What Is Blockchain Technology?

If you want to learn about Bitcoin and how cryptocurrency works, the term blockchain is inevitable. It is, after all, the main procedure behind this innovative approach to currency and alternative finance. Unless you’ve been following crypto from the beginning, or you already have some sort of tech background, you probably are asking yourself, what is blockchain technology? 

Even reading through common definitions can be confusing, but this technology can completely change the way the world functions when it comes to finance. Blockchain technology offers an alternative paradigm that interrupts the most prevalent and pervasive problems with traditional financial systems today. 

Public awareness and general knowledge of blockchain tech is central to its success. Understanding how it works promotes its trustworthiness and encourages everyday people to enter into and use cryptocurrency with confidence. 

Blockchain Technology Explained

Blockchain is an unchangeable data storage protocol that functions by creating a decentralized and distributed ledger of information across however many users are participating in the network. It is a peer-2-peer (P2P) method, in which each data entry creates a “block” that is connected in a chain-like fashion to all other data points. 

It is unique because it doesn’t have a central control authority (like a bank), with each data node storing all the data from the blocks previous to it. The essential blockchain definition is that it is a decentralized and distributed process making the ledger essentially unchangeable, securing the data in a way that is almost unhackable and corruption-free. 

The primary way in which blockchain tech is being used is to create and use cryptocurrencies like Bitcoin, as it provides a secure and anonymous way to produce and store transaction histories that cannot be deleted. 

What is Blockchain Technology: Terminology and Function

Being able to define these basic terms is integral to understanding blockchain. 

P2P Network

The peer-2-peer network is the basis for the decentralization of blockchain technology. It means that the power and information that is created through the network is shared between user computers rather than being run through a central “hub” computer or main server. 

Decentralization and P2P networking prevent regulation, as there is no one culprit for any activity. In the most blockchain for dummies way of saying it, a defining feature of blockchain tech is that everyone holds a shared responsibility, making it difficult to track and persecute any one entity. 

Data Block

A data block or node in blockchain refers to a specific point of coded information. This code can be a uniquely encrypted “coin” like in the case of cryptocurrencies, or a specifically coded contract, like Ehtereum’s smart contracts. These nodes in the Ethereum chain are specifically coded to automatically “gatekeep,” activating only when specific terms are fulfilled and terminating when certain conditions are completed. 

A prime function in how blockchain works is that each data block also stores the information from all previous blocks within the chain. This creates an ultra-secure ledger of activities that cannot be altered since there is no central database to interfere with. 

PoW or Mining 

Proof of Work (PoW) is the original form of block creation and is also referred to most commonly as “mining.” It involves solving a complex mathematical equation that can only be solved by computers, and as such, translates to the proof of investing computing power into the blockchain. This is the true answer to what is  happening in a blockchain, as once one equation has been solved, a new block is implemented into the chain.

Encryption Keys

Data within the blockchain is specially encrypted, and to access the information, you must hold two encryption keys. A public encryption key verifies your identity, just like say a driver’s license would, while a private encryption key functions more like a password, something that is unique and private to only you. 

Making an Example of Bitcoin

The best blockchain example right now is Bitcoin. It was the first blockchain ever to be put in use for the purpose of creating a completely new and digital currency. Essentially, one BTC is stored in its own block and is created by a proof of work (PoW) statement, mining. 

This makes Bitcoin completely unchangeable and unique, hence adding to its value. However, like with any currency, the more it can be replicated, the less valuable it will become. Blockchain prevents this from happening, potentially creating a currency that cannot be deflated. 

What is Blockchain Technology: Advantages

Explaining blockchain technology gives way to a whole new perspective on what the future of finance can look like by using this technology. There are many advantages to blockchain tech, especially in the fields of security and the deregulation of legacy finance. 


Blockchain technology works in a way that doesn’t require a third party to manage and oversee transactions. Instead, every member of the network is in charge of their transactions without having to check in with a central authority.

Practically every blockchain technology definition includes decentralization, and it’s no surprise: it’s one of the biggest advantages of this technology. By removing a central authority, it makes every transaction faster, cheaper, and more accessible to the everyday person. 


