Blockchain technology explained in simple terms

     The bitcoin blockchain system.

During the 2008 financial crisis, the media tagged major corporate banks in America as 'too big to fail'. The world economy was down; companies filed for bankruptcy, inflation was soaring to the roof, and unemployment was the new normal.

Even though People blamed the economic crisis on the deregulation of banks and other corporate bodies, the government believed that the only solution was to infuse more money.

Still, there was one issue - the banks were drowning in debt (to the federal government).

The only option was to bail the banks out with public or tax payer's funds. In essence, the government could not afford to let some major banks declare bankruptcy and hence the bailout.

Amid all this, someone or a group of people were motivated to find alternate solutions to the economic monopoly that banks and the federal government spearheaded.

The goal was to create digital money with a network or community that serves as the bank.

Satoshi Nakamoto believed the current economic system was not sustainable.

In effect, an economic ecosystem with no intermediaries or third parties like banks, insurance companies etc.

Satoshi Nakomoto is the only known identity of the person or group of persons that created bitcoin as a form of digital money with blockchain to serve as the network that supports this ecosystem.

A blockchain is a form of database or ledger of transactions that duplicates and distributes information across the entire network on the blockchain system.


This article will use a holistic approach to explore the blockchain system; using simpler terminologies to avoid alienating non-tech audience.

Purpose and use of the Blockchain technology

The primary use of blockchain technology was to serve as an intermediary between users and access to digital cryptocurrency. Blockchain inventors streamlined their goal to take power away from banks and give it back to the people.

It is best to understand the problem blockchain solves using day-to-day scenarios.

For example, if Citizen A calls his friend Citizen B for financial assistance of about $3000, Mr A has two feasible options; he can either call his account manager to make a deposit to Mr B or use his bank app to make a transfer.

In either case, Mr A trusts that the bank manages his money. There was no need for the physical movement of money from Mr A's location to Mr B's.

The only action taken was an entry into the bank's register that neither Mr A nor B controls - this is the problem with the current system.

The problem is we trust on few middlemen (banks) to manage funds, but what happens when:

  • One of the middlemen decides to inject chaos into the system.
  • Mr A's account manager mistakenly inputs $3500 instead of $3000 into the register, or what if the account manager did it intentionally to favour Mr B.

The problem was the unlimited power placed in the hands of banks; they could easily choose to undermine the system and favour themselves.

Before the invention of blockchain technology, the world's population shelved all eggs in one basket. Satoshi Nakamoto then asked in bitcoin's whitepaper, ' What if we (everyone) become our own middlemen?'

Recall that to transfer the $3000 from Mr A to Mr B, all the bank needed was an entry into the bank's register.

So Satoshi Nakomoto proposed blockchain to serve as a register and bitcoin as the currency that runs on the blockchain technology.

The next phase was to propose how this peer-to-peer maintenance of the blockchain will work;

  • How the blockchain technology validates transactions effectively in a decentralized system controlled by everyone.
  • How will transactions be authenticated to make the actual debit and credit without allowing any member to cheat the system?

The goal was to find a lasting solution to the above questions.

Satoshi Nakamoto inveted an alternate solution to the current finacial system.

How the Blockchain technology works

Satoshi Nakomoto has proposed a system that will use blockchain technology to serve as an intermediary and validate transactions. The second problem he or they faced was finding a solution to how the blockchain system will work.

Satoshi Nakamoto proposed the requirement that will make the blockchain technology viable, which are:

  • Enough people must agree that they want to use the blockchain technology
  • The majority of these users must be honest. It is called the 51% attack; it proposes that as long as the majority of these users are honest, then the system will never be compromised because the majority will always override the actions of the minority.

Satoshi also proposed and implemented some of the properties associated with the early blockchain system. Some of these properties are:

  • The blockchain system is programmable.
  • All records on blockchain technology are secured and encrypted individually.
  • All users' identities are hidden.
  • All validated records on the blockchain system are immutable.
  • All users must agree to the validity of any record on the blockchain system.
  • Every transaction on the blockchain system is time-stamped. These transactions are then recorded on a block (a block contain multiple transactions).
  • Every user on the blockchain network has a copy of every transaction to make transactions transparent.

Satoshi Nakamoto inveted an alternate solution to the current finacial system.

A typical example of how blockchain technology works will be explained shortly. Recall that one of the requirements is that enough people must opt to use blockchain technology.

If people decide to use blockchain technology, transactions on the network will occur within this group only. No external factor can alter the transactions.

Transactions on the blockchain network are completed through the following process:

1. Authentication

Satoshi implemented the first blockchain network to work as a completely decentralized system with no central body. It also prides itself on operating an anonymous system.

