Skip to content

How Does Blockchain Technology Work?


Blockchain technology has redefined several aspects of life. It has transformed payment transactions, fundraising, and storage of data. In addition to cryptocurrencies, blockchains host smart contracts, play-to-earn games, applications, and various other use cases.

The real-world uses of blockchain strive to make life more convenient, yet many are unaware of how this powerful technology works. Understanding blockchain technology helps individuals to benefit from it in various ways.

What is Blockchain Technology and How Does it Work?

Optimizing blockchain’s use cases requires understanding the underlying technology both conceptually and logistically; in other words, how blockchains work. 

Blockchains Explained

A Blockchain is a digital ledger used for recording transactions and tracking assets in a network. This public platform distributes information and enables immutable and transparent recording of data.

Blockchain technology facilitates peer-to-peer transactions, enabling the exchange of tangible and intangible assets without an intermediary such as a bank or a broker. 

This technology enables the secure sharing and storage of information across a network of computers, which prevents the altering and hacking of transactions.  

How do Blockchains Work?

Transactions on a blockchain are recorded as a block that consists of data. A block contains an exchange of tangible or intangible assets, as well as information about the blockchain transaction such as the wallet address, amount, specific conditions, dates, and the parties involved.

Because numerous transactions are facilitated on a blockchain, all the blocks must be connected to prevent duplication and fraud. A block is connected to every block before it and all the blocks after it.

By being connected, the blocks form a chain of data to track asset movement from one location to another, as well as  when ownership changes. The blocks record the time and sequence of transactions, and prohibit other blocks from being altered.

The sequence of blocks in the chain is immutable. Adding a block solidifies the previous block’s verification, making the whole blockchain more impenetrable.

Advantages and Disadvantages of Blockchain Technology

Blockchain’s growing popularity can be attributed to several benefits that most technological platforms can’t offer. At the same time, its use cases have regulatory and environmental implications.

Pros of Blockchain Technology

Most cryptocurrency users enjoy blockchain technology in the form of a network such as Bitcoin or Ethereum, benefitting from  transparency, security, and immutability.


A key reason for blockchain’s popularity is the transparency of data. Traditional  financial systems often experience trust issues due to centralization, enabling access only to certain members and providing select information to the public.

Blockchains keep a history of past transactions, and users have access to accurate and timely data. Because all members can verify data, a blockchain comprises a trusted network.

Users can also specify which members within a members-only network have access to records, which is available on a permissioned blockchain.


Blockchain provides secure transactions with an advanced level of encryption. Cryptography aside, blockchain is also based on principles of consensus and decentralization. 

The cryptographic chain that connects the blocks is virtually impossible to penetrate.


Blockchain’s immutability means that blocks cannot be added between existing blocks, and recorded data cannot be deleted or replaced. 

This prevention of data tampering ensures that transactions aren’t duplicated, and that fraud is omitted.

Potential Cons of Blockchain Technology

Although blockchain technology offers advanced financial capability and veracity,these advancements are not without some downsides..

Energy Consumption

Miners are individuals who verify transactions tothe blockchain by solving complex mathematical equations (via computer hardware). The equipment required to drivethis activity produces high energy consumption.

Bitcoin consumes more than 150 terawatt hours of electricity annually. Thankfully, the impact of mining is on the decline as more blockchain networks adopt proof of stake.


The efficiency of peer-to-peer transacting on a blockchain depends on the network that users select. Using Bitcoin Cash to send crypto, for example, usually takes several seconds to complete a transaction. 

Bitcoin’s transactions can take from several minutes to a few hours to finalize. That disqualifies Bitcoin from replacing fiat currencies as a daily payment mode, which was the motivation for its development. Bitcoin technologies such as Lightning, or low-cost, high-speed Ethereum-based blockchains such as Solana or PulseChain, aim to remedy this.

Illegal Activity

While transparency of data generally makes transactions more aboveboard, blockchain is also home to privacy tools that may be used by bad actors for nefarious activities such as money laundering or the trade of illicit goods and services.

Some networks’ anonymity features makes it difficult to identify these actors or track their transactions, especially when conducted with privacy coins.

How to Use Blockchains

Numerous retailers have incorporated cryptocurrencies as a payment method. Blockchains enable operators to monitor their supply chains to identify inefficiencies and locate assets in real-time.

Retailers can create loyalty programs on a blockchain by rewarding consumers with coins, incentivizing them to become repeat customers.

Organizations that dispose of their data can instead use blockchain to sell their unused data or share it. Because blockchain provides transparency, it could also one day be used as a secure digital voting system.

Some other uses for blockchain include real estate transfers, medical recordkeeping, weapons tracking, and the tokenization of assets

Use Blockchain Technology to Create a Better World

The advancement of technology has made life more convenient and efficient, and blockchain technology is at the forefront of this continued development. The blockchain immutable ledger enables people to transact without an intermediary, and to develop applications on a decentralized network.

Blockchain technology provides an alternative financial system that ensures transparency, security, and immutability, while also pushing boundaries when it comes to speed, convenience, and 24/7 operation

Frequently Asked Questions

What’s the best way to invest in blockchain technology?

Investors can buy popular cryptocurrencies or shares in public companies that are using blockchain to develop products or services.

Does blockchain technology help organizations share data?

Numerous organizations use blockchain for data management because it enables secure, efficient, and convenient data exchange.

Who created blockchain technology?

The person or group that created Bitcoin (the earliest and most popular blockchain technology), used the pseudonym Satoshi Nakamoto to hide their true identity.

Take control of your retirement today.

Trust America’s #1 Bitcoin IRA and invest in your future with revolutionary digital assets. Open an account and self-trade 24/7.

Take control of your retirement today.