How does Blockchain technology work?
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Blockchain technology is one of the most revolutionary technological innovations of recent years. It emerged in 2008 as the engine behind Bitcoin, the first cryptocurrency, and has since been adapted for multiple applications beyond finance.
Blockchain enables the creation of a transparent, decentralised and secure digital system for the exchange of data or assets, without the need for intermediaries.
Main components of blockchain technology
To understand how it works, it is important to know its structure. A blockchain is literally a sequence of connected blocks. Each block contains three main components:
- Data: This varies according to the type of blockchain. In the case of cryptocurrencies, the block data includes the transactions made (who sent what amount to whom).
- Block hash: The hash is an alphanumeric code generated from the block data. It is unique and serves as a “fingerprint” of the block. If any data in the block is changed, the hash will also change.
- Previous block hash: This is the element that connects the blocks together. Each block contains the hash of the previous block, forming a chain of interdependent blocks. This link ensures that any alteration in one block would affect all subsequent blocks, making the chain virtually immutable.
For a block to be added to the chain, it must be validated through a consensus process among the nodes of the network. In a decentralised blockchain, nodes are computers that run the blockchain software and participate in the validation and maintenance of the chain.
One of the most popular consensus mechanisms is the Proof of Work (PoW). This process is known as “mining” and consists of solving a challenge that requires great computational capacity: generating the hash of a new block by meeting specific criteria. Miners compete to be the first to solve it, and the successful miner adds the block to the chain and receives a reward, usually in the form of cryptocurrencies.
However, there are other consensus mechanisms such as Proof of Stake (PoS), where validators are selected based on the amount of cryptocurrencies they have in “play” or on deposit, rather than on computing power. This mechanism, which does not require a large computational capacity, managed to reduce more than 99% of the network’s energy consumption.
Fundamental principles of blockchain
Decentralisation and security
One of the fundamental principles of blockchain is its decentralization. Unlike traditional systems, where a central authority (such as a bank or a company) controls the database, in the blockchain all nodes in the network have an identical copy of the blockchain. This eliminates the need for intermediaries and avoids the possibility that an entity can falsify information.
Moreover, the system is highly secure due to its structure. Because the blocks are interconnected by hashes, any attempt to modify one block would require modifying all subsequent blocks as well. In addition, consensus validation means that a hack would have to control most of the nodes in the network, which in large networks like Bitcoin is almost impossible.
Transparency and immutability
One of the great advantages of blockchain is transparency. All transactions recorded in the chain are visible to anyone participating in the network. Although the identity of the participants can be kept anonymous (identity on the blockchain is not linked to identity in the real world), the transactions themselves are public. This makes the technology ideal for applications where trust and traceability are essential, such as supply chain, digital voting and smart contracts.
Moreover, once a block is added to the chain, it is virtually impossible to modify or delete it, making the blockchain an immutable system. This increases confidence in the integrity of the data and prevents fraud or manipulation.
Applications beyond cryptocurrencies
Although blockchain is primarily known for being the technology behind Bitcoin and other cryptocurrencies, its potential goes far beyond that. It has been used in many sectors, from healthcare to logistics, thanks to its ability to improve transparency and security.
For example, at the supply chain level, companies can track the origin and route of their products in real time, ensuring that there is no information tampering.
Smart contracts allow the execution of any business logic in a decentralised manner, such as the cases mentioned above (which are implemented through these smart contracts) and many others.
Blockchain technology is the fundamental basis of NFTs (non-fungible tokens), offering authenticity, transparency and security to digital transactions. Thanks to blockchain, each NFT has a unique, immutable and verifiable record of its history, guaranteeing its authenticity and exclusive ownership, which is essential in the world of digital art, collectibles and other virtual assets.
Unlike traditional digital files, which can be copied without limit, NFTs have a unique digital identity thanks to the blockchain. This allows creators and artists to ensure that their work is unique and to protect their copyright, while receiving automatic royalties each time the work is resold.
At TU Gallery, Telefónica’s NFT marketplace, the Polygon blockchain has been chosen as the first climate-positive blockchain, as they are committed to reducing the carbon footprint of their network technology. In addition, the Gallery marketplace offers NFT collectibles with tangible utilities and integrates web3 and traditional technologies, allowing off-chain collections (outside the blockchain) to be designed through an intuitive interface, without the need for programming.
Creators can create, preview and publish their collections using the ERC-721 standard. During the creation process, the data remains private until the collection is published on the blockchain. Gallery has a wide variety of NFTs, including art, literature, entertainment, music, metaverse projects and social causes, maximising the value of each collection for its users.
Publicista apasionado por la innovación, la tecnología y el deporte. En búsqueda constante de intentar dejar un mundo mejor con valores e igualdad entre las personas. Actualmente trabajo en el equipo de Product Marketing de CDO en Telefónica Innovación Digital.