To take part in a blockchain, all you need is a private and public key, technically overlooking the need to use personal information to verify transactions. That said, many companies using this tech still require some personal details to verify identification. 


Every piece of data on the blockchain is embedded within all blocks on the network. This data is available to everyone on the blockchain, meaning that a change to one block is immediately identified to all participants in the blockchain, preventing fraudulent practices and corruption of data. 


It’s next to impossible for a hacker to breach a blockchain as large as Bitcoin. Since every block contains the entirety of a blockchain’s data, any disturbances or changes in the block code are immediately identified by the other blocks. 

If you still wonder how blockchain technology is explained  when it comes to a cyberattack, understand that in order to hack a blockchain, you must alter every single block simultaneously in order to prevent detection, which is essentially impossible. 

Despite blockchains being hard to hack, systems around the blockchain may be vulnerable. For instance, a cryptocurrency is safe on its own, but a crypto exchange might not be.

51% Attack on the Blockchain Explained

There is one example of a way a blockchain could potentially become compromised. Since blockchains are decentralized with no top-down decision-maker, the majority of members on the network must approve PoWs or any other changes to the chain before they are implemented. Theoretically, if a hacker could gain control of the majority (51%) of the blockchain, they could then make major decisions for the network and compromise its integrity. 

How to Use Blockchain

Blockchain tech has the potential to be used in so many different ways to improve our daily lives. Here are just a few ideas of where we could implement blockchain with great results:

  • Stronger IoT (Internet of Things) security using distribution, encryption, and traceability
  • Transparent, tamper-proof voting systems
  • Smart contracts
  • Streamlined communication along and management of supply chains
  • Distributed storage
  • Decentralized currency (like Bitcoin)
  • Control of digital identities

What Is Blockchain Technology and How Does it Work: Conclusion

Blockchain technology has the potential to solve so many modern problems, especially in the financial industry. While it can be difficult to understand and is still in its beginning years of being developed, the likelihood that it will be an immense presence in our lives from now on is evident. 

As it gains not only value and usability but also trustworthiness, blockchain tech is gaining the ability to truly interrupt legacy institutions that perhaps no longer serve the best interest of the everyday person. Innovation is always volatile, but blockchain tech gives users a chance to even the playing field and make fair financial systems. 

People Also Ask

Blockchain is essentially an alternate way of storing data. It’s a digital ledger that stores data across an interconnected network of nodes called blocks. Each block contains all the data available on the blockchain. It also holds the entire transaction history of the network.

Users of the blockchain interact with it using encrypted passwords called keys. These keys verify the user’s identity. Whenever new data is to enter the blockchain, the majority of the network needs to approve of it. This data is verified using proof of work or proof of stake.

In the simplest terms, blockchain is a system of storing information that avoids putting all data in a single hub. Instead, blockchain networks create copies of a data piece and store it across different storages called blocks.

All of these blocks hold the same information. If one block gets new information, all the other blocks are updated to have it, too. Everyone using the blockchain can look at this data and its transfer history. In addition, the data is permanent, meaning you can (almost) never delete it.

The most famous example of blockchain technology is Bitcoin, the first cryptocurrency. This is the first time the world has seen the blockchain put into practice. Most cryptocurrencies work on blockchain networks, also.

Ethereum, however,  is particularly attractive to blockchain enthusiasts: Its blockchain is well-known for making it easy to create decentralized apps (or dapps). In particular, it’s a great platform for making smart contracts (self-executing, automatic contracts) which removes the need for financial lawyers and other middlemen that make transactions so expensive in traditional banking agreements.

Blockchain has a wide variety of uses, and we’re still exploring what it can do. Perhaps the most well-known application of the blockchain is cryptocurrency. Bitcoin, the first-ever cryptocurrency, is the first real-life application of the blockchain model.

Beyond cryptocurrency, here are a few uses for blockchain:

  • IoT security
  • Smart contracts
  • Supply chain management
  • Distributed storage
  • Control of digital identities

Knowing what blockchain technology is and what its being used for can only help to aid an inevitable transition into a cryptocurrency-fueled modern age.