In this article we will talk about “What is blockchain technology in simple words and how does it work?”. In the simplest explanation, a Blockchain is an encrypted and distributed revision of public records that can be used as a public ledger for time-stamped transactions made in any kind of asset.

Talking more specifically, Blockchain Technology is a set of technologies that are used to automate business processes with low cost and reliability. This technology started out as a tool for Bitcoin.

However, it has since been applied to many other domains. You can say that this technology has received increased popularity because the government doesn’t need to rely on third-party intervention or making long waiting times for transactions to complete. Moreover, blockchain technology was used by the developers to solve problems that no other technology could.

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What is Blockchain Technology | Definition of Blockchain Technology

You may find several definitions of Blockchain Technology around the web. But our definition of Blockchain Technology is different, and our definition is:

“The complete decentralized digital ledger that keeps track of all transactions securely, which is shared and kept across all computers in the network, without any central authority.”

What is Blockchain Technology in simple words and How does it work

How does Blockchain Technology work?

As we said above, a blockchain is a public ledger that records all the transactions made. This ledger is distributed across multiple computers in the network and does not hold information about individuals but only about the things being transacted.

These records are called blocks, or every block has a timestamp and transaction information. Once a block is validated by miners (people with LOTS of computing power), it gets added to the blockchain and becomes immutable. This process is what gives blockchain technology its value and makes it such an important technology.

These blocks also have a cryptographic hash of the previous block that links them in a chain, meaning that it cannot be altered retroactively. For example, if block B1 is modified, adding a new transaction in the middle of transaction A1 and A2 will make it look as if the transactions had never happened at all.

Here is the best part about this technology: Once a block becomes a part of the blockchain, it is made to be permanent and unalterable. This gives encryption and data validation technologies enough power to make future hacking almost impossible.

How are Blockchain Technology and Bitcoin related?

When we speak of blockchain technology, we often refer to it as the technology behind cryptocurrencies like bitcoin. But in reality, Bitcoin is just one application of blockchain technology. In fact, since the invention of Bitcoin as a decentralized cryptocurrency, other industry sectors have also been using it for their own uses.

Pros and Cons of Blockchain Technology

A blockchain-based application facilitates the use of a digital ledger system for recording transactions and tracking data in a reliable and secure way. The emergence of such technology has given rise to an array of businesses that utilize it in various ways.

Pros or Advantages of Blockchain Technology

There are numerous benefits to using Blockchain technology, which include:


An open ledger makes it easy for all parties involved in the transaction to view its contents without any form of exaggeration. Transactions are not tampered and recorded in an official, verifiable manner. This makes it difficult for hackers to perpetrate fraud or forge fake transactions.


Massive processing power is not required to make a transaction, especially in cases where multiple users are involved and cross-border remittances are involved. Blockchain technology has the ability to process and complete transactions at lightning speed, due to the way it functions as a decentralized system with no centralized authority controlling its database.


Code-based transactions are protected from tampering and from falsification, making them highly reliable. Records are protected from being altered or manipulated, making it difficult for identity theft to happen through the use of a mobile device or computer. The absence of an intermediary means that the complete transaction history is traceable and goes back to the same time and date in which it was recorded.


A time stamp on each transaction recording is used as a timestamp. The system enables entities to track when a certain transaction has actually taken place, as opposed to simply recording it or leaving a record of it. This is especially important in cases where transactions are completed digitally. When this happens, the authenticity of the information is important because falsified data will be unable to be traced back to the original source.


The blockchain enables a decentralized system to be used, which eliminates the need to have trust in various entities or intermediaries. This also means that there is no need for any form of network infrastructure such as servers, routers and switches. This reduces costs and makes it possible for Blockchain to function at greater speeds than other technologies.

The elimination of fees and middlemen

The elimination of fees for transactions and the absence of an intermediary mean that Blockchain technology can eliminate the cost associated with third-party transactional systems. This means that the use of Blockchain technology saves companies making payments as well as entities using it, money on transactional fees.


There is no central authority that controls blockchain technology, meaning that there is no person or entity who can “shut it down”. In fact, a blockchain network can keep running even if all of its users work against each other.

