For years now, there has been a lot of noise around cryptocurrencies, banking and investing. You must have also come across the word ‘blockchain’, which is a technology that cryptocurrencies are built on.

To most people, understanding blockchain is quite difficult, which is a result of the technical terms used in describing how it works. Well, the purpose of this article is to explain the concept in a very simple manner.

In layman’s terms, blockchain is a type of digital ledger that stores information about various transactions around finance and other sectors as well. It can also be described as an open ledger that is accessible to everyone.


Open ledger

Distributed ledger

Proof of Work (POW)


The idea of blockchain being an open ledger is not new at all and it simply means that we have a ledger where all transactions done on the blockchain are completely open and public to everyone.

Let’s look at an example to explain how an open ledger works:

If Mr. A sends $500 to Mr. B, the transactions are immediately stored on an open ledger which includes chains of transactions visible to all. If Mr. B decides to send $600 to person C, everyone in the network will notice that the transactions won’t be possible as Mr. B has only $500. The transactions will be referred to as INVALID and they won’t be added to the chain of transactions.

The term “chain” is used because, immediately after a block is filled with transactions, a link will be established to connect the previous block and the next one.

The Benefits of an Open Ledger

  • Everyone is aware of where the money is.
  • The amount each person has is known by all.
  • The people in the network can determine if a transaction is valid or not.


Anyone in the blockchain network can have a copy of the open ledger. The fact that the ledger is evenly distributed, we have now succeeded in removing power from the central authority as we now have a DECENTRALIZED and OPEN LEDGER.

Now that every participant in the network has copies of the open ledger, there’s a need to check whether all copies are the same and to coincide all of them so everyone will be able to see the same version of open ledger. This takes us to the third concept, which is the Proof of Work.

3.Proof of Work (POW)

Proof of Work is a task used to verify transactions and generate new blocks in the chain.

Previously, we discussed that the ledger is both open and distributed. Let’s go further to give another example to explain how POW works:

Mr. B wants to send $600 to Mr. C and when he made his intention known to the network, everyone became aware of the transaction. It remains invalid and won’t get to the ledger until it gets to a particular node called MINERS.

Miners compete among themselves to confirm transactions and the first person who succeeds adds it to the ledger.

Each miner is expected to find a specific key to seal precious blocks to new ones and what is required of him is arithmetic capability and time as the search is random. Whoever discovers a key that matches the puzzle wins, and those with less arithmetic potential have lower chances.

Though a block could be filled with a lot of transactions, many miners can verify them, and we term it “multiple validations.” But if it’s mined, only one miner locates the key.

Due to the decentralization of the blockchain technology, it can be utilized in various forms, such as verification of identity, insurance claims, collection of files, and preservation of intellectual and art belongings.

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