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Blockchain Basics

A blockchain is a distributed, immutable ledger that records transactions in a secure, transparent, and tamper-resistant way. It is the foundational technology behind cryptocurrencies and many decentralized applications. Essentially, a blockchain is like a digital notebook with information that everyone can see and agree on, but no one can erase or secretly change.

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What is a Blockchain?

Think of a blockchain as a special kind of digital record book. Instead of being kept by one person or company, copies of this book are shared with everyone in a big group (the network). Here’s how it works, step by step:
  1. Transactions are grouped together: When people want to record something (like sending cryptocurrency), their transactions are collected into a “block” of information.
  2. Blocks are linked in order: Each new block is attached to the one before it, forming a chain. This is why it’s called a “blockchain.”
  3. Validators and the network check the work: Before a block is added, special participants called validators check that all transactions follow the rules (for example, that no one is spending money they don’t have). Once a block is proposed, the network uses a consensus mechanism to agree on whether it should be added. This process ensures that everyone’s copy of the blockchain stays in sync.
  4. Copies are everywhere: Once a block is approved, it’s added to everyone’s copy of the record book. This makes it very hard for anyone to change the past, because they’d have to change it on every copy at the same time.
In short, a blockchain is a way for lots of people to agree on a shared history, without needing to trust a single person or company to keep the records safe.

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Why Do We Need a Blockchain? (A Story)

Imagine three well-known figures in the cryptocurrency world: Satoshi Nakamoto (creator of Bitcoin), Vitalik Buterin (creator of Ethereum), and Anatoly Yakovenko (creator of Solana). Suppose they regularly send money to each other for various reasons—splitting dinner bills, sharing project expenses, or making bets on the future of technology. They want to keep track of who owes what, but there’s a problem: they don’t fully trust each other to keep the records. If Satoshi keeps the ledger, Vitalik and Anatoly might worry that Satoshi could change the numbers in his favor. If they use a shared spreadsheet, anyone could secretly edit it, and it would be hard to prove who made which changes. This problem becomes even more important in today’s world of electronic trading and digital finance, where transactions happen in microseconds and accuracy is critical. A single mistake or delay can mean lost money or missed opportunities. In such a fast-paced environment, it’s essential that everyone can instantly see the true state of the ledger and trust that it’s correct. What they need is a system where:
  • Everyone can see the same ledger.
  • No one can secretly change the past.
  • All new payments are agreed upon by the group before being added.
  • Transactions are recorded quickly and accurately, so everyone always knows exactly who owes what.
This is exactly what a blockchain provides! By using a blockchain, Satoshi, Vitalik, and Anatoly can all have a copy of the ledger. When someone wants to add a new payment, the group checks and agrees on it before it’s recorded. Once added, the record can’t be changed without everyone noticing. This way, they can settle payments and send money with trust—without needing to rely on a single person or a bank, and with the speed and accuracy required in the digital age.

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How Does a Blockchain Work?

A blockchain works by combining several key ideas from computer science and cryptography to create a secure, shared record of events. Here’s a more detailed look at how it all fits together:

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Blocks and Block Structure

Each block is like a page in the record book. It contains:
  • Block Header: This is the summary at the top of the page. It includes important information like the time the block was created, a reference to the previous block (the previous block’s hash), a special number called a nonce, and a Merkle root (a single hash that summarizes all the transactions in the block).
  • Block Body: This is the main content of the page, listing all the transactions or records being added at that moment.
  • Hash: Every block is given a unique digital fingerprint (hash) based on its contents. If anything in the block changes, the hash changes too, making tampering obvious.

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Linking Blocks Together

Blocks are connected in a strict order, each one pointing to the previous block’s hash. This is like each page in a notebook referencing the page before it. If someone tried to change an old page, all the following pages would have to be changed as well, which is nearly impossible in a large network.

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Distributed Ledger

Instead of one person keeping the record book, everyone in the network has a copy. When a new block is created, it’s broadcast to all participants (nodes), who check it and add it to their own copy if it’s valid. This makes the system resilient—if one copy is lost or tampered with, the others remain correct.

