Understanding Blockchain Technology

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Blockchain technology has dominated headlines, tech forums and Web3 conferences for the past few years. Industry leaders have been advocating its vast potential to transform traditional business operations.

Understanding this multi-faceted piece of technology can be confusing for someone who isn’t familiar with the terminology.

If this sounds like you, then don’t worry! We’re here to help demystify the terminology around blockchain and explain some of its relevant key concepts and capabilities. So, whether you are an established business owner, a curious individual or a future start-up founder, this article will provide an insight into the world of blockchain, its benefits, and the foundational knowledge that is required to navigate it.

Table of Contents

What is blockchain technology?

Blockchain is a highly innovative and practical technology that was first introduced in October 2008 to serve as a public distributed, decentralised digital ledger. It is an amalgamation of different technologies, such as mathematical computation, cryptography and validation protocols, all coming together. It records transactions across a network of computers and is highly resistant to tampering and manipulation. Many believe that blockchain is a solution that has the potential to revolutionise the way that humans conduct financial transactions and store and record data.

How does blockchain technology work?

The best way to describe how blockchain technology works, is a “digital note taker”. This digital notebook keeps a secure record of every historic transaction that has ever taken place, plus any interactions between the multiple parties who are involved in a transaction. The entries in this notebook are linked and secured through cryptographic algorithms, making it virtually impossible to alter previous records.

Why use blockchain technology?

In a world where data leaks and cyberattacks are growing more frequent, Blockchain provides transparency and trust to all parties involved as a secure and dependable solution. The ability to store documentation combined with speed of the ‘digital note taking’ means that transactions can be completed in much more efficient and secure manner. Because Blockchain is decentralised, there is no single point of failure which makes it a very alluring choice for a wide range of industries.

What does decentralised mean?

Before we move on, you might be wondering what all of this reference to ‘decentralisation’ means. In the context of blockchain technology, it means that instead of control and decision-making originating from a centralised entity (for example, an individual, organization, or group), to a distributed network where the responsibility of control and decision-making powers are shared evenly between network participants.

What are the key features of blockchain technology?

Unchangeable ledger

A transaction that has been verified and recorded on the blockchain cannot be changed or removed. This increases transparency and trust by producing a permanent, impenetrable record of all transactions and interactions.


Since blockchain runs on a decentralised network, it is not under the jurisdiction of a single organisation. This reduces the requirement for middlemen (such as central banking systems and central governments), which can result in quicker, more effective transactions and a fairer, unbiased process.


Blockchain protects transactions from manipulation by using cryptographic techniques. Before a transaction is added to the blockchain, it is confirmed by a number of network ‘nodes’. Blockchain nodes are network stakeholders, whose devices have been authorized to serve as communication hubs for various network tasks. For example, a blockchain node's primary job will be to confirm the legality of corresponding network transactions, also known as blocks.


Every member of a blockchain network will have access to the same data, providing full transparency on transactions, which in turn showcases trust in the product or brand. Increased accountability is also made possible because all actions and interactions can be linked back to their original source.


Blockchain can lower expenses and boost productivity by, reducing operating costs, reducing the error rate which in turn, results in lower risks and also means the network is less vulnerable to cyber attacks. Because transactions can be handled more quickly and cheaply, it not only streamlines operations, but offers a desirable solution for both corporations and private users.

What are the different types of blockchain technology?

Blockchains can be classified as either public or private. 

Public blockchains like Bitcoin and Ethereum are where peer-to-peer transactions take place, which are accessible to everyone. 

Private blockchains are gated and only accessible to participants who have been given permission. They are frequently employed for business applications including financial transactions and supply chain management.

Hybrid blockchains combine features of private and public blockchains. Hybrid blockchains allow a private, permission-based system to be created alongside a public, permissionless system. This allows developers to set different levels of data sharing and also choose what data is made public.

How scalable is blockchain technology?

The popularity of crypto and blockchain is rapidly increasing, and so is the number of users and transactions. This limits the system’s capacity to grow without clogging the network. To improve the output of blockchain, processing power must be added. The catch is, it must not affect the ability to handle a higher volume of transactions, or the ability to secure data from attacks or reduce the number of entities that control the network. This is critical to maintaining the decentralisation of the network. This is where the different Layers of blockchain come in.


