How blockchain technology works

As suggested by its name, blockchain technology is built on a chain of blocks. Each of these blocks contain code and other data. When a blockchain is created, these blocks are digitally connected to each other through cryptography. Within this system, they are dependent on one another, and must reach a consensus before changes are made to the code.

Blockchain technology creates a digital ledger based on checks and balances, making it harder to hack/disrupt than traditional centralised systems. Widely applicable, blockchain technology is used for:

  • Financial transactions (cryptocurrencies)
  • Binding, traceable agreements (smart contracts)
  • Distributing video games, art, and intellectual property (with NFTs)
  • Content hosting (crypto domains)

What is blockchain?

Blockchain differs from centralised data maintenance in that information is stored on multiple blocks. This new approach makes it easy to track all updates on a blockchain. It also means more than one backup exists.

To better answer the question, “what is blockchain?,” it’s important to understand what problem blockchain technology is solving.

What is blockchain?

Consider the typical maintenance of digital code, bank records, contracts, and other legal documents. They’re usually stored on a central server, managed by a team of people. Under this framework, when information is modified or lost, it’s hard to trace and recreate.

With these basic principles, there’s many solutions offered by blockchain technology. These are found in cryptocurrencies, smart contracts, platforms for non-fungible tokens (NFTs), and crypto domains. This is possible by how blockchains connect. Learn more about this, followed by a brief explanation of each use case.

Crosschain & Interoperability

Crosschain & Interoperability

To meet different needs and maintain a unified structure, all blockchain technology is built on Layer-1 and Layer-2 networks:

  • Layer-1 refers to the blockchain itself
  • Layer-2 adds performance, security, and scalability

Since all blockchain technologies are built on Layer-1 networks, they remain compatible via crosschain and interoperability. Crosschain allows two blockchains to communicate with each other, while interoperability ensures they’re compatible. The latter is similar to how an email is universally readable on various clients.


Popular cryptocurrencies, like Bitcoin and Ethereum, are different types of Level-1 blockchains used for storing financial value and related transactions. All cryptocurrencies are built on a blockchain and traded through Decentralised Finance (DeFi) platforms, rather than traditional institutions like banks or brokerage firms.

Instead, peer to peer platforms facilitate cryptocurrency transactions. Additionally, since a blockchain keeps multiple records, both parties receive a transparent copy of the transfer. This framework is secure and traceable.

Smart Contracts

Embedded within some blockchain technologies, smart contracts enable direct agreements between two parties. Particularly useful for DeFi, some cryptocurrencies, like Ethereum, store smart contracts directly on its blocks of code. Smart contracts simplify ownership transfers with predetermined terms and conditions.

It’s also worth mentioning that not all blockchains contain smart contracts.

Distributing video games as non-fungible tokens (NFTs)

Non-fungible tokens (NFTs) are digital assets made possible by blockchain technology and cryptocurrencies. Rather than buying usage rights from a copyright holder, complete ownership is transferred when a NFT is sold.

This applies to creative works such as video games, music, images, and literature, with applications for other forms of media and intellectual property.

NFT - non fungible token

Since NFTs utilise blockchain technology, there’s a transparent record of each sale. Within this framework, the original creator can collect revenue every time ownership is transferred.

To better understand how it’s possible to distribute video games with blockchain, read more about NFTs here.

Crypto domains

In addition to storing content, like traditional websites, crypto domains act as an online repository of information stored on a blockchain. Built for blockchain wallets and exchanges, they aren’t currently accessible via web browsers. As it stands, crypto domains make it easy to navigate and find information on a blockchain.

That being said, there’s many ways crypto domains are superior to current web domain infrastructure. We discuss this, along with the development of Web3, in our article on crypto domains.

Blockchain universe

Throughout this article on blockchain technology, it’s emphasised how blockchain opens doors to new distribution methods. It’s also worth pointing out that a blockchain is a complete system for commerce and data management.

We’ve just scratched the surface on what blockchain technology offers, and hope it inspires new ideas for your IT professional activities.