What Is Blockchain? – A Step-by-Step Guide

What Is Blockchain? - A Step-by-Step Guide

We live in a world where you can store your money online, and you do not need a bank. You can send money without any fee, without permission, and no government can manipulate it. In other words, you are your own bank.

We have a decade of hearing about blockchain technology, and there are bright opinions about its future and some skepticism. 

What Is Blockchain?

Blockchain is a ledger that distributes and records digital data in a cluster of nodes. The difference between the traditional ledger and this one is the owner and who verifies the transaction. It is like the internet, it has no owner, and everyone can access it. 

Each transaction or data is stored in a block. The information inside this block is dependent and linked with the information in a previous block. These relations form a chain of blocks, which forms the word Blockchain. 

As mysterious as blockchain is for some, for others is growing technology adoption. It does not copy data. Instead, it records them in a time-stamped immutable series. It is managed by a cluster of computers, has no central authority, and, by nature, is very transparent. 

Its three fundamental characteristics are: immutable, distributed, and transparent.


An immutable digital ledger means that the blockchain is unchangeable. If a transaction is recorded, it can not be changed. In addition, this implies it is reliable, and you can always trust it for its accuracy. 


Distributed digital ledger means that the transactions and data records are stored in multiple places on a cluster of computers. In addition, this means the blockchain is always protected from network attacks. 


People need to understand the difference between privacy and transparency. Blockchain is very safe as it gives you privacy meaning that your identity is hidden. Even though your identity is safe, you can still see every transaction that is completed. As such, it forces honesty and accountability especially in big companies.

How Did Blockchain Start?

We cannot deny that this technology is a genius invention, but who invented it?

The idea of blockchain is familiar and has been around for decades now. In 1982, Cryptographer David Chaum proposed the idea of a blockchain-like protocol. Later on, Dave Beyer, Stuart Haber, and Scott Storneta added elements to this idea. 

However, the pseudonym Satoshi Nakamoto (a person or a group of people) invented and implemented the first blockchain. It happened right after the establishment of the first digital currency, Bitcoin. The first person who used it to send Bitcoins was Satoshi Nakamoto itself. In 2004 he sent ten Bitcoins to Hal Finney, the person who built the first reusable proof-of-work system. 

How Does Blockchain Work?

Everyone can access the information that is posted on the internet. The same case is with blockchain. Everyone can see the statement of transactions that have ever happened. 

The information in the blockchain is shared and public; its data has no location, and is easily verified. This kind of network has a lot of benefits. One is the high security, as no hacker can corrupt your data. 

The data in the blockchain is encrypted and collected in a block, then the block is verified, time-stamped, and added to the previous block. It creates a non-ending chain. A cryptographic key protects the blocks that you own. If you give away this key to someone else, it means you are transferring everything you own to that person. 

Blockchain VS. Traditional Banks

Banks are responsible for recording transactions and preventing fraud in today’s financial system. Banks offer services to meet our financial needs in exchange for a fee. 

In contrast, blocks you own are untouchable from others if they do not hold the appropriate key. This way, blockchain creates trust and identity, making transactions more quick and accurate. It does not include intermediaries. It allows individuals, machines, and organizations to interact with each other independently. 

Traditional VS. Blockchain Transactions.

Traditional VS. Blockchain Transactions. Source: SVG

If two people want to exchange any cryptocurrency with each other, they do this through blockchain without paying any fee. But if they do this through banks, they must pay a significant fee for the transaction.  


As mentioned earlier, blockchain has three strong characteristics: immutable, transparent, and distributed. Below are some other advantages worth mentioning.

  • Safe

Transactions are safe and immutable, therefore, you do need to know the counterparties. The transaction is processed only when both parties meet the conditions, so you do not need to trust the counterparty.

  • Lower Fees

Blockchain uses lower fees because no third party is involved in the transactions. Some systems send back some payments to the miners and stakers. 

  • Peer-To-Peer (P2P)

Blockchain carries cryptocurrencies from one part to another, directly and anywhere in the world. It has a peer-to-peer system without intermediaries, banks, or handling fees.


As there are many advantages, there are also some concerns about the technology. We mentioned some of them below. 

  • Environmental Impact

To operate within the blockchain, you need computers, and to use computers, you need electricity. Although, compared to the traditional banking system, blockchain has a lower impact on the environment. It is on the right track for the environment, but there are needs that need to be balanced. 

  • Personal Responsibility

Being your own bank is its biggest advantage but also its weakness. When you invest in the blockchain, you control your money, but losing your password means losing access to your wallets. There is no way to recover it, and your money is lost forever. 

  • Scalability 

Blockchain is seen as more efficient than traditional banking systems as it is decentralized. But decentralization comes at the cost of scalability in public blockchains. Increasing these networks to global capacity can lead to speed inefficiencies.

The Future of Blockchain

Blockchain is here to stay, real-world applications of this technology include faster payments and smart contracts. Gradually companies are starting to realize how blockchain is better for them. Every day they are committing more resources, money, and time. 

Many see this topic as complex, and it might remain so even in the future, but it does not have to be a scary topic. Brush off any misconception and start to learn more about this technology, how it will change the world, and change the way we see currencies. 

We expect that Blockchain might revolutionize the financial world. The effects can be seen in the way stock exchanges work, loans are bundled, and insurance contracts. It could replace banks and eliminate bank accounts, and all services the bank offers., as such forcing them to go bankrupt.  

Banks offer services for a fee, but this technology does not. Hence, bankers will become mere advisors, not gatekeepers of money.  Stockbrokers will no longer be able to earn commissions, and the buy-and-sell spread will disappear. 


  • Blockchain technology allows people to store their money online and send money without fees.
  • It is a time-stamped, immutable series of transactions managed by a cluster of computers.
  • It provides privacy and transparency, as the user’s identity is hidden, but the transactions can still be seen. 
  • Blockchain creates a non-ending chain of data protected by a cryptographic key. 
  • There are no transaction fees even though this technology provides faster and more accurate transactions.
  • Blockchain does not include intermediaries, allowing individuals, machines, and organizations to interact independently. 
  • The future of blockchain is bright. It might replace banks and their services, stock exchanges, loans, and insurance. 

About Dren Hima

Being exposed to the crypto industry for the last few years has given me valuable experience with market analyses (technical and fundamental) as well as blockchain technology in general. As the content editor and a market analyst of Walletor, I strive to share the latest developments of the crypto industry, while also providing a unique educational experience for all Crypto & FinTech enthusiasts.