Blockchain Beginner's Guide: Starting from Zero to Understand the Infrastructure of Digital Assets

What Exactly Is Blockchain?

If you haven’t figured out what blockchain is, here’s an analogy: it’s like a collective ledger, not managed by a single bank or company, but maintained by thousands of computers worldwide. Every transaction is recorded permanently, unchangeable and un deletable by anyone.

Why is this called “blockchain”? Because transaction data is packed into “blocks,” which are linked together in chronological order using cryptographic techniques, forming a “chain.” Just like pages in a book, once a page is filled, it becomes a chapter, and many chapters make up the complete book.

How Does Blockchain Work? A Transfer Example Makes It Clear

Suppose you want to send 1 Bitcoin to a friend. The blockchain system processes this as follows:

Step 1: Initiate the Transaction
You enter your wallet address, the recipient’s wallet address, and the transfer amount in your wallet. This transaction is broadcast to the entire blockchain network, awaiting validation.

Step 2: Miner Verification
All miners (computers acting as validation nodes) check two things: Does your wallet really have enough coins? Is this transaction signed by you? Once verified, the transaction moves into the “pending” pool.

Step 3: Pack into a Block
Under the Proof of Work (PoW) mechanism, approximately every 10 minutes, miners bundle multiple pending transactions into a new block.

Step 4: Network Confirmation
The new block is broadcast to the entire network, and all nodes verify its validity. When more than 51% of nodes agree, the block is officially added to the chain, completing your transaction.

What Composes a Blockchain?

A block mainly contains three parts:

Data
In Bitcoin blocks, this includes sender, receiver, transfer amount, etc. Different blockchain types have different data contents.

Hash Value
Think of it as the “fingerprint” of the block, unique and unchangeable. Hash values allow quick identification of blocks and their data, and help detect tampering.

Previous Block’s Hash
This links the current block to the previous one. If someone tries to alter a block’s hash, all subsequent blocks’ hashes become invalid. This makes tampering with historical transactions very difficult without detection, which is the source of blockchain security.

What Types of Blockchains Are There?

Based on access permissions and participation, blockchain mainly divides into three types:

Public Blockchain
Features: Anyone can participate, transactions are fully transparent, data is nearly immutable.
Examples: Bitcoin, Ethereum, Polkadot, Litecoin, Cardano, Solana, BNB Chain, etc.
Applications: Cryptocurrency, IoT, smart contracts, digital identity.
Disadvantages: Slower transaction processing, high energy and computational requirements.

Consortium Blockchain
Features: Only authorized organizations can participate, with strong controllability and faster transactions.
Examples: Hyperledger, FISCO BCOS, R3 CEV.
Applications: Finance, energy, insurance, inter-organizational transactions.
Disadvantages: Requires complex permission management systems.

Private Blockchain
Features: Read/write permissions are fully controlled by a single organization, most secure but least transparent.
Applications: Enterprise data management, auditing.
Disadvantages: Tokens can be manipulated, security risks exist.

Why Is Blockchain So Worth Paying Attention To?

Unbeatable Security
Verified transactions are protected by cryptography, unalterable and permanently recorded. Even system administrators cannot delete transactions.

All Transactions Are Traceable
Since every transaction is recorded in an immutable database, you can trace the origin and flow of any funds, which helps combat money laundering.

Efficiency and Cost Advantages
Distributed ledgers enable faster settlement, significantly reduce cross-border transfer costs, and eliminate intermediaries.

Higher Transaction Accuracy
Each transaction requires multiple nodes to verify, greatly reducing errors. Traditional databases, managed centrally, have a higher error probability.

Where Is Blockchain Currently Used?

Cryptocurrency
This is the most direct application. The entire operation of cryptocurrencies like Bitcoin and Ethereum is based on blockchain.

Supply Chain Management
IBM’s Food Trust uses blockchain to track food from farm to table. Taiwan’s tea brand “Wang De Chuan” records tea origin and processing via blockchain; consumers can scan QR codes to see the full history, greatly increasing trust.

Intellectual Property and NFTs
Non-fungible tokens (NFTs) combined with art and music allow creators to connect directly with consumers. For example, Jay Chou’s “Phanta Bear” NFT project enables fans to support idols and access exclusive content.

Healthcare Management
Estonia uses blockchain to store medical records, with doctors able to access data only with patient authorization, preventing privacy leaks and tampering. Taiwan’s Ministry of Health and Welfare is also exploring blockchain for secure inter-hospital record sharing.

Financial Sector
Institutions can issue bonds, notes, and other financial products on blockchain. For instance, Bank of China International issued structured notes worth over $30 million on Ethereum in June 2023, pioneering traditional finance applications on blockchain.

What Limitations Does Blockchain Have?

Of course, blockchain isn’t perfect:

If you lose your wallet’s private key, the stored cryptocurrencies may be forever unrecoverable.

Public blockchains using Proof of Work (like Bitcoin) require massive electricity and computational resources, raising environmental concerns.

Consensus on private and consortium blockchains can take time, leading to slow upgrades.

There is also a risk of misuse for illegal activities.

How to Invest in Blockchain?

Blockchain itself isn’t directly investable since it’s just a technology. But you can invest in blockchain-based products, such as cryptocurrencies.

Spot Trading
The most straightforward method. Buy Bitcoin or Ethereum, and sell when the price appreciates. For example, buy 1 BTC at $30,000 and sell at $50,000 to earn a $20,000 profit.

Mining
Providing computational power to verify transactions and earn newly issued tokens and transaction fees. Suitable for investors with technical skills and capital.

CFD Trading
No need to hold actual tokens; trade the price movements of cryptocurrencies. Leverage can amplify gains, but risks increase accordingly. This method has a low entry barrier, operates 24/7, and is suitable for quick market entry.

Regardless of the method, always thoroughly understand market risks and make cautious decisions before entering.