Total Access to Data

All parties involved in the transaction are given access to the contents of the ledger. It is passed around from one node to another for confirmation and validation purposes. This ensures transparency about all transactions involving a blockchain-based application.


The format of Blockchain designs in such a way that ensures that a transaction can be traced back to its origin. This makes it possible for the system to function as a decentralized network with an auditable history.

Faster processing

Unnecessary transaction processing is not required when using blockchain technology. In a centralized system, transactions are processed by a single entity or several intermediaries which take up time and are prone to human errors. In contrast, Blockchain technology transfers data using a decentralized network that eliminates the need for such processing.

Cons or Disadvantages of Blockchain Technology

Blockchain technology does have some disadvantages, which include:

Energy consumption

Energy is an essential resource for blockchain technology. It consumes a lot of electricity to run the hardware required to complete transactions and send data to other stakeholders. The concept of miners also requires a lot of energy, especially in cases where multiple nodes are involved in the network.

Maintenance cost

Due to the absence of intermediaries, Blockchain technology requires a whole lot more maintenance than other systems. The system is decentralized, making it difficult to maintain in an effective and efficient way. All nodes have to be run by tech experts, who monitor the whole network and ensure that it is working at its full potential with no vulnerabilities.

Unavoidable security flaw

The system suffers from security flaws that are inherent to a decentralized network, including hacking, database crashes and network failures. The absence of an intermediary means that there is no single point of failure that can be exploited by hackers. If the system is hacked and a hacker obtains access to the database containing sensitive data, all copies of the data will become vulnerable to manipulation.

Incomplete data

Data within the blockchain cannot be altered without being detected and making it difficult for falsified information to enter into the chain. The system has no way of recording financial transactions or other sensitive data that cannot be trusted or used for fraudulent purposes.

Uncertain regulatory status

While the system has been used to make payments, it remains uncertain how governments will respond to the use of Blockchain technology. As a result, it is unclear how governments will regulate the use of the Blockchain ledger and whether they will allow companies to use it or not.

Digital Signature Verification

All the transactions made on the blockchain network requires to be signed using a public-private cryptography scheme called Elliptic Curve Digital Signature Algorithm (ECDSA) for verification purposes. This might become a hindrance in the future, especially if the technology is adopted by more countries across the world.

Uses of Blockchain Technology | How to use Blockchain Technology?

Blockchain technology can be used in very different fields, ranging from banking and finance to the Internet of Things (IoT) and the production of cryptocurrency. Here are the most common ways in which it is being used right now:


Blockchain technology has been used for cryptocurrencies since its introduction to the world by Bitcoin. This uses cryptography to secure transactions between users, platforms and nodes within a network. It also uses a network of miners to confirm transactions and complete the blockchain once transactions are completed.

Banking and finance

The ability to confirm transactions quickly and efficiently has made Blockchain technology a favorite among financial entities that use it for cross-border payments, asset trading, insurance contracts, identity management and record keeping for IoT platforms. It has created a trust-less system with no third party involvement.

Financial futures and digitalization

IoT platforms, especially in the banking and finance industries, are now using Blockchain technology for financial trading and fintech innovations. It can be used to digitize contracts, accounts, loans and other financial products for various stakeholders within an enterprise.

Supply chain logistics

Blockchain technology can be used to manage supply chains within the logistics industry, especially in the area of global trade and cross-border movements of goods. This helps to ensure that each part of the supply chain is accounted for and verified to ensure that each item is exactly where it should be at all times.

Internet of Things, IoT

IoT is a collaborative community with enormous potential in the future to provide real-time data among stakeholders and other connected devices in industrial settings. The technology can be used to create IoT platforms as well as complete device management systems through leveraging a network of connected devices without the need for centralized processors or other intermediaries.


The applications of Blockchain technology in the field of cryptography allow for data to be stored, managed and processed without the involvement of a third party. This allows for secure and consistent storage of information that cannot be modified once it has been sent to other parties.

Identity management

Blockchain technology can be used to manage identity documents, ensuring that their digital nature is secured at all times. It is also a platform for users to create and update their personal data in the form of a decentralized and distributed ledger without the need for third-party involvement or involvement of central authorities.

