The essence of Blockchain: A complete guide from technical principles to practical applications

Why Blockchain Has Changed the Digital World

Blockchain is not a black technology that appeared out of nowhere. It is actually a solution to the problem of “how strangers who do not trust each other can transact safely.” In traditional finance, banks act as third-party intermediaries to ensure transaction security. But in the world of digital assets, what Blockchain does is precisely this—only it uses cryptography and distributed networks instead of a specific institution.

From the moment Bitcoin was born, Blockchain has been proving an idea: transactions can be secure and transparent without a central authority.

What is Blockchain?

In simple terms, Blockchain is a ledger that can never be altered.

Traditional databases have a weakness: the person who controls the database can change the data at will. But Blockchain is different. It disperses data across thousands of computers worldwide (we call these computers “nodes”), and anyone wanting to change the data must simultaneously change all copies on these nodes—something that is virtually impossible to do technically.

Each transaction record is woven into a “Block”, and the blocks are connected through cryptographic algorithms, forming an unbreakable chain. This is the origin of the name “Blockchain”.

What Can Blockchain Do

The applications of Blockchain go far beyond cryptocurrency. It has now entered:

Financial Sector: Not only cryptocurrencies like Bitcoin and Ethereum, but also cross-border transfers, lending, trading, etc. Compared to traditional bank transfers that take 3-5 days, Blockchain can complete transactions in minutes, and the fees are much lower. This is especially important for international remittances.

Smart Contract: Once the conditions are met, the contract executes automatically. For example, if you and a friend bet on who wins the World Cup, you can use a smart contract to automatically distribute the prize money—no third-party witness needed. Decentralized applications (dApps) and decentralized finance (DeFi) built on this foundation are changing the landscape of financial services.

Supply Chain Management: Every step from product production, transportation to sales is recorded on the Blockchain, allowing consumers to fully trace the source of the products. This is particularly useful for food, pharmaceuticals, and luxury goods – you can finally verify whether the LV bag you bought is real or counterfeit.

Digital Identity: Your identity information can be securely stored on the Blockchain and presented when needed, without relying on any government or institution. This could change lives for those without identification documents.

Voting System: Transparent, tamper-proof, verifiable by everyone. Election fraud? Almost impossible.

Asset Tokenization: Real estate, stocks, artworks—anything of value can be converted into digital tokens on the Blockchain. A small retail investor can now purchase 1% ownership of a building without waiting for an intermediary to package and sell it.

The Core Mechanism of Blockchain: Cryptography

The secret weapon that blockchain uses to ensure data security is cryptography.

The most important technology is called “hash function”. Simply put, a hash function is like a magic shredder: it takes input data of any size and outputs a string of fixed length characters. For example:

• Input: Bitcoin
• Output: 886c5fd21b403a139d24f2ea1554ff5c0df42d5f873a56d04dc480808c155af3

But if you only change the case of one letter:

• Input: bitcoin
• Output: 4733a0602ade574551bf6d977d94e091d571dc2fcfd8e39767d38301d2c459a7

Completely different. This is the “avalanche effect” — a small change leads to a huge difference. Moreover, this process is unidirectional; you cannot infer the input from the output. This is why changing any data in a Block will completely alter its hash value, thereby disrupting the connection of the entire Blockchain.

Another core aspect is public key cryptography. Everyone has two keys: a private key (kept secret) and a public key (shared openly). When you sign a transaction with your private key, others can use your public key to verify that it was indeed you who initiated the transaction. This ensures that only you can spend your money.

How Transactions Flow on the Blockchain

Imagine Alice wants to transfer 1 Bitcoin to Bob. The whole process is as follows:

Step 1: Broadcast Alice initiated a transfer, and this transaction was broadcasted to the entire network. All nodes on the network received this information.

Step Two: Verification
Each node will verify whether the transaction is valid. Does Alice really have 1 Bitcoin? Is her signature authentic? All checks must pass.

Step Three: Pack into Blocks
Validated transactions are collected and packaged together with other transactions into a “Block”. Each block contains:

• Transaction Data
• Timestamp
• The hash value of the previous block (this is the key to the link)
• The hash value of this block

Step Four: Reach Consensus Before a new block is added to the Chainplus, the network must reach a consensus. This involves different “consensus mechanisms”.

Two Main Consensus Mechanisms

Proof of Work (PoW): This is what we commonly refer to as “mining”. Miners compete to solve a super difficult math problem. The first miner to solve it receives a reward, and their Block is added to the Blockchain. Bitcoin uses this.

The downside is that it consumes a lot of electricity. A single Bitcoin transaction uses as much electricity as a household does in a week.

Proof of Stake (PoS): Instead of competing for computational power, it looks at your “stake” in the network—how much crypto asset you have locked up. The more you lock up, the higher the probability of being selected to validate a Block. Ethereum 2.0 has switched to this mechanism, reducing energy consumption by 99%.

Other variants include Delegated Proof of Stake (DPoS) and Proof of Authority (PoA), all of which operate on the principle of incentivizing the majority of honest participants to maintain the network through some mechanism.

Three Types of Blockchain

Public Chain: Such as Bitcoin and Ethereum. Anyone can join, and anyone can see all transactions. Transparent, open, and censorship-resistant, but it also means complete exposure.

Private Chain: Used internally by enterprises. A company operates it itself and decides who can participate. The speed is fast, but it loses the essence of decentralization of Blockchain.

Consortium Blockchain: Multiple institutions operate jointly. For example, several banks build a chain together for settlement. It is between public and private.

Blockchain and Traditional Trading Comparison

If you are a trading beginner reading “Beginner's Trading Guide” (libro de trading para principiantes), you may be wondering how Blockchain has changed the way trading is done.

Traditional stock trading: Place an order → It takes T+2 days to settle, and it goes through multiple intermediaries, with fees added at every layer.

Blockchain transaction: Place an order → On-chain confirmation (from a few seconds to a few minutes) → Assets are immediately in hand. Decentralized exchanges (DEX) give you complete control over your assets, without worrying about the exchange running away.

This is especially valuable for traders who urgently need liquidity. Exchanges like Gate already support the trading of assets across multiple public Blockchains, allowing users to quickly switch between different chains.

From Technology to Reality: The Practical Dilemmas of Blockchain

Theoretically perfect, but there are also problems in reality.

Scalability: Bitcoin processes 7 transactions per second, Ethereum around 30. Visa processes 24,000 transactions per second. When the network is congested, transaction fees soar, and the experience worsens.

Energy Consumption Issue: Although PoW is secure, it consumes too much electricity. While PoS is environmentally friendly, it tends to create a situation where “the rich get richer” (wealthy individuals lock up more coins and receive more rewards).

User Experience: Did you lose your private key? No one can help you recover it. This is very unfriendly for ordinary users who are used to “just clicking to reset password”.

Regulatory Ambiguity: Many regions still lack a clear legal framework, and both businesses and individuals are navigating in the dark.

Future Direction

Layer 2 scaling solutions (such as the Lightning Network) are addressing transaction speed issues. Cross-chain bridging technology allows different Blockchains to interoperate. An increasing number of real assets (real estate, art, securities) are being tokenized.

Blockchain has gradually evolved from a radical experiment into a part of the financial and technological infrastructure. It will not revolutionize everything, but it is indeed changing the way money flows, information is verified, and assets are managed.

By mastering these basics, you will be able to understand more clearly why some people are optimistic about it, and also assess its risks and opportunities more rationally.