Why do crypto investors need to have a deep understanding of Blockchain technology

When it comes to cryptocurrencies, the word Blockchain is certainly familiar to everyone. But in fact, the components of blockchain technology are more complex than we think. In this article, we will explore the fundamentals of these systems and why they are transforming the global finance industry.

Understanding the Structure of Blockchain

Blockchain is a revolutionary technology for recording data by eliminating intermediaries. This system allows users to send data and assets directly to each other with a high level of security and trust.

To understand the components of blockchain technology, you need to know that Blockchain consists of (Blocks) connected in a (Chain). Each block contains data and a unique hash code, like a human fingerprint. When the data in a block is altered, the hash code changes, signaling the entire system that tampering has occurred.

The Real Security Layers: How Many Layers of Protection Are There?

Let’s see how Blockchain defends against hacking.

First Layer: Hash System

Each generated block receives a hash code as its identity. This three-tier data storage system includes:

• (Data): For example, on Bitcoin, transaction data shows sender, receiver, and amount.
• Current Hash (Hash): A unique code like an ID number.
• Previous Block Hash (Previous Hash): Links to the previous block.

For example: If Bitcoin transmits these data:

• Block 1: Hash A24 → Transaction of 5 BTC from Golf to Poo → Previous hash 000
• Block 2: Hash 12B → Transaction of 3 BTC from Poo to Mali → Previous hash A24
• Block 3: Hash 5C3 → Transaction of 2 BTC from Mali to Faa → Previous hash 12B

See? If someone tries to forge Block 1 with hash A24, it will change, causing Block 2 to reject it, breaking the chain.

Second Layer: Consensus Mechanism

Additionally, Blockchain employs a Consensus (Consensus) mechanism. Bitcoin uses Proof-of-Work (PoW), which takes about 10 minutes to solve a cryptographic puzzle and create a new block. To hack the system, one would need to alter the hash of all previous blocks before the new block is added. This is extremely difficult because Bitcoin already has hundreds of thousands of blocks.

Third Layer: Peer-to-Peer Network

Blockchain has no central authority. Instead, it relies on a P2P network where each user operates as a Node (Node) with the following roles:

1. Users install blockchain software and become a Node.
2. When a new block is created, all Nodes must verify its validity.
3. If everyone agrees, the block is attached to the chain.

Controlling the Blockchain requires more than 50% of Nodes in a short time, which is nearly impossible. Bitcoin alone has hundreds of thousands of Nodes.

How Many Types of Blockchain Are There? Which One Is Best?

Based on the type, Blockchain can be divided into 4 groups:

1. Public Blockchain (Public Blockchain)

• Features: Open to everyone, permissionless, highly transparent
• Examples: Bitcoin, Ethereum, Solana
• Use Cases: Crypto trading, DeFi, open-source projects
• Advantages: Security through decentralization, global collaboration
• Disadvantages: Slow transaction speeds, scalability limitations

2. Private Blockchain (Private Blockchain)

• Features: Closed network controlled by a single organization
• Examples: Hyperledger Fabric, MultiChain
• Use Cases: Internal data management, payroll, accounting
• Advantages: High speed, energy-efficient, better control
• Disadvantages: Centralized control risks, less transparency

3. Hybrid Blockchain (Hybrid Blockchain)

• Features: Combines private and public elements
• Examples: XinFin, IBM Blockchain
• Use Cases: Financial services, healthcare requiring some privacy
• Advantages: Flexible, best of both worlds
• Disadvantages: Complex management, requires expertise

4. Consortium Blockchain (Consortium Blockchain)

• Features: Managed by multiple organizations
• Examples: R3’s Corda
• Use Cases: Logistics, banking, cross-industry collaboration
• Advantages: Trust among known participants, risk distribution
• Disadvantages: Complex coordination

Why Does Blockchain Attract Investors?

Why is it such an important technology?

1. Highest Security Data is encrypted and stored in blocks that cannot be altered, deleted, or damaged.

2. Full Transparency No middlemen control; all transactions are verifiable. The network is decentralized.

3. Cost Savings No intermediaries; no special fees, only transaction fees on the system.

4. Traceability Data links back to its origin, making it easy to audit and analyze.

5. High Efficiency and Speed Automated processing reduces human errors, enabling rapid completion of tasks.

The Weaknesses of Blockchain You Should Know

But not everything is perfect:

1. Scalability Issues Current systems cannot fully support large data volumes. However, ongoing technological developments may resolve this soon.

2. Theoretical Risks If someone controls over 51% of Nodes, they could control the system. In practice, this requires enormous effort, such as acquiring many wallets and massive computing power. While not impossible, it’s highly unlikely.

3. Massive Energy Consumption Proof-of-Work requires high computational power and electricity. Bitcoin’s migration to El Salvador is partly due to energy sources.

4. Lack of Formal Regulation Approval from governments remains weak. Banks and authorities are still hesitant, making it a revolutionary battleground.

What Does Blockchain Use? 5 Ways It’s Changing the World

1. Financial Industry

The Bank of Thailand (BOT) has a project called Inthanon planning to implement Blockchain for digital Baht, replacing the BarNet system used between banks. Additionally, JMART has a project called JFIN using Blockchain to manage customer data and calculate Credit Scores for online lending.

2. Supply Chain

IBM developed Food Trust Blockchain to allow consumers to trace the origin of raw materials back to their source. No counterfeiting occurs, and transparency is ensured. It can be used for general products, enabling users to verify origins and transportation routes accurately.

3. Voting Systems

Blockchain is secure against fraud because altering or changing results is nearly impossible. It provides transparency in vote counting, reducing costs of manual verification. Many governments already use Blockchain for counting votes.

4. Digital Assets

NFT assets stored on Blockchain ensure full ownership verification. No one can claim it belongs to them falsely.

5. Cryptocurrency Valuation

Bitcoin, Ethereum, Solana, and other digital currencies all rely on Blockchain as their foundation.

Summary: Blockchain Is Changing the World

Welcome to the new era of digital finance. By understanding the components of blockchain technology, you are ready to confidently step into the crypto market. Blockchain is not just for cryptocurrencies; it is set to revolutionize the world.