Deep Dive into Blockchain: From Fundamentals to Practical Applications

Many people are curious and confused about the technology of blockchain. What exactly is it? What can it be used for? How does it operate? This article will guide you through a simple and understandable explanation to comprehensively understand the world of blockchain.

Core Concepts of Blockchain

Understanding in the simplest way

Imagine a ledger maintained collectively by many people; this is the essence of blockchain. Unlike traditional ledgers controlled by a single institution, blockchain is distributed among participants worldwide, with no central authority.

Origin of the Name

The term “blockchain” comes from its unique data structure. Each transaction is recorded in a “block,” similar to a page in a ledger. When a block is filled, a new block is formed. These blocks are linked together in chronological order through cryptographic techniques (Chain), ultimately forming what we call the blockchain.

Meaning of Decentralization

In this distributed system, anyone with the necessary technical tools (often called “miners” or “nodes”) can participate in recording and verifying transactions. This multi-party maintenance mechanism offers an important benefit: even if a participant’s data is lost or they stop working, the entire network can still operate normally. This is the core value of the blockchain’s decentralization model.

Internal Structure of Blockchain

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

Data Layer
The data stored in a block varies depending on the application. For example, in Bitcoin, blocks mainly store transaction information, including sender, receiver, and transfer amount details.

Unique Hash Value Identifier
A hash value is like a “fingerprint” for each block, with uniqueness. Its role is to help locate specific blocks and their internal information. Additionally, because of the hash’s uniqueness, comparing hash values can determine whether a block has been tampered with or damaged.

Linking Mechanism
Each block contains the hash value of the previous block. This design ensures continuity between blocks. If a hacker attempts to alter a block, the hash values of all subsequent blocks will become invalid. This “butterfly effect” greatly enhances the system’s tamper resistance. To further strengthen security, the system employs Proof of Work (PoW), making malicious attacks extremely costly and protecting the integrity of the entire blockchain network.

Actual Operation Process of Blockchain

After understanding the structure of blockchain, let’s look at how it works through a common transfer transaction.

Suppose User A wants to transfer 1 Bitcoin to User B. The process involves the following steps:

Transaction Initiation
User A uses a digital wallet, inputs the sender’s address (their own wallet), the receiver’s address (B’s wallet), and the transfer amount (1 BTC). The transaction is broadcast to the blockchain network and enters a pending verification state.

Miner Verification and Confirmation
Miners perform two key checks. First, they verify the balance to ensure A’s wallet has at least 1 Bitcoin; second, they verify the digital signature to confirm the transaction is authorized by A. Once both checks pass, the transaction is placed into a pool for packaging.

Generation of a New Block
Under the PoW mechanism, the system approximately every 10 minutes packages multiple verified transactions into a new block.

Network Consensus
The new block is propagated across the entire network. All nodes verify the legality of transactions within the block and whether the hash links correctly to the previous block. When more than 51% of nodes agree on the validity, the block is officially added to the chain, and the transaction is finally confirmed.

Tip: Miners earn rewards by verifying transactions, such as Bitcoin transaction fees. This verification process is called “mining.” When transferring, always double-check the recipient’s address carefully, as Bitcoin transactions are irreversible; funds sent to the wrong address cannot be recovered.

Types of Blockchain

Blockchain is not a single form; based on participation rights and control methods, it can be divided into three main types. Each type has its advantages and disadvantages, and the most suitable choice depends on specific needs.

Main Advantages of Blockchain Technology

Enhanced Security
Every verified transaction on the blockchain is protected by cryptography and is immutable, permanently recorded in the system. Even system administrators cannot delete or modify these records.

Complete Traceability
All transaction information is stored in an immutable database. This means the full history of each transaction can be traced from source to destination with clear records.

Excellent Operational Efficiency
The distributed ledger allows network participants to quickly verify and record transactions, enabling low-cost, rapid cross-region payments, significantly reducing intermediary costs.

Improved Transaction Accuracy
Each transaction on the blockchain requires multiple nodes to verify before confirmation. Compared to traditional centralized databases, this greatly enhances transaction accuracy. Since each asset change has an independent tracking record, double spending is almost impossible.

