What is blockchain and how does it work?

This post will explain the features, mechanisms, and applications of Blockchain.


  • Blockchain is a technology called "distributed ledger technology"
  • Blockchain is less likely to be hacked and has lower transfer costs

Blockchain is a technology that was initially developed to run Bitcoin.

Today, it is not only the basis for other virtual currencies but has also been introduced into various fields such as finance, real estate, and gaming.

However, many of you may be wondering, "Blockchain sounds complicated, so I don't understand it.

"Reading this post will help you gather information on future Cryptocurrency investments and blockchain-related topics!"

What is blockchain technology?

Blockchain is one of the technologies called "distributed ledger technology" and is mainly used to manage the transaction records of virtual currencies on the Internet.

For example, let's say the following transaction occurs.

  • Mr. A sends 3 BTC to Mr. B
  • Mr. B sends 2 BTC to Mr. C
  • Mr. C sends 1 BTC to Mr. A

※BTC refers to the unit of bitcoin.

The transaction history of these virtual currencies is recorded in the Blockchain at regular intervals.

When the history of transactions is registered, it is compiled into "blocks." These blocks are called "blockchains" because they are connected "like a chain" from the present to the past.

The Blockchain was created around 2008 and was invented by a man called Satoshi Nakamoto.

Satoshi Nakamoto created the Blockchain to create a system that would allow individuals to trade money without going through financial institutions.

"Satoshi Nakamoto's name sounds Japanese, but we don't know anything about his nationality, gender, age, or other details!"

Three characteristics of Blockchain

Although it is explained in complicated terms, the three features can be summarized.

  • There is no entity to manage.
  • Transaction records are difficult to alter
  • The system does not stop

1) No entity to manage

Blockchain does not have an administrator.

Usually, the transaction history between individuals is recorded by a central administrator, and transactions using ATMs or QR payments, for example, are managed by service providers.

However, in the case of Blockchain, it is not managed by a specific government or company but by an unspecified number of blockchain network participants.

In other words, Blockchain is a decentralized system that eliminates the need for a centralized administrator.

"So Blockchain is run by people all over the world working together!"

2) Transaction records are difficult to alter

The transaction history recorded in a blockchain is challenging to alter.

This is because a blockchain has multiple administrators who hold the same transaction data.

Therefore, if one of the participants tries to alter the transaction history, the other participants will discover the fraud.

If a fraudulent transaction history were to be recorded on the Blockchain, it would be necessary to hack into the computers of all the blockchain network participants around the world one by one and falsify the transaction history held by each of them.

However, since it is impractical to hack into an unspecified number of computers, the design of the Blockchain itself helps prevent tampering.

3) The system never stops

Blockchains are characterized by the fact that the system does not stop, making it difficult to have a situation where the transaction history cannot be recorded.

Since the Blockchain is powered by network participants worldwide, even if some participants' computers go down, the entire Blockchain will not be affected.

In the case of conventional financial institutions and companies, the entire system will stop if the server goes down.

On the other hand, Blockchain disperses the network participants, so the risk of such system downtime can be spread.

"A system that keeps running without stopping, like a blockchain, is called "zero downtime."

What is the blockchain mechanism?

Various transaction details are recorded on the Blockchain, but the recording of transactions is based on the cooperation of multiple network participants.

So why do they cooperate with the Blockchain?

The reason is that they can earn rewards for cooperating with the Blockchain's transaction records.

Before the data on the Blockchain can be recorded, it must be verified that the transaction is correct.

To prove the correctness of the transactions, a massive amount of computational processing using special computers is required.

Then, only the transactions approved as "correct" are recorded in the Blockchain, and you receive a reward for helping to record them.

The rewards are different for each Blockchain: Bitcoin for the Bitcoin blockchain, Ethereum for the Ethereum blockchain.

The process of verifying and approving the correctness of blockchain transactions, recording them, and earning rewards is called "mining," The person who does this is called a "miner."

"In other words, if you use your computer to help run the Blockchain (Mining), you get Cryptocurrency as a reward!"

Advantages and disadvantages

Now that you know about the features of Blockchain and Mining, Blockchain has not only its advantages but also its disadvantages.

The following points are listed as advantages and disadvantages.


  1. Hard to be hacked
  2. Low cost of remittance


  1. Transaction speed is slow
  2. If you lose your private key, you will not use your wallet

Advantages 1. Hard to be hacked

Blockchain has the merit of being hard to be hacked, so the risk of having your assets stolen by hackers is low.

Since Blockchain eliminates the need for intermediaries and connects users directly on the network, there is no need for someone else to take care of customers' assets on their behalf, and transactions can be conducted P2P (person-to-person).

Usually, when Mr. A wants to send money to Mr. B, he uses a bank ATM or QR payment system, which requires a financial institution or company as an intermediary.