What are the different blockchain Layers?

Blockchain has a unique way of authenticating transactions, via its layered architecture.

The term Layer 0 contains hardware, network & consensus mechanisms. Think of it as the network architecture, offering interoperability between different blockchains.

The term Layer 1 refers to the ‘implementation layer’, essentially the foundations of blockchain architecture. It forms the base-level structure of a blockchain network and can change the fundamentals of the original blockchain directly, such as consensus mechanisms, coding language, restrictions and dispute resolution.  Popular Layer 1 blockchains include Bitcoin, Ethereum, and Polkadot. They process and record transactions for their own ecosystems and all have their own native crypto token.

Layer 2 refers to a set of secondary networks that are built on top of other blockchain bases, so as not to clog the Layer 1 network. This layer works in parallel to Layer 1, relocating essential processing power. In this context, Layer 1 handles the creation of blocks and Layer 2 sits above and continuously communicates with it.

Layer 3 refers to the user interface layer, such as smart contracts and decentralised apps (dApps). This layer only handles decision-making and execution of follow-up actions.

What are common features of a blockchain ecosystem?

The versatility of blockchain technology and its attractive features means that it has the potential to be used across a wide range of industries and applications.

Smart Contracts

Smart contracts are programs which are stored on the blockchain. They have the terms of the agreement directly written into code and only run when predetermined conditions have been met. Smart Contracts automatically enforce the rules and regulations of an agreement, eliminating the need for intermediaries.


Blockchain enables the creation of digital tokens, which can represent various assets. Examples of these include currency (a ‘cryptocurrency’), art (NFTs), property, or even stocks. These tokens can be bought, sold, and traded on blockchain-based platforms, making it easier to invest in and manage assets. For example, transactions undertaken within the Ecoinomy ecosystem will be facilitated by Ecoinomys native token, ECM.

Improved traceability

As transactions are recorded in real-time, this allows for greater transparency and accountability across the entire audit trail. This can also help to identify problems, reduce fraud, and improve overall operational efficiencies. For example, the Ecoinomy ecosystem will include track & trace functionality the tracks the entire organic medicine supply chain, from seed all the way through to sale.


With the development of Layer 1 and Layer 2 protocols, plus other solutions, blockchain is becoming increasingly interoperable. This means that different blockchain networks can communicate and transfer assets between each other, increasing the versatility and scalability of the technology and the number of industries it serves and transactions it processes.

Why aren't more businesses using blockchain?

Energy Consumption

A challenge facing blockchain technology is the energy consumption required to secure the network. However, the Ethereum network has recently moved from a ‘proof-of-work’ validation method to ‘proof-of-stake’. Within 3 hours of its launch, the energy output had reduced by 99.9%, proving that blockchain on a PoS framework could play a huge role in the evolution of businesses achieving net-zero targets.


As blockchain technology becomes more widespread, the need for clear and consistent regulations is becoming increasingly important. While some countries and jurisdictions have embraced blockchain and its potential, others are still developing a regulatory framework which can create challenges for businesses and individuals looking to use blockchain technology. Centralised systems, particularly in financial services, also “act as shock absorbers in times of crisis”. Decentralised networks can be much less resilient to shocks which can impact participants directly.


You’ve probably heard of the term ‘if it ain’t broke, why fix it?’ Businesses are averse to risk, and blockchain represents a shift away from the traditional way of doing things. One of the key factors driving the slow undertake in adoption is a general lack of awareness and understanding about the technology, and concerns around regulations and governance.

Blockchain offers a secure, transparent, and decentralised way to store and transfer data and assets. The popularity of this technology is causing the market to boom. With no signs of slowing down, we expect that more industries and corporations will look to blockchain as a way to solve operational inefficiencies and improve stakeholder trust.

If you’d like to learn more about how Ecoinomy is using blockchain to solve problems within healthcare and the organic medicine supply chain, please take a look at our project page.

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