Blockchain Basics: Understanding Distributed Ledger Technology from Scratch

Blockchain has become the infrastructure of the digital economy. This revolutionary technology not only changes the financial industry but also shows great potential in healthcare, supply chain, identity verification, and other fields. This article will use simple language to provide a comprehensive explanation of the core concepts and operational mechanisms of blockchain technology.

What is Blockchain: An Immutable Digital Ledger

Simply put, blockchain is a type of distributed ledger technology. It consists of a series of interconnected data blocks, each recording a large number of transaction details. Unlike traditional databases managed centrally by a single authority, blockchain data is stored simultaneously across thousands of independent computers, forming a decentralized network.

The beauty of this network is that once data is recorded, it is almost impossible to modify or delete. Each block contains a unique cryptographic fingerprint (called a hash). If someone attempts to tamper with the contents, this fingerprint will immediately change, destroying the integrity of the entire chain. All network participants will instantly detect such tampering.

The History of Blockchain: From Theory to Practice

The idea of blockchain did not appear out of nowhere. As early as 1991, computer scientist Stuart Haber and physicist Scott Stornetta proposed in academic papers the concept of using cryptography to build tamper-proof data chains. Their goal was to create a system that could not forge timestamps.

What truly brought blockchain into the public eye was Satoshi Nakamoto. In 2008, Nakamoto published a white paper that first applied blockchain technology to a practical digital currency system. The system he designed, Bitcoin, allows users to transact without banks or payment intermediaries.

Bitcoin operates on the principle that thousands of computers worldwide act as network nodes, jointly verifying and recording transactions. These nodes confirm the authenticity of transactions through cryptographic methods and permanently record them on the blockchain. Miners participating in verification are rewarded with newly generated bitcoins. Thus, Bitcoin became the first cryptocurrency based on blockchain technology in history.

How Blockchain Works: Chain Structure and Data Encryption

To understand how blockchain operates, we need to understand its three core elements.

First is the structure of blocks. Each block consists of two parts: the block header and the list of transactions. The block header contains metadata such as timestamp and version number, while the transaction list records all transactions that occurred.

Second is the hash mechanism. A hash is a cryptographic function that converts data of any length into a fixed-length string. Each block has its own hash value and also includes the hash of the previous block. This forms an unbreakable chain. If data in a block is tampered with, its hash value will change immediately, which will break the “previous block hash” record in all subsequent blocks, making tampering detectable.

Finally, the role of miners. Miners compete to solve complex mathematical puzzles; the first to find the solution can organize pending transactions into a new block and add it to the chain. They also verify the authenticity of other transactions to ensure the accuracy of the ledger. This process requires significant computational power and consumes considerable electricity. In return, miners receive newly minted cryptocurrencies and transaction fees.

Core Advantages of Blockchain

Immutability: Once data enters the blockchain, it is permanently locked. No one can secretly modify historical records, ensuring transparency.

True Decentralization: No single central authority holds absolute power. All participants are equal, and the network is maintained collectively by thousands of independent nodes worldwide.

Lower Costs: Traditional financial transactions involve multiple intermediaries, each charging fees. Blockchain eliminates these middlemen, significantly reducing transaction costs.

Security and Reliability: Cryptographic algorithms and full network transparency make the network nearly impossible to attack. Only if someone controls over 50% of the network’s computing power could they tamper with the transaction chain, which is virtually impossible in practice.

Fast Transactions: Peer-to-peer transactions do not require third-party approval and are usually completed within minutes.

Consensus Mechanisms: How Network Participants Reach Agreement

How do blockchain network participants agree on which transactions are valid? This is achieved through consensus mechanisms. Consensus mechanisms are the soul of blockchain; they ensure all nodes follow the same rules and prevent anyone from arbitrarily tampering with the ledger.

Proof-of-Work (PoW) is the oldest consensus mechanism, used by Bitcoin. In PoW, miners compete through computational power; the first to solve the puzzle gains the right to record transactions and receive rewards. This method is highly secure but consumes enormous energy, raising environmental concerns.

Proof of Stake (PoS) is a more environmentally friendly alternative. In PoS, validators are randomly selected based on the amount of cryptocurrency they have staked. Participants’ earnings depend on their proportion of held tokens. Malicious behavior results in the forfeiture of staked tokens, creating an economic incentive for honest validation.

Other consensus mechanisms include Delegated Proof of Stake (DPoS), where participants vote to elect representatives to validate transactions; Proof of Capacity (PoC), based on hard drive storage space; and Proof of Burn (PoB), which requires participants to destroy a certain amount of tokens to gain the right to validate.

Types and Forms of Blockchain

Based on access permissions and management, blockchain can be divided into three main types:

Public Blockchain: Fully decentralized, anyone can join the network, verify transactions, and create new blocks. Examples include Bitcoin and Ethereum. They are highly transparent and most resistant to attacks.

Private Blockchain: Controlled entirely by a specific organization or enterprise. Joining the network requires permission. This form is often used for internal data management within companies, with faster transaction speeds but the lowest degree of decentralization.

Consortium Blockchain: A hybrid of the two, jointly managed and operated by multiple organizations. Participation permissions can be open or restricted. This mode is common in cross-enterprise collaboration scenarios.

Practical Applications and Future Outlook of Blockchain

Today, blockchain is no longer just a theoretical concept but a technology with practical applications across many fields.

In financial services, blockchain accelerates international transfers and reduces costs. In supply chain management, every step from raw material procurement to final consumption can be tracked and verified. In healthcare, patient data can be stored and shared securely. In digital identity, individuals regain ownership and control over their personal information.

While blockchain technology is still in its early stages and faces challenges such as scalability, energy consumption, and regulation, its potential is undeniable. As technology continues to improve and application scenarios expand, blockchain will play an increasingly important role in reshaping trust mechanisms and optimizing resource allocation.

Risk Reminder

This article is for educational and reference purposes only and does not constitute any investment advice or recommendation. Cryptocurrencies and digital assets are highly risky, with volatile prices and potential for significant losses. Please thoroughly assess your risk tolerance before participating in any digital asset transactions. For important legal, tax, or investment decisions, consult professional experts in relevant fields. Due to differing national and regional policies, the availability of digital assets may vary.