Blockchain Basics Guide: From Ledger Digits to World-Changing Technology

Let's start with the simplest things.

Imagine a ledger that records all transactions. But this ledger is not kept by a bank; instead, it is maintained simultaneously by thousands of computers around the world. Anyone can view it, anyone may want to tamper with it, but no one can successfully alter it—this is blockchain.

In simple terms, blockchain is a distributed digital ledger that groups transaction information using cryptographic techniques. Each group is called a “block,” and they are linked together using a special hashing algorithm to form a “chain.” Once data is recorded, it is nearly impossible to modify.

Core Features of Blockchain: What Makes It So Powerful

1. Decentralization

Traditional ledgers are managed by central banks or a certain institution. In contrast, blockchain ledgers are distributed across thousands of nodes, with no single point of authority. This means that no one can control it alone, and there is no single point of failure risk. Large-scale decentralized networks like Bitcoin are extremely resilient to attacks.

2. Transparent and Tamper-proof

Most blockchains are open. Every transaction is recorded, and anyone can view it. More importantly, once data is written into a block, modifying it requires changing all subsequent blocks—this is computationally impractical.

3. Secure Cryptographic Protection

Blockchain uses hash functions and public-private key encryption to protect data. The characteristic of a hash function is that even if one character of the input data is changed, the output result will be completely different. The public-private key system allows transactions to verify authenticity while also protecting privacy.

4. The consensus mechanism allows everyone to say “agree”

How can thousands of computers reach a consensus? Through consensus mechanisms. The two most common are Proof of Work (PoW) and Proof of Stake (PoS).

From Transactions to Blocks: How Blockchain Works

Suppose you want to transfer money to a friend. The whole process is as follows:

Step 1: Trade Broadcasting Your transaction information has been sent to the entire network. Every node will receive it.

Step 2: Transaction Verification Nodes in the network check whether your transaction is legitimate—whether you actually have the funds and whether the signature is correct. Only after these validations pass can the transaction proceed to the next step.

Step Three: Pack into a Block Verified transactions are grouped and packed into a block. Each block contains:

• Trading Data
• Timestamp (records when created)
• The hash value of the previous block (this is the key to the chain, ensuring the order)
• Your own hash value (the unique ID of the block)

Step 4: Consensus and Addition Network nodes need to agree that this block is valid. Depending on the consensus mechanism:

• In PoW, miners race to solve mathematical problems, and the first miner to solve it wins, with their block being added to the chain.
• If using PoS, validators with a large amount of tokens are randomly selected, and as long as they produce blocks, they can earn transaction fees.

Step 5: Extension of the Chain New blocks are added to the chain, and subsequent blocks need to reference its hash value. This forms an unbreakable chain.

How to Understand the Principles of Decentralized Ledgers

Imagine a classroom where the teacher was previously the only keeper of the ledger. Now the rules have changed: every student in the classroom keeps an identical copy of the ledger. Any transaction must be agreed upon by the majority of the students to be recorded.

This is decentralization. No one can secretly alter the ledger because others can discover it. New students joining can also access the complete historical record. Such a system is very robust.

How Cryptography Protects Blockchain

The Magic of Hash Functions

A hash function is like a magic box; no matter how long the input data is, the output is always of fixed length. Bitcoin uses the SHA-256 function. Changing a single letter will result in a completely different output. This feature is called the “avalanche effect.”

Public and Private Key System

Each user has a pair of keys:

• Private Key: Only you know it, used to sign transactions
• Public key: Openly used to verify signatures

When you initiate a transaction, “sign” it with your private key. People on the network use your public key to verify this signature. This ensures that only the true owner of the private key can authorize the transaction, but anyone can verify it.

Consensus Mechanism: How Multiple Nodes Reach Agreement

Proof of Work (PoW)

This is what Bitcoin uses. Miners compete to solve a complex mathematical puzzle. Whoever solves it first has the right to add the next block and receive a Bitcoin reward.

The drawbacks are obvious: it consumes a lot of power and requires specialized mining hardware.

The advantages are: extremely high security, as an attack would require controlling more than 50% of the computing power of the entire network, which would cost astronomical figures.

Proof of Stake (PoS)

Use this after the Ethereum upgrade. Validators are not chosen through computational power competition, but are selected based on the amount of cryptocurrency they hold. The more coins you hold, the higher the probability of being selected and the more transaction fees you earn.

If you cheat, your coins will be confiscated (“forfeited”). This ensures honest behavior through economic incentives.

The advantage of PoS is that it saves more energy, while the disadvantage is that the problem of the rich getting richer will become more serious.

Other Consensus Mechanisms

• Delegated Proof of Stake (DPoS): Token holders vote to select validators.
• Proof of Authority (PoA): Validators are selected based on reputation and identity, rather than technical ability or wealth.

What are the types of blockchain

Public Blockchain

Fully open, anyone can participate, view, and verify. Bitcoin and Ethereum are examples. The code is usually open source, with the highest transparency.

Private Blockchain

Only authorized participants can join. Typically operated by a single enterprise or institution for internal processes. Although it is still distributed (multiple nodes store data), it is not decentralized.

Alliance Blockchain

Multiple organizations operate jointly. The rules are established collaboratively by all members, and the validators are composed of alliance members. Some information may be visible only to members.

Where is blockchain being used now

1. Cryptocurrency

This is the original purpose. Blockchain provides a secure, decentralized ledger to record transactions. Compared to international transfers through banks which can take several days, blockchain transfers are much faster and cheaper. Many people use cryptocurrency for cross-border remittances.

2. Smart Contracts and Decentralized Applications

Smart contracts are self-executing code. They run automatically when conditions are met, without the need for intermediaries. This has given rise to decentralized finance (DeFi) — lending, trading, and insurance can all be seamlessly conducted on the blockchain without traditional banks.

3. Tokenization of Physical Assets

The ownership of real estate, artworks, stocks, and even a cup of coffee can be converted into digital tokens and placed on the blockchain. This increases liquidity and allows more people to participate in investment.

4. Digital Identity

Blockchain can create tamper-proof identification for authentication and protection of sensitive data. As more and more personal information moves online, this becomes increasingly important.

5. Voting System

The immutable nature of blockchain is suitable for voting. Each vote is recorded, cannot be forged or deleted, ensuring the fairness of the election.

6. Supply Chain Management

From factory to consumer, every step can be recorded on the blockchain. This makes tracing product origins and verifying authenticity transparent and trustworthy. This is especially important for luxury goods and pharmaceuticals, where anti-counterfeiting is crucial.

Understanding How to Build a Digital Ledger System

The essence of blockchain is answering an ancient question: how do multiple untrusting parties maintain a shared ledger?

The traditional answer is to find a neutral third party (bank, notary, etc.). The answer of blockchain is to use cryptography and game theory:

• Cryptography ensures data authenticity and integrity.
• The consensus mechanism ensures there is no single point of failure.
• Economic incentives ensure the honest behavior of participants.
• Transparency allows everyone to supervise

This combination creates a system that can operate without trusting any central authority.

Conclusion

Blockchain has evolved from the underlying technology of Bitcoin into a universal tool for transforming multiple industries. Whether it's finance, healthcare, voting, or supply chains, blockchain is offering a new way of thinking: to create trust through technology rather than institutions.

This technology is still evolving rapidly, with new applications and improvements emerging each year. For anyone looking to understand digital finance or the Web3 ecosystem, mastering the fundamental concepts of blockchain is no longer optional, but a requirement.