What exactly is blockchain? One article to help you understand completely

You may often hear the term “blockchain,” but not many people truly understand it. Today, we will provide a simple yet in-depth explanation of why this technology is called a revolutionary innovation that changes the world.

What exactly is the concept of blockchain?

In simple terms, what is blockchain? It is essentially a distributed ledger system. Imagine a ledger not managed by a single bank but maintained collectively by thousands of computers worldwide. Every transaction recorded in this ledger is placed into a “block,” and these blocks are linked together in chronological order to form a “chain.”

The key point is that the data on this chain is protected by cryptography. Once written, it cannot be tampered with or deleted—you can only add new blocks to the end of the chain. This design ensures data permanence and transparency.

From early concepts to the birth of Bitcoin

The idea of blockchain was actually proposed as early as 1991. At that time, two researchers, Haber and Sornette, published a paper describing how to create an unforgeable timestamp chain using cryptographic techniques. Their goal was to prevent files from being tampered with, which was a very forward-thinking idea.

It wasn’t until 2008 that a mysterious figure named Satoshi Nakamoto truly turned this theory into reality. He designed the first practical blockchain system—Bitcoin. The birth of Bitcoin marked the beginning of the cryptocurrency era. In this system, users can transact directly without intermediaries, which was revolutionary at the time.

The Bitcoin network is maintained by thousands of computers worldwide. Transactions are recorded on the blockchain after cryptographic validation. Participants who verify and create new blocks are rewarded with Bitcoin. Thus, a self-operating, fully decentralized financial system was born.

Internal structure and operation mechanism of blockchain

To truly understand blockchain, you need to know its basic components. Each block contains a header and a series of transaction records. These blocks are connected through a technology called “hash.”

What is a hash? Simply put, it is a unique string generated by encrypting transaction data. Any change to the original data will result in a completely different hash value. Therefore, each block contains its own hash and the hash of the previous block. If someone attempts to alter a block’s content, its hash will change, causing a mismatch in the chain—immediately revealing tampering.

The role of miners: how new blocks are generated

So, who is responsible for creating these new blocks? The answer is miners.

Miners’ job is to find a specific hash value that links with the previous block’s hash to create a new block. They are also responsible for validating the legality of transactions. This process requires significant computational power and consumes a lot of electricity. In return, miners earn newly generated Bitcoin.

Consensus mechanisms: how the network reaches agreement

In a system without a central authority, all participants need to agree on “what is valid.” This is the role of consensus algorithms.

Proof of Work (PoW) is the earliest consensus mechanism and is used by Bitcoin. In PoW, miners compete to add new blocks by solving complex mathematical puzzles. Although this method is secure and reliable, it has raised environmental concerns due to its high energy consumption.

Proof of Stake (PoS) is a more efficient alternative. In this mechanism, validators are randomly selected from participants who have staked a certain amount of cryptocurrency to create new blocks and confirm transactions. The probability of being chosen is proportional to the amount of cryptocurrency staked. This approach consumes much less energy.

Besides these, there are other consensus mechanisms, such as Delegated Proof of Stake (DPoS), which uses voting; Proof of Capacity (PoC), based on hard drive space; and Proof of Burn (PoB), which requires “burning” a certain amount of tokens.

Main advantages of blockchain

• Immutability: Once data is recorded on the blockchain, it can never be modified or deleted. Each subsequent new block reinforces this immutability. Additionally, anyone can view and verify this data.

• Decentralization: There is no single controlling center, eliminating the risk of reliance on a specific institution. Participants collectively maintain the security and integrity of the network.

• Low cost: By eliminating intermediaries, transaction fees are significantly reduced. Users benefit from more economical and efficient transactions.

• Robust security: Cryptographic algorithms and complete transparency of transactions make blockchain networks nearly invulnerable.

• Transaction efficiency: Peer-to-peer transactions without intermediaries are usually completed within minutes.

Different types of blockchain networks

Blockchains are generally divided into three types:

Public chains (public blockchains) offer the highest level of decentralization. Anyone can join the network, verify transactions, and create new blocks. Bitcoin and Ethereum are examples of public chains.

Private chains are typically managed and controlled by a single organization. Only authorized participants can join and participate in the network.

Consortium chains are a hybrid of public and private chains. Managed and operated by multiple organizations. Access permissions can be open or restricted.

Real-world applications and prospects of blockchain

Today, blockchain technology has far surpassed the realm of cryptocurrencies. It is widely used in financial services, healthcare, supply chain management, commerce, and even investment sectors. Some companies are exploring how to leverage blockchain to improve data security and transparency.

This is just the early stage of blockchain development. As technology continues to evolve, we can expect more innovative applications. The future of blockchain is full of limitless possibilities.