A Brief Introduction to Blockchain Technology: A Complete Guide from Concept to Application

In recent years, many people have wanted to understand what blockchain really is, what problems it can solve, and the underlying logic behind its operation. This article will start from basic concepts to give you a comprehensive understanding of this technology that is transforming multiple industries.

What is the essence of blockchain?

Simply put, blockchain is a distributed ledger. Imagine a ledger recording the flow of money, but this ledger is not maintained by a single person or organization, rather it is maintained collectively by thousands of participants worldwide.

● Why is it called “blockchain”?

Each transaction is recorded in a block, similar to a page in a ledger. When a page is filled, it forms a complete block. Multiple blocks are then linked together in chronological order using cryptography (Chain), forming the blockchain.

● The core advantage of decentralization

In traditional systems, a central authority controls all data. But in blockchain, anyone with the appropriate equipment (called “miners” or “nodes”) can participate in verifying and recording transactions. The benefit of this distributed ledger model is: even if some nodes fail or data is lost, the entire system can still operate normally because thousands of other nodes hold copies of the same ledger.

Internal structure of blockchain

Each blockchain consists of multiple blocks, and each block typically contains the following three main elements:

1. Data (Data)
The data stored in a block varies depending on the application. For example, in Bitcoin, the block records detailed information of each transaction, including sender, receiver, and transaction amount.

2. Hash value (Hash Value)
The hash value is like a fingerprint of the block, unique to each block. Each block has its own hash value and also stores the hash of the previous block. This design ensures that any tampering with the block content will immediately change the hash value, making it detectable.

3. Secure linking mechanism
Since each block contains the hash of the previous block, any attempt to alter a block will invalidate the links of all subsequent blocks. To prevent such attacks, blockchain uses consensus mechanisms like Proof of Work (PoW), making attacks extremely costly and thus protecting the security of the entire network.

How does a transaction get completed?

Let’s illustrate the transaction process on the blockchain with a simple example. Suppose Xiao Zhang wants to transfer 1 Bitcoin to Xiao Wang:

Step 1: Initiate the transaction
Xiao Zhang inputs the sender’s address, receiver’s address (Xiao Wang’s wallet), and amount (1 BTC) in his wallet. The transaction is immediately broadcasted to the network awaiting confirmation.

Step 2: Miners verify
Miners need to verify two key pieces of information: first, confirm that Xiao Zhang’s wallet indeed has 1 BTC; second, verify that this transaction genuinely comes from Xiao Zhang (via digital signature verification). Once verified, the transaction enters the pending packaging area.

Step 3: Pack into a block
Under the PoW mechanism, multiple verified transactions are packed into a new block approximately every 10 minutes.

Step 4: Network confirmation
The new block is broadcasted to the entire network, where all nodes check the legality of transactions within the block and the correctness of the hash. As long as more than 51% of nodes agree, the new block is permanently added to the blockchain, and the transaction is completed.

Warm reminder: When transferring, be sure to verify the recipient’s address three times, because blockchain transactions are irreversible; errors cannot be undone.

How many types of blockchain are there?

Based on access permissions and participant roles, blockchains can be divided into three categories:

Core advantages brought by blockchain

✅ Significantly enhanced security
All transactions on the blockchain are cryptographically protected, with data being immutable and permanently recorded. Even system administrators have no authority to delete any transaction records.

✅ Complete traceability
Every transaction is recorded in a permanent database, allowing clear tracking of fund flows and transaction history.

✅ Higher transaction efficiency
Distributed ledgers enable faster verification among members, significantly reducing costs for cross-region payments and other transactions.

✅ Greatly improved accuracy
Transactions on the blockchain require verification by multiple nodes, greatly reducing human errors. Since each asset change has an independent tracking record, double spending is almost impossible.

Limitations of blockchain

❌ Key management risks
Losing private keys may result in permanent loss of stored virtual assets.

❌ Huge energy consumption
Public chains using PoW (like Bitcoin) require大量electricity and computing resources, raising environmental concerns.

❌ Consensus achievement takes time
Consensus mechanisms in private and consortium chains require longer durations, leading to slower upgrades and development.

❌ Risks of illegal use
The anonymity of blockchain can be exploited for illegal activities.

Real-world applications of blockchain

Blockchain technology has gradually penetrated multiple industries, becoming a key driver of digital transformation.

● Cryptocurrency and financial innovation

Cryptocurrencies are the most direct application of blockchain. Additionally, blockchain is used for issuing bonds and digital notes. For example, a bank issued structured notes worth over $30 million on Ethereum in June 2023. The rise of decentralized finance (DeFi) further integrates blockchain with financial services, creating a new financial ecosystem.

● Supply chain transparency

Supply chains involve the flow of goods through multiple stages, and traditional methods often lead to information loss. IBM Food Trust uses blockchain to track the entire supply chain process, greatly improving issue tracking efficiency. Taiwan’s tea brand “Wang De Chuan” records tea origin and processing information on blockchain; consumers can scan QR codes to view the full history, greatly enhancing consumer confidence.

● Intellectual property and art management

Traditional rights records are prone to errors, but blockchain offers an immutable record method. The emergence of non-fungible tokens (NFTs) has ushered in a new era for art and intellectual property management. Jay Chou’s “Phanta Bear” NFT project is a typical example, where fans can directly support the idol by purchasing NFTs and also receive exclusive content and collectibles.

● Medical health data management

Blockchain is widely used in healthcare. Estonia has adopted blockchain to store medical records, allowing patients to authorize specific doctors to access, effectively preventing data tampering. Taiwan’s Ministry of Health and Welfare is also researching blockchain-based secure medical record sharing, enabling patients to transfer hospitals without carrying paper reports.

How to invest in blockchain-related assets?

It is important to clarify that blockchain itself, as a technology, cannot be directly invested in, but you can invest in products and services based on it. The most direct current methods include:

● Spot trading — the most straightforward

Similar to stock trading, profit is made by buying low and selling high. For example, buying 1 BTC at $30,000 and selling at $50,000 yields a profit of $20,000. The purchased crypto assets can also be stored in wallets or transferred to others.

● Mining — for advanced investors

Mining involves providing computational power to verify transactions and create new blocks, earning newly generated tokens or transaction fees in return. This requires specialized hardware and technical knowledge.

● Contract for difference (CFD) trading — efficient and flexible

CFDs are financial derivatives that do not require purchasing the actual asset or managing private keys. Traders can go long or short on cryptocurrencies directly and use leverage to amplify investments with smaller capital. However, leverage also significantly increases the risk of losses.

Summary

As a representative of Chinese blockchain technology, blockchain is reshaping multiple fields such as finance, supply chain, and healthcare. Understanding its basic principles and application prospects is crucial for grasping future development trends. Whether for investors or ordinary users, mastering blockchain knowledge will become an essential skill.