Main Limitations of Blockchain

Key Security Risks
If users lose or leak their private keys, their virtual assets stored on the blockchain may be permanently lost and cannot be recovered.

Energy Consumption Issues
Public chains using PoW (like Bitcoin) require massive amounts of electricity and computational resources, posing environmental and cost challenges.

Consensus Efficiency Bottleneck
Reaching consensus in private or consortium chains takes time, which can slow down network upgrades and feature development.

Potential for Abuse
The anonymity and uncontrollability of blockchain may be exploited for illegal activities, which remains a societal challenge for this technology.

Real-World Applications of Blockchain

Blockchain has broad development potential and is gradually becoming a key technology for industry transformation and upgrading. It is already applied in various fields, including crypto assets, supply chain management, intellectual property, food traceability, healthcare data, and financial innovation.

Crypto Assets and Digital Currencies

Cryptocurrencies like Bitcoin and Ethereum are the most well-known applications of blockchain. These digital assets based on blockchain do not rely on central banks or financial institutions, enabling true peer-to-peer value transfer.

Supply Chain Transparency and Logistics Tracking

In supply chains, products pass through multiple stages from manufacturing to final consumer, generating large amounts of data at each step. Traditional methods risk data loss or tampering, making accountability difficult when issues arise.

Using blockchain technology, every step of the supply process can be clearly recorded. For example, with food safety, consumers can scan a QR code on the product to view its entire journey from production, processing, transportation, to sale. This not only increases consumer trust but also facilitates quick identification of responsible parties when quality issues occur.

Intellectual Property and Digital Asset Ownership Management

Traditional property rights verification, transfer, and tracking involve complex paperwork and manual records prone to errors. Recording assets or intellectual property on the blockchain can greatly improve efficiency and provide accurate evidence in disputes.

Non-fungible tokens (NFTs) are especially prominent in this area. Artworks, music albums, digital collectibles, etc., can establish ownership and track transfer history via NFTs. Fans purchasing NFTs of their favorite artists can directly support creators and gain exclusive content and community rights.

Medical and Health Data Management

In healthcare, blockchain is used to store patient health records and diagnostic data. Through blockchain’s permission management, patients can selectively authorize specific medical personnel to access their medical history and diagnosis records, preventing data tampering or unauthorized access.

Many countries have begun implementing this application. Medical teams can share patient information more securely and conveniently. When patients transfer hospitals, they no longer need to carry paper reports, greatly simplifying the medical process.

Financial Innovation and Decentralized Finance

Blockchain enables financial institutions to issue bonds, bills, and other financial instruments in a transparent environment. The emergence of DeFi (Decentralized Finance) further promotes financial democratization, allowing ordinary users to participate in lending, trading, and other financial activities without traditional intermediaries.

How to Participate in Blockchain Investment

It is important to note that blockchain itself is a technological infrastructure and cannot be directly invested in. However, we can participate indirectly by investing in its products or developing companies. The most practical current method is to purchase crypto assets.

Spot Trading — Beginner Level

Spot trading is straightforward, similar to stock trading. Users buy low and sell high to profit from the price difference. For example, buying 1 Bitcoin at $30,000 and selling at $50,000 yields a profit of $20,000. The purchased crypto can be stored in a wallet or transferred to others.

Mining — Advanced Investment Method

Mining involves purchasing specialized hardware and running verification processes to earn block rewards or transaction fees. This method requires higher technical knowledge and initial investment, suitable for investors with in-depth understanding of blockchain.

Contract for Difference (CFD) Trading — Efficient and Flexible

CFD is a financial derivative that allows users to take long or short positions on virtual currencies without owning the actual crypto. Leverage can be used to control larger positions with less capital.

Note that leveraged trading amplifies both gains and losses. Investors should choose carefully based on their risk tolerance.

Summary

Blockchain is gradually evolving from a technological innovation into a societal infrastructure. From the birth of Bitcoin to the emergence of Ethereum smart contracts, and to the booming development of DeFi and NFTs, blockchain applications are continuously expanding.

Whether you want to understand the basics of blockchain or consider investing in crypto assets, a deep understanding of how blockchain works, its technical features, and real-world applications is essential for making smarter decisions. The future of blockchain is full of opportunities and challenges.