The financial institution or company that acts as the intermediary takes custody of the customer's assets to execute the transaction between the customers.

If the server that manages the assets is hacked, there is a risk that the assets will be leaked.

On the other hand, Blockchain is a system that allows users to exchange money directly with each other, so there is no need for a centralized server to manage customer assets in the first place.

"With blockchains, you can limit the risk of hackers stealing your assets!

The past Cryptocurrency hacking incidents weren't about blockchains. And they were about Cryptocurrency exchanges being hacked!"

Advantages 2. Low cost of remittance

Blockchain is less costly than traditional means of money transfer.

According to Investopedia, a blockchain information website, the median transaction fees for bitcoin are as follows (December 31, 2021)

 Pricing TierTaker Fee Maker Fee
Under $10,0000.50% 0.50% 
$10,000 – $50,0000.35%0.35% 
$50,000 – $100,0000.25%0.15%
$100,000 — $1 Million0.20%0.10%
*Blockchain fees can be higher than these fees because users can arbitrarily add to them to speed up the approval of transactions.

On the other hand, traditional financial institutions have withdrawal, deposit, and transfer fees.

In the case of international money transfers, the fees are even higher.

There is a high possibility that remittances on the Blockchain will become an alternative to traditional international remittances.

Disadvantages 1. Transaction speed is slow.

One of the disadvantages of Blockchain is its slow transaction speed.

For example, in the case of Bitcoin, it takes about 10 minutes to process a transaction.

It is not practical to use it as a means of payment in real life.

Credit cards and QR payments are probably more suitable as a means of real-time payment.

However, the problem of delayed remittance in Blockchain has been discussed before.

Methods such as compressing block and transaction data or processing transactions outside the Blockchain are being considered to improve the situation.

As a result, there is a possibility that a quick payment method will eventually appear on the Blockchain.

Disadvantages 2. If you lose your private key, you will not use your wallet

The second disadvantage of Blockchain is the possibility of forgetting your private key.

To use a blockchain, you need a wallet and a private key.

A wallet is a wallet for storing Cryptocurrency, which can be created for free on the Internet.

A wallet is a wallet where you store your Cryptocurrency.

The private key is displayed when you create a wallet, so you have to write it down, so you don't forget it, but if you lose the private key, you will not be able to use the wallet.

"If you lose your private key, you will not use your wallet. Furthermore, please note that private keys cannot be reissued."

There are two main types of blockchains

There are two main types of blockchains: public chains and private chains.

The main difference between the two is whether or not the scope of participation in the network is limited.

The details of each are shown in the table below.

Public Chain Private Chain
Central administratorNone  Yes 
Network participantsAnyone can joinOnly those involved
Transaction approval speedSlow Fast

Public chains have the same characteristics as those of blockchains described so far, but private chains are designed to be used in "organizations" such as companies.

The approval process in a private chain is centralized because it involves only those involved, but the approval speed is faster.

Some private chains are "consortium" types, in which multiple organizations use the identical Blockchain.

"In the case of private chains used by companies, they record their transactions, so they don't need the cooperation of outside miners."

Blockchain Use Cases

Here we will introduce two services that use Blockchain.

The first one is "NFT."

NFT (Non-Fungible Token) is a token on the Blockchain that records digital data rights such as images, music, and videos.

Because each token is uniquely identifiable, NFTs differ from blockchain cryptocurrencies, such as Bitcoin.

The second blockchain application case is NEXCHAIN by the Consortium for Promotion of Inter-Company Information Collaboration.

NEXCHAIN is a consortium-type "private chain" that can be used for information exchange among multiple companies and many blue-chip companies in Japan, such as NTT DoCoMo, Sekisui House, Sompo Japan Insurance, and Tokyo Gas, are members.

One of the services using NEXCHAIN is a "one-stop service for moving procedures.

Usually, there are many things to do when moving, such as signing a real estate contract, applying to a moving company, and signing contracts for electricity, gas, water, and insurance.

That's why we are considering a system that uses Blockchain to share customer information among various companies to reduce the time and effort required for contracting procedures.

With NEXCHAIN, customers can complete multiple contracts in a single procedure.

"As of November 22, 2021, the timing of this service is still under consideration!"


I explained "blockchain," the technology based on virtual currencies, in this post.

Finally, I will summarize the three most essential points in this post.

  • Blockchain is a technology called "distributed ledger technology
  • Blockchain is less likely to be hacked and has lower transfer costs

In addition to Cryptocurrency, Blockchain is expected to be used in all sorts of other fields, including gaming, real estate, and finance.

If Blockchain becomes more widespread in the future, there may be even more opportunities to use virtual currencies.

Therefore, make sure you have a good knowledge of blockchain technology to keep up with the information.