For a transaction to occur on the blockchain network, the user must be identified and authenticated. This is done using cryptographic keys.

Cryptographic keys work like a password, using a combination of numbers and strings to give users access to their accounts.

Every user has two keys, the private keys (for users' eyes only) and the public keys (seen by everyone). These two sets of keys are used to authenticate users and perform the transactions on the blockchain network.

With the blockchain network, everyone has account details, but they do not know their identities, hence the anonymity of blockchain technology.

2. Authorisation

In the first example, for Mr A to send the $3000 to Mr B, the bank accessed the Bank's registry, Mr A's wallet or folder. These two actions are meant to ensure that Mr is debited and that his net balance is reflected on the bank's balance sheet.

There is a mode of operation in a blockchain network to record debit, credit, and validate transactions. This is how transactions occur in the blockchain network:

As stated earlier, a blockchain network is a special form of a database. It makes use of a distributed ledger system to store its records.

The implication is that every user on the blockchain network maintains a ledger that records every transaction carried out by all users on the blockchain network.

Let's say there are 20 people on the blockchain network. If User 1 wants to send $4 to User 7, User 1 will announce to blockchain members that he wants to make a transaction.

Once this announcement is made, everyone makes an entry in their ledger stating that User 1 now has a debit of $4 and User 7 should get a credit of $4.

Subsequently, in the future, if User 1 wants to make another transaction, the same process occurs to make sure User 1 has such a balance on record. The process is very complex, but this is just an overview.

Suppose every user agreed for a transaction to occur, the transaction will be approved, recall that everyone on the blockchain network updates their respective ledgers as transactions occur.

The next phase is adding each transaction to a block or, in a layman understanding, sealing the page.

If each user on the blockchain network records every transaction on their respective ledgers, one page will be filled, and there will be a need to flip a new page and keep making new entries.

The previous records or pages need to be secured, encrypted and sealed to prevent dishonest users from going back and altering the records.

This singular action can only be done when a computer solves complex mathematical problems and provide an answer (strings of data). The blockchain network will use the answer provided to seal the pages and flip a new page on the distributed ledger.

The process of adding blocks to the network or sealing record pages is called bitcoin mining. Miners use supercomputers to solve the mathematical problems given by the blockchain network.

Once most of the nodes (computers) on the network approves, the system will add a new block to the chain.

This measure is meant to checkmate the actions of the miners, it prevents dishonest miners or hackers from going back to unseal a record or open a block on the network chain.

As long as the majority remains honest, the network chain will be impossible to hack.

MIning is the only means new bitcoins go into circulation. It is a form of incentive and reward for people who spend their resources and validate blocks on the blockchain network. This type of incentive is called Proof of work.

Everyone is allowed to participate in solving the mathematical problem, the user that solves it will notify other users, once the majority reaches a consesus that the combination is correct, pages will be sealed and a new block added to the chain.

3. Proof of work

Proof of work is a process that requires blockchain network users (bitcoin) with super-computers to add a block to the network chain by solving complex mathematical problems.

The process of solving these mathematical problems is called mining. Miners are rewarded in bitcoin or any other cryptocurrency running on that blockchain network.

Mining is not an easy task; the odds of solving a mathematical problem on the blockchain network is 1 in 5.9 trillion.

It is solved by trial and error; it requires high computational power and electricity to engage in this process. That is why the reward must outweigh the cost.

The blockchain system is a very complex technology that can now be applied in the food, banking and even voting institutions.


The blockchain network is a very complex process that involves complex mathematical computations and programming.

Satoshi Nakamoto took all the above measures to create a system to compete with the current banking system.

Every system or network comes with its own merit and demerits. The major problem associated with bitcoin's blockchain system is the proof of work mode of operation.

The current bitcoin network is vast, and bitcoin creators intentionally made mining harder as more bitcoins are mined. It took about 4 years to mine half of bitcoin's total supply, and it will take another 120 years to mine the remainder.

Overall, more computational power and electricity is needed to make bitcoin mining feasible.

The implication is a reduction in the number of miners, ensuring only big corporations can afford to maintain a bitcoin mining farm - the same problem that bitcoin creators wanted to solve.

Though as the blockchain network increases, it theoretically becomes harder to hack. Mining power is left in the hands of a few mining pools.

To solve this problem, other blockchain pioneers invented the Proof of stake validation; Consensus or votes are done by users who own a substantial amount of that cryptocurrency.

The latest invention is the 'Smart contracts', which automatically executes transactions once certain conditions have been met.

In summary, blockchain technology will only evolve with time. The blockchain founders have proven to the world that orange can be the new black.