implement bitcoin transactions.

Types of Consensus Algorithms

There are many types of consensus mechanisms as Proof of space, Proof of authority, Proof of Work and Proof of Stake. Many of the hybrid algorithms have even emerged out of these prominent algorithms.

    But the most common implementations of the algorithms are Proof of Work (PoW) and Proof of Stake (PoS), each of them have its own pros and cons while trying to balance the security with the scalability and functionality.

Proof of Work

Proof of Work is an essential part of the mining process. It is the first consensus algorithm created by Satoshi Nakamoto.

      PoW consensus algorithm makes sure that miners are able to validate a new block of transactions and add the block to the blockchain if the nodes of the network reach the consensus. This technique involves many hashing attempts, so the more computational power means the more trials occurred per second, this can be known as hash rate. 

   Miners with higher hash rates have better chances to find the next block hash or a valid solution towards the next block of the chain.

  The Proof of Work algorithm is often referred to as one of the best solutions to the problem of Byzantine Generals.

Proof of Stake

The Proof of Stake consensus algorithm is an alternative to the Proof of Work consensus algorithm which was developed in the year 2011. 

   Although both the PoW and PoS share the same goals there are few differences and particularities between them.

   Proof of Stake algorithm is usually used to increase the scalability of the network, the main aim behind the PoS algorithm is to achieve distributed consensus. 

  The Ethereum crypto blockchain is currently following the PoW algorithm but later in the coming days a Casper protocol will be released to switch from PoW to PoS inorder to increase the scalability of the network.

What is Blockchain Scalability?

The blockchain’s scalability is defined as the ability of the blockchain system to serve the increasing demand. 

   We all know that the centralized database can work with high speed and also throughput unlike any decentralized systems, as it doesn’t involve synchronization of many different nodes of the network every time the data gets modified. As a result, scalability has always been a very important topic among many developers for years.

     In concern with the scalability issues there have always been many questions regarding the performance and transactions being executed with the help of blockchain. 

  Blockchain needs to be faster, easier and cheaper for both the developers and users, which is not an easy thing to achieve while trying to maintain other defining characteristics of Blockchain.

Blockchain Fork

Blockchain is also a software which needs to be upgraded time to time by fixing issues, adding new rules and removing the old ones.

      Blockchain being an open source anyone can propose new updates to the software of the network but it is a distributed network so once the software is upgraded all the nodes of the network around the world need to communicate to implement the existing version. But all the people on the network may not agree to the upgrade and this leads to hard and soft forks.

Soft Fork

In soft fork, the upgrade is done with a backward compatible change which means that the nodes that are not updated can still interact with the nodes that have. It is usually expected that all the nodes of the network will surely get updated or upgraded over time.

Hard Fork

Hard fork functionality is a little more complicated than the soft fork, once the node is upgraded it will no longer be compatible with the old rules. This results in the blockchain to split into two networks, the one network with nodes running on the old version and the other network has nodes with the updated network.

    After performing hard fork, users can come across two different networks with two different protocols working in parallel.

Can the blockchain transactions be reverted?

   Blockchains are very robust by nature and once a transaction is noted it cannot be altered or reverted back. The transaction made through blockchain is just like setting a stone forever, unalterable.

     But there is a possibility of reverting the transactions by reaching the consensus within the network. A relatively small group of people over the network have enough power to effectively revert the transaction and this is specially for only some of the altcoins with small networks.


Blockchain technology is integrated in many different fields or areas such as Cryptocurrencies, Financial Services, Video games, Smart contracts, Domain Names, Supply chain, Crowdfunding, Insurances, Health care, Sharing economy and IoT( Internet of Things). 

Smart Contracts

One of the most important objectives of smart contracts is automated escrow (escrow usually is a contractual agreement)  and smart contracts are fully or partially executed without any human intervention. This helps in reduction of moral hazards but no feasible smart contract systems have emerged yet.

Financial Services

Many financial industries are implementing distributed ledgers for banking purposes and this is occurring faster than ever expected by the skeptics. 

    Though blockchain is considered as one of the overhyped technologies with a large number of proof of concepts, it still has many challenges with few success stories.

STOs and DSOs

Blockchain technology has given rise to a digital asset called security Token Offerings (STOs) which is also sometimes referred as Digital Security Offerings (DSOs).

     They are used to tokenize the traditional assets as company shares, real estate, art or any other individual products.

     Many companies right now are providing active services for tokenization.


Most of the cryptocurrencies use blockchain to record the transactions and as everyone knows the basic or primary use of blockchain is as a distributed ledger for cryptocurrencies.

     Both the Bitcoin and Ethereum networks work on blockchain technology.

Supply Chain

Efficient and effective supply chains are the core of many successful businesses and an interoperable supply chain ecosystem is what helps many industries to become more reliable and robust.

   Many of the companies like IBM and Walmart are running trial sessions on the usage of blockchain technology. There are even many industries trying to employ blockchains in supply chain management and supply chain logistics.

Video Games

Gaming industry is one of the biggest entertainment industries and by following a blockchain based approach all the games could become more effective in the long-run.

        Gaming industry can greatly benefit from blockchain technology, blockchain can help to decentralize the management, maintenance and management of online games.

    A blockchain game named CryptoKitties was launched in November 2017, this game also demonstrated the use of catalog game assets.

Domain Names

Blockchain use for domain names is another important advantage of blockchain. In contrast to other regular domain names, blockchain domain names can be controlled only by the owner through a private key provided.


Medical records are vital for every health care system and all the security and transparency provided by blockchain makes it an ideal platform to store the medical records.

Internet of Things (IoT)

As we all know that internet of things allows systems to get connected to each other and this number is increasing day by day. 

   Some of the people speculate that the communication between the systems or physical devices is significantly done by blockchain technology.


Blockchain technology could allow more secure automated crowdfunding where all the terms and conditions of the agreement are already defined in the network or system.

      Online crowdfunding platforms have been acting as custodian of funds and they have been laying the basement for the peer-to-peer economy for almost more than a decade.


Blockchain Technology is advantageous as it supports Decentralization, Smart contracts and also provides high Security, Speed and Efficiency. 


Though Blockchain is considered as advantageous in many industries it even has some of the disadvantages because of its decentralized nature.

  • Blockchain is not completely secure, there are some issues such as DDoS’s attacks, Cryptographic cracking, Double-spending and 51% attack.
  • The technology suffers with a high energy consumption issue.
  • Blockchain suffers from its interoperability which is considered as its major drawback.
  • Data of the blockchain is immutable i.e data modification is impossible which can be considered as the major downside of the technology.
  • Cost of implementing this technology is huge and this requires a lot of investment from any organization.