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Validation and Consensus

Before a block is added, it must be validated. Special participants called validators check that all transactions follow the rules (for example, that no one is spending money they don’t have). Once a block is proposed, the network uses a consensus mechanism to agree on whether it should be added. This process ensures that everyone’s copy of the blockchain stays in sync.

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The Role of Cryptography

Cryptography is the practice of securing information and communication by transforming it into a coded format, ensuring only authorized parties can access and understand the original message. Hash functions create unique fingerprints for each block, digital signatures prove who made each transaction, and public-key cryptography allows users to send and receive funds securely. These tools make it nearly impossible to forge transactions or rewrite history without detection.

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Putting It All Together

When you send a transaction on a blockchain, it’s grouped with others into a block. Validators check the block, and if it’s valid, it’s added to the chain and shared with everyone. The result is a permanent, tamper-resistant record that anyone can verify, but no one can secretly change. Blockchains use these mechanisms to create trust in a digital world—without needing a central authority or middleman.

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Types of Blockchains

  • Public Blockchains: Open to anyone (e.g., Nexus, Bitcoin, Ethereum). Anyone can participate, validate transactions, and read the ledger.
  • Private Blockchains: Access is restricted to a specific group (e.g., enterprise blockchains for supply chain).
  • Consortium Blockchains: Controlled by a group of organizations rather than a single entity.
  • Permissioned vs. Permissionless: Permissioned blockchains restrict who can participate, while permissionless blockchains are open to all.

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Consensus Mechanisms

For a deep dive into how blockchains reach agreement, see the Consensus Mechanisms page.

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Scalability

For more on how blockchains scale to support global use, see the Scalability page.

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Security

For a detailed look at how blockchains stay secure, see the Security page.

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Real-World Use Cases

These examples show how blockchains are being applied across industries to solve real problems, increase transparency, and empower users.
  • Cryptocurrencies: Bitcoin, Ethereum, and others use blockchains to enable peer-to-peer digital money.
  • Supply Chain: Track goods transparently from origin to consumer.
  • Identity Management: Decentralized IDs and verifiable credentials.
  • Voting Systems: Transparent, tamper-resistant digital voting.
  • Healthcare: Secure sharing of medical records.
  • NFTs and Digital Assets: Ownership and transfer of unique digital items.
The original and most well-known use case is cryptocurrency, where blockchains allow anyone in the world to send and receive value without a central authority. More advanced blockchains enable smart contracts—self-executing code that can automate agreements and power decentralized applications (dApps) such as decentralized exchanges and lending platforms. In supply chains, blockchains provide end-to-end transparency for products, allowing consumers and businesses to verify the origin and journey of goods such as food, pharmaceuticals, and luxury items. Decentralized identity solutions give users control over their digital identities, letting them prove who they are without relying on a single company or government. Blockchain-based voting platforms create tamper-resistant digital voting systems, aiming to increase trust and transparency in elections. In healthcare, blockchains can be used to securely share medical records and health data, improving patient privacy and interoperability between providers. NFT platforms use blockchains to prove ownership and authenticity of digital art, collectibles, and in-game items, creating new markets for creators and fans.

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Conclusion

Blockchains are revolutionizing how we store, transfer, and verify information. While challenges remain, ongoing innovation is making blockchains more scalable, secure, and accessible for a wide range of applications.

ScienceDirect: Blockchain Consensus Mechanisms
Rapid Innovation: Consensus Mechanisms in Blockchain
SCIRP: Blockchain Consensus Mechanisms Review
Anwar, H. (2018) Consensus Algorithms: The Root of Blockchain Technology.
Hooda, P. (2022) Proof of Work (PoW) Consensus.
Salimitari, M. and Chatterjee, M. (2018) A Survey on Consensus Protocols in Blockchain for IoT Networks.
101 Blockchains (2019) Know Everything About Blockchain Proof of Work (PoW).