Introduction to Blockchain Technology: A Complete Guide from Principles to Applications

Why Should You Understand Blockchain?

Over the years, more and more people have become curious about blockchain, but many still don’t understand what it really is, what it can do, or how to participate. Blockchain technology is transforming various fields such as finance, supply chain, and healthcare. Understanding its basic logic is crucial for grasping future trends.

The Core Nature of Blockchain Technology

Simply put, blockchain is like a ledger jointly recorded and maintained by many people. Unlike traditional ledgers controlled by a single institution, blockchain allows any participant with technical capability (commonly called “miners” or “nodes”) worldwide to collaboratively maintain this ledger.

The Meaning of the Name

The name “blockchain” reflects its structural features. Each transaction is recorded in a block, similar to a page in a ledger. When a block is full, a new block is formed. These blocks are linked together in chronological order through cryptographic methods, forming the blockchain.

The Advantages of Decentralization

Multiple participants recording transactions means the system won’t be affected by the failure or data loss of any single node. Even if one miner stops working, thousands of other nodes worldwide continue recording and verifying transactions. This is the decentralization feature of blockchain technology, and it is its most core innovation.

The Structural Components of Blockchain Technology

Every blockchain consists of countless blocks, each typically containing three key elements:

Data Section

The data stored in a block varies depending on its purpose. For example, Bitcoin records transaction information—who sent to whom, and how much was transferred. This data is permanently stored within the block.

Unique Hash Value

A hash value is like a fingerprint—unique and one-of-a-kind. It helps us quickly locate and identify specific blocks. More importantly, the uniqueness of the hash allows us to detect if a block has been tampered with—altering even a tiny piece of data will completely change the hash.

Previous Block’s Hash Value

Blocks are linked together by recording the hash value of the previous block. This design is clever: if a hacker attempts to tamper with a block, its hash value will change, causing the links of all subsequent blocks to break. To prevent such attacks, the system employs a Proof of Work (PoW) mechanism, making tampering extremely difficult and uneconomical.

How Blockchain Technology Works: A Real Transaction Example

After understanding the components, let’s look at how blockchain operates in actual transactions. Suppose Xiao Lin wants to transfer 1 Bitcoin to Xiao Zheng:

Stage 1: Transaction Initiation

Xiao Lin inputs three pieces of information in his wallet: his wallet address (sender), Xiao Zheng’s wallet address (receiver), and the transfer amount (1 BTC). This transaction is broadcast to the blockchain network and enters the confirmation queue.

Stage 2: Miner Verification

Miners in the network receive this transaction and perform two checks: first, verify that Xiao Lin’s wallet indeed has 1 Bitcoin; second, confirm that the transaction was sent by Xiao Lin himself (via digital signature verification). After passing both checks, the transaction is placed into a pending block.

Stage 3: Packing into a Block

Under the Proof of Work mechanism, miners pack multiple verified transactions into a new block approximately every 10 minutes.

Stage 4: Network Consensus

Once the new block is generated, it is broadcast to all nodes in the network. Each node checks whether the transactions are valid and whether the hash links correctly to the previous block. When more than 51% of nodes agree on this block, it is officially added to the chain, and the transaction is completed.

Different Forms of Blockchain Technology

Blockchain technology is not limited to one implementation. Depending on participants and permissions, it is mainly divided into three types:

Public Chain

Anyone can join; transactions are transparent and open, and tampering is nearly impossible. However, due to numerous nodes, transaction processing is slower and energy consumption is high. Examples include Bitcoin, Ethereum, and Solana.

Consortium Chain

Participation is limited to specific organizations; permission settings are more flexible, transactions are faster, and costs are lower. Suitable for enterprise collaboration. Common cases include Hyperledger and FISCO BCOS.

Private Chain

Controlled entirely by a single organization or entity, offering the highest privacy protection and efficiency. However, transparency is low, and conflicts of interest may arise. Often used for internal data management and auditing.

Core Advantages of Blockchain Technology

Unparalleled Security

Transactions on the blockchain are encrypted and tamper-proof, permanently recorded. Even system administrators have no rights to delete or modify confirmed transactions.

Complete Transaction Traceability

All transactions are recorded in an immutable database, allowing you to trace the origin and flow of any asset.

Enhanced Operational Efficiency

Distributed ledgers simplify record verification processes, making cross-regional payments quick and convenient, significantly reducing costs.

High Transaction Accuracy

With multiple nodes verifying, errors are far less likely than in traditional databases. Each asset change is individually recorded, making double-spending nearly impossible.

Challenges Facing Blockchain Technology

Key Management Risks

Losing the wallet’s private key may result in permanent loss of stored assets.

Energy Consumption and Environmental Issues

Public blockchains using Proof of Work require enormous amounts of electricity and computing power.

Consensus Efficiency Problems

Achieving consensus in private or consortium chains takes time, prolonging upgrade and development cycles.

Potential Illegal Activities

The anonymity of blockchain provides opportunities for illicit activities, which is a concern for regulators.

Fields Where Blockchain Technology Is Changing the Landscape

The application scope of blockchain is continuously expanding, penetrating multiple industries:

Cryptocurrency and Finance

Bitcoin and Ethereum are the most mature applications of blockchain technology. In recent years, Decentralized Finance (DeFi) platforms have also utilized blockchain to realize lending, trading, insurance, and other financial functions without traditional intermediaries. For example, Bank of China International issued over $30 million in structured notes on Ethereum in June 2023, demonstrating blockchain’s practical application in finance.

Supply Chain Tracking

Products pass through multiple stages from factory to consumer, and data loss is common with traditional methods. IBM’s Food Trust project uses blockchain to monitor the entire supply chain, enabling companies to quickly identify sources of problems. Taiwan tea brands record origin and processing details via blockchain, allowing consumers to scan QR codes to view complete traceability information.

Intellectual Property and Digital Assets

Non-fungible tokens (NFTs) combine art, music, and other creative content with blockchain technology, providing clearer proof of ownership. Jay Chou’s NFT project allows fans to directly support their idol and receive exclusive content.

Healthcare Management

Blockchain is used to store patients’ health records, with patients authorized to grant specific medical personnel access. Estonia has adopted blockchain for storing medical records to prevent unauthorized tampering. Taiwan’s Ministry of Health and Welfare is also exploring blockchain to enable secure sharing of medical records among hospitals, so patients don’t need to carry paper reports when transferring hospitals.

How Ordinary People Can Participate in Blockchain Investment

Blockchain itself is a technological infrastructure and cannot be directly invested in. However, you can invest in products or companies developed based on blockchain technology. The most direct way is to engage with cryptocurrencies.

Spot Trading—The Entry-Level Choice

This is the easiest method to understand. Buy low, sell high, and profit from the difference. For example, buy 1 Bitcoin for $30,000 and sell it at $50,000 to earn $20,000. Of course, you can also hold onto your cryptocurrencies long-term.

Mining—An Advanced Player’s Choice

Mining involves contributing computing power to verify transactions and earn block rewards. It requires investing in specialized hardware and ongoing electricity costs, suitable for investors with technical background and sufficient capital.

Derivatives Trading—A Fast and Flexible Method

Contracts for Difference (CFDs) are financial derivatives allowing you to leverage a small amount of capital to trade larger positions. You don’t need to hold a wallet or private keys, and can go long or short using cryptocurrencies as underlying assets. However, leverage amplifies both gains and losses, so caution is advised.

Regardless of the method chosen, thorough research, understanding risks, and cautious decision-making are essential before investing.