Small Business Brief


Understanding How Blockchain Technology Actually Works in Practice

Have you ever wondered what happens after sending some crypto to a friend? Have you heard about distributed ledger technology but are unsure what it actually does?

Blockchain technology is the world’s most secure and anonymous way of sending money. It allows for instant, transparent transactions without any middlemen or fees. Sending money with blockchain is as simple as sending an email. You can send money anywhere in the world at any time of day without worrying about exchange rates or currency fluctuations.

The world has jumped on board with blockchain. With major coins like Tether having a total cap on the cryptocurrency market of nearly $78 Billion, it’s not surprising.

Keep reading for our quick guide to blockchain and how it can work for you.

What Happens When You Send Coins to a Friend?

Let’s say you want to send 0.12 BTC (bitcoins) to your friend, John. What really happens?

The first thing that has to happen is miners have to come up with a valid solution for the transaction validation and block creation process. It needs to be validated using consensus algorithms for this network of nodes to agree that your transaction belongs in the next block being created.

When you start this transaction, your balance decreases by 0.12 BTC (bitcoins). An output is created that references the recipient’s address as the new owner of these coins. This output also contains a cryptographic signature proving that you are authorized. Then the transaction goes into the pool of unconfirmed transactions, waiting to be included in the next block.

The newly created block is distributed across the network so that other nodes can validate it. This helps to confirm your transaction was done properly. Your balance will show up as 0.88 BTC after this happens. You’ve sent 0.12 BTC to your friend John. Sometimes, transferring funds cost a transaction fee, which varies based on the blockchain.

From there, your transaction is included in a block that gets attached to the previous one after validation by other nodes. John can now spend these bitcoin or wait for them to be confirmed again. If he decides to do the latter, you will have to wait some time before they get approved and processed by the miners.   

The whole process is run by the blockchain network. The network is made of miners who validate your transaction, adding them to the blockchain itself. This way, everyone can track your transaction and make sure you’re not cheating. This process makes it more secure for use in many real-world cases.

Converting Coins to Fiat Currency

However, it gets more complicated if you want to cash out your bitcoin or other types of cryptocurrencies for cash like CAD.

To convert from, for example, USDT to CAD, you need to go through an exchange service that operates as a middleman. Doing this means that you simply choose how much of your crypto you want to sell, and the cryptocurrency is transferred to your wallet.

The exchange service takes on the role of a regulator here, as it’s impossible for you to predict which currencies will be available at this specific time or what prices they offer. The price, in turn, is determined by their trading volume and overall market trends.

Don’t Be Afraid of Blockchain Technology

When you’re ready to start sending and receiving cryptocurrency, it’s good to be aware of how it all works. Unfortunately, some people believe blockchain is complicated or requires special technical knowledge to use.

That’s simply not the case – blockchain technology can work for anyone who wants to send money safely, reliably, and instantly. With around 60% of crypto wallets being mobile, it’s clear that adoption has never been higher.

If you enjoyed this article, why not check out the rest of our Finance and Money category?