Blockchain Technology: The Ultimate Explanation

Now that you are here, let's walk you through the complex, yet fascinating concept of blockchain technology and its moving parts.

bitcoin technology

Blockchain technology has been around for more than a decade, but its potential uses are still being discovered. To understand what blockchain is and how it works, you have to understand the different pieces that makeup blockchains.

You can think of each aspect of blockchain technology as a building block for understanding the overall concept: distributed ledgers, cryptocurrency, proof of work systems, and smart contracts all contribute to the framework that makes this technology so powerful.

By exploring these different elements individually and examining them together, we'll bring you closer to grasping both how blockchain works and why it matters for businesses today.

What’s Blockchain?

Blockchain is a type of database. That's the simplest way to think about it, and it's a good place to start.

It is a distributed database that allows people to record data in an immutable (unchanging) way and then shares it with other users across a network.

By recording information on separate blocks (hence the name), each block can be updated only by consensus between multiple users on the network—meaning that once information goes into one block in the chain, it cannot be changed without also changing all of the other blocks.

This makes blockchain technology very secure because once information has been added to one block in a chain, it’s hard for anyone to change it or delete it without altering every other entry in that particular chain as well.

How Does Blockchain Work?

how blockchain works

Blockchain is a technology that allows for the decentralized creation, transfer, and storage of data. This means that instead of having a single institution responsible for managing data, blockchain distributes responsibility across a network of computers.

The data is stored in blocks, which are linked together to form a chain. Each block contains a timestamp and transaction data as well as other metadata such as the hash of the previous block.

Additionally, each block must be digitally signed by its creator before being accepted by the network. When someone wants to add new information to the blockchain, they submit a transaction to the network.

This transaction includes some sort of proof-of-work (we’ll dig deep into this later in this guide) and a fee that goes to miners who verify transactions.

Miners then verify that these transactions are valid and include them in blocks that are added to the end of their chain with other blocks from other miners.

Elements of Blockchain Technology

Now that we’ve gotten a grasp of what blockchain technology is and how it works, let’s get down to some its moving parts:


Blocks are the building blocks of blockchain technology. They are made up of sets of valid transactions that have occurred on a particular network. Every transaction that occurs between two parties takes the form of a block and is then added to the blockchain.

Each block contains:

  1. A hash pointer to the previous block
  2. The timestamp when it was created
  3. The data is stored (transactions, contracts, etc.)
  4. A hash digest of all the data in that block.
  5. A unique identifier for that block (hash)


Nodes are computers or servers that are connected to a blockchain network. They are responsible for verifying transactions and adding new blocks to the chain.

There are several different types of nodes: mining nodes (which mine new coins), full nodes (which store all of the information about transactions), and light nodes (which only store recent transactions).


Miners verify transactions by solving complex cryptographic puzzles. Once they've solved these puzzles, they can create a new block by adding it to their local copy of the blockchain (also known as the "chain"). This process is called mining.

Creating new blocks requires lots of computational power and uses significant amounts of electricity. This is why miners are incentivized with cryptocurrency rewards when they solve these difficult math problems correctly.


Proof-of-work on blockchain technology is a fancy way of saying that the network can only be used if you've completed some work. When you want to create a new block on a blockchain, you have to solve a mathematical problem that requires lots of computational power.

The more computational power you have, the better your chances are of being selected to create a block. In this way, proof-of-work is similar to a lottery system: the more tickets you buy, the higher your chance of winning.

Distributed Ledger

A distributed ledger is a new way of recording and sharing information. In the past, if you wanted to keep track of a transaction or an agreement, you'd have to keep a record yourself or trust someone else to do it for you.

But with a distributed ledger, everyone has access to the same information at the same time. Often, distributed ledgers are used in conjunction with blockchains, which are essentially just digital versions of traditional ledgers. 

You can think of them as having all the benefits of a traditional ledger—they're secure and reliable—without requiring any one person or organization to control them.

Smart Contract and How It Work on Blockchain

Smart contracts are a form of computer code that automatically execute the terms of an agreement between two or more parties. They are considered to be legally binding but do not require the presence of a third party to validate them.

The main advantage of using smart contracts is that they can reduce costs and increase efficiency in commercial transactions by removing the need for lawyers, notaries, and other middlemen who verify agreements.

Smart contracts also make it easier to enforce the terms of an agreement, as all parties involved have access to the same information. However, smart contracts are only as reliable as the people who write them and their ability to follow through on their promises.

What is Cryptocurrency/Bitcoin?


Cryptocurrencies are the most well-known application of blockchain technology and they include both Bitcoin and Ethereum. In a nutshell, cryptocurrencies are digital currencies that aren’t backed by a central bank or government.

They work on a decentralized (peer-to-peer) network where all transactions are recorded on a public ledger (the blockchain). Cryptocurrency is used as both a payment method and an investment vehicle; as such, it has many uses in our daily lives.

It can be transferred from person to person without going through an intermediary, like a bank or credit card company; this means that there’s no need for an extra fee when you send money abroad!

Bitcoin is the most popular cryptocurrency out there; it was created by an anonymous programmer named Satoshi Nakamoto back in 2009.

Since then, we have seen different types of coins being introduced into circulation but Bitcoin remains dominant despite its ups and downs due to its finite supply of 21 million coins.

Other Use Cases of Blockchain Technology

There are many other applications of blockchain technology besides cryptocurrency. In fact, the blockchain is a revolutionary new way to store and share data that has the potential to disrupt every industry imaginably.

The following are some other use cases of blockchain technology:

  • Financial Exchange: Blockchain can be used to improve the security of financial exchanges by making them more transparent and reliable. The use of smart contracts makes it possible for two parties to exchange any kind of assets without relying on a central authority.
  • Supply Chain Management: Supply chains are often complex and involve lots of different people who need to coordinate their efforts in order to move goods from one place to another.
    Using blockchain technology here allows all parties involved in the supply chain (from manufacturers all the way down to retailers) to keep track of where products are at any given time—and even how many units have been sold so far—making it easier for everyone involved in this process (i.e. everyone who needs goods shipped out) to stay informed about what's happening at any given time.
  • Voting System: Blockchain can be used in voting systems where votes are cast electronically using mobile phones or computers. This will help prevent fraud during elections while keeping voter information secure from hackers or other threats.
  • Healthcare System: Blockchain-based healthcare services will make it easier for patients’ medical records to be stored securely while still providing access to their doctors even if they live in different countries or continents by eliminating third-party intermediaries (such as insurance companies) from this process entirely!
  • Money Transfer: Blockchain technology allows for the instantaneous transfer of funds between two people, anywhere in the world, without the need for an intermediary. This means that you can send or receive money instantly and securely with no fees or other costs. It also means that your money will be more secure than ever before—the blockchain is decentralized, so there's no single point of failure where hackers can attack.

Final Thoughts

The world is changing at an incredible rate, and if you want your business or organization to stay relevant, it is essential that you understand the latest technologies.

There are many applications for blockchain, from cryptocurrency to distributed ledgers, and it is important to understand how these applications work if you want to be able to compete in today’s technological landscape.

We hope this post has been helpful in demystifying some of the jargon and buzzwords that seem to surround blockchain technology.