Supply chain management

Blockchain technology can be used to manage supply chains within organizations. This uses codes to ensure that each item is accounted for and verified at all times, ensuring that they are exactly where they are supposed to be, just as they’re supposed to be there.

Smart contracts

Smart contracts are used to store information on the blockchain that is self-executing and self-enforcing. The system relies on an open network of nodes, where all parts of the network have access to the same data and can verify it as true before releasing funds or performing other tasks.

Real estate

Blockchain technology is also being used to fund real estate, starting with lending and real estate transactions. This will ensure that property holdings are documented accurately in the form of a public ledger that is shared with all parties involved. As a result, properties are easier to track, verify and secure. This can also be used to issue bonds or other financial instruments within this sector.

Insurance and crowdfunding

Insurance is another area where Blockchain technology can be used to ensure that all processes are secure, including the records of claims. Additionally, it can be used to ensure accurate and timely payments of policies, claims and settlements within the insurance industry.

Digital rights management and security

In addition to the use of Blockchain technology for financial platforms, it can also be used for digital rights management in areas such as music and video streaming platforms as well as legislation for copyright protection for digital content. It also works to ensure that data is properly secured.

Healthcare, medical records and drug research

Blockchain technology has many advantages in the domain of drug research, medical records and healthcare in general. The decentralized nature of blockchain allows for efficient and secure storage of information without the need for a central computer or authority. This type of system can be used to manage medications, patient information and treatment history as well as other vital health-related information.

Micro-leasing and sharing economy

The decentralized nature of Blockchain technology makes it possible to use it for micro-leasing and sharing economy platforms. This means that, rather than being a centralized system run by a central authority, the platform becomes completely decentralized with no central point of control or responsibility. It eliminates the risk of fraud and abuse while also ensuring that any surrounding third party controls are eliminated.

Energy exchange platforms

Blockchain technology can improve the efficiency and security of energy exchange platforms. It can be used to manage energy engineering and distribution, including tracking, measuring and verifying the generation, consumption and storage of renewable energy. It also allows for a more secure system than traditional systems by eliminating the intrusion of third parties that may try to intercept data or tamper with systems.

Types of Blockchain

There are two types of Blockchain:

  • Private Blockchains
  • Public Blockchains

Private blockchains

Private blockchains are more secure than public blockchains and are more suitable for larger organizations that want to keep transactions with multiple parties confidential. Private blockchains also require permission from all members involved before they can execute transactions or create new blocks on the network.

Public blockchains

Public blockchains are more flexible, but also lack security since anyone with internet access can view or modify information stored within these networks. Because of this, public blockchain networks are best used for cases where transparency is a priority.

Blockchain can also be classified into another two types.

Permissioned Blockchain Networks

Permissioned blockchains are managed privately and only selected users can access the network, making it ideal for large organizations that want to use blockchain but may lack a centralized authority or management infrastructure.

This form of Blockchain is controlled by a trusted central authority that may be managed by an individual, company or government.

Consortium Blockchains

Unlike private blockchains that only allow for internal connections within an organization, consortium blockchains allow for much more centralized control over the network and over its participants. In some instances, all members of the network are known by the developers, who can also add or remove members as necessary.

History of Blockchain Technology

The origins of Blockchain technology predate modern banking and can be traced back to the invention of the blockchain ledger by Satoshi Nakamoto.

This is the technology that allows members of a network to “distribute and share digital information through a secure peer-to-peer network,” according to an academic paper published by researchers at the University of Essex.

The development of Blockchain technology was first made public in November 2008 when Nakamoto published his white paper titled “Bitcoin: A Peer to Peer Electronic Cash System.” This paper outlined the mechanics behind the building of a decentralized digital cash system that operates without any central authority.

This system solves the problem of double spending through a peer-to-peer system that is not connected to a central authority. Nakamoto went on to publish other papers that helped explain how the peer-to-peer network works.

To many, it seemed as though Blockchain technology could be used for many of the same uses as current payments systems, such as transferring money and managing transactions. The technology was seen as an improvement over traditional banking and financial transactions, such as those handled by banks and monetary authorities.

For those unfamiliar with the term “blockchain” and its origins, it is a type of data structure that records digital information or events in a linear and sequential manner. Each entry is generally labeled with a timestamp and link to the previous entries.

These sequences are known as blocks and are linked together through cryptography to maintain the integrity of the system. Blockchain data is also decentralized, meaning users cannot be hacked or manipulated from within the network.

What is the future of Blockchain Technology?

According to many analysts, the future of Blockchain technology is very bright. Many analysts predict that it will be one of the most disruptive technologies since the internet itself.

The adoption of decentralized ledger systems will result in an increase in efficiency and security as well as a decrease in costs of products and services that rely on central authorities. This will likely lead to widespread adoption among companies and governments around the world.

As blockchain technology is still relatively new, there are many legal and regulatory issues that remain. The technology is often misunderstood and misused. Concerns surrounding security, privacy and how information will be stored have not yet been resolved.

Because of this, Blockchain has been slow in making its way into mainstream public use. However, it is expected that these concerns will be addressed in time, allowing for widespread adoption of the technology.

Implications of Blockchain Technology

Blockchain technology is already making its mark in the financial and banking industries. Banks around the world are experimenting with this emerging technology to bring efficiency, transparency and security to their operations.

One of the largest banks in the world is even looking at ways of using Blockchain technology to improve settlement processes that are currently being used by foreign exchange traders and market makers.

The banking industry is also considering incorporating Blockchain technology into some of its core systems including compliance management, treasury administration, customer relationship management and transaction processing. Many believe that the technology will become a mainstay in future banking infrastructure.

Beyond banking, Blockchain technology is also being incorporated into other industries. It could be used by insurance companies and capital market firms to provide better transparency as well as in supply chain management processes.

It could also be used to manage information related to legal records and land registration systems. Blockchain is also expected to play an important role in the Internet of Things (IoT), particularly in smart contracts, regulatory compliance and auditing processes.

As the technology matures, new technologies will likely be developed. Blockchain technology is considered a secure and efficient means of securing data and transactions.

As a result, many in the industry are curious to see how Blockchain technology will be used in other areas, including financial services, Internet of Things (IoT) networks, smart contracts and more as it becomes more mainstream.

Although the application of blockchain technology has only just begun on a large scale, experts believe that it will have far-reaching implications in many industries.

Is Blockchain Secure?

Blockchain technology is considered highly secure and reliable. In fact, many believe that it is one of the most secure technologies in existence. However, because Blockchain has only recently been used in a large scale commercial setting, there are many security concerns that still need to be addressed by the technology’s industry experts.

The majority of the information stored on a Blockchain is encrypted and cannot be altered or changed once it has been stored. This prevents hackers from hacking into the system and changing records. Blockchain technology also uses a large public network of computers to verify transactions and keep them recorded.

This prevents any single person or entity from controlling or manipulating the system. However, this process is not infallible, as there are some ways in which hackers can still gain access to sensitive information stored on a Blockchain.

Why is there so much hype around blockchain technology | How are blockchain startups disrupting the industry?

The majority of the hype around Blockchain technology is due to its potential. Experts in the industry believe that Blockchain will be one of the most disruptive technologies since the invention of the internet itself.

Many are looking for ways to incorporate Blockchain into existing systems, hoping to revolutionize industries and provide better transparency in virtually every facet of our lives.

Blockchain startups have already begun making their mark on the world. While still relatively new, many blockchain startups have already grown and matured quickly. These startups are creating new tools to improve existing industries and are reinventing the way things are currently done.

What is Blockchain Technology in simple words and how does it work PDF

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Summary : What is Blockchain Technology in simple words and how does it work?

Blockchain technology continues to grow in popularity and usage. Though it is still relatively new, experts believe the technology will one day become a mainstay in global society. Blockchain is expected to provide a new way for companies and individuals to interact efficiently, and by reducing middlemen in the process.

Understanding blockchain technology, how it works and more will help us realize the full potential of this technology.

This concludes the article on “What is Blockchain Technology in simple words and how does it work?”. Hope you found the article helpful.

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