Understanding Blockchain from Scratch: A Complete Guide from Technical Principles to Practical Applications

The concept of blockchain sounds profound and mysterious, but its core idea is actually very straightforward. If you want to quickly understand what blockchain is, what it can do, and how to participate, this article will provide a comprehensive overview.

The Essence of Blockchain: A Ledger Recorded by the World

Imagine a scenario: you need to record the inflow and outflow of money. Traditionally, this is done by intermediary institutions like banks. But blockchain is different; it is a transaction record system maintained collectively by thousands of participants worldwide.

In the simplest terms, blockchain is a shared data ledger maintained by multiple people, with no single central authority. Each participant (called a “node” or “miner”) holds a complete copy. The benefit of this is: even if one node fails, the entire system can still operate normally. This is what people often refer to as decentralization.

Why is it called “Blockchain”?

The name is very intuitive. Each transaction is recorded in a block, just like a page in a ledger. When a page is filled, it forms a block. Many blocks are linked together in chronological order through cryptographic techniques, forming the blockchain.

The Internal Structure of Blockchain

Each block contains three core parts:

Part 1: Transaction Data (Data)
Stores actual transaction information, such as who transferred how many bitcoins or other tokens to whom. On the Bitcoin network, this includes details like sender, receiver, and amount.

Part 2: Cryptographic Fingerprint (Hash Value)
Each block has a unique identifier, like a human fingerprint. It helps users quickly locate and identify specific blocks. More importantly, if someone tries to tamper with the data inside the block, this fingerprint will immediately change, so any unauthorized modification can be detected instantly.

Part 3: Previous Block’s Fingerprint
This is key to the security of the blockchain. Each new block records the fingerprint of the previous block, forming a chain. If a hacker attempts to alter a past block, the fingerprints of all subsequent blocks will become invalid. This process consumes significant computational effort, making attacks unprofitable. This mechanism is called Proof of Work (PoW), ensuring the integrity and immutability of the ledger.

How Blockchain Works in Practice: An Example of Transfer

No matter how much theory we discuss, seeing an example is more convincing. Let’s demonstrate the complete workflow of a blockchain with a Bitcoin transfer.

Scenario: Xiao Lin wants to transfer 1 BTC to Xiao Zheng.

Stage 1: Transaction Initiation
Xiao Lin uses a wallet software to input necessary information: his wallet address (sender), Xiao Zheng’s wallet address (receiver), and the amount (1 BTC). This transaction is broadcast to the entire blockchain network, awaiting verification.

Stage 2: Miner Verification
Miner computers in the network receive the transaction and perform two checks:

• Confirm that Xiao Lin’s wallet indeed has 1 BTC (ledger check)
• Verify that the transaction is signed with Xiao Lin’s private key (authenticity check)

Once verified, the transaction enters the pending queue for packaging.

Stage 3: Building a New Block
Under the PoW mechanism, miners pack hundreds of verified transactions into a new block approximately every 10 minutes.

Stage 4: Network Consensus Confirmation
The new block is sent to all nodes for validation: transaction legality, data integrity, and correct linkage to the previous block. When over 51% of nodes approve, the new block is officially added to the blockchain, completing Xiao Lin’s transfer.

Reminder: Bitcoin transfers are irreversible. Once confirmed, they cannot be withdrawn. Always double-check the recipient address before sending.

Types of Blockchain

Blockchain is not static; it can be classified into three main types based on access permissions and participant roles:

Why Is Blockchain Gaining Attention: Its Core Advantages

🔐 Unparalleled Security
Every transaction on the blockchain is protected by cryptography. Once confirmed, it cannot be changed, and is permanently recorded. Even system administrators cannot delete or alter historical transactions.

📍 Complete Traceability
All transactions are recorded in chronological order on a public ledger. Anyone can trace the flow of funds from source to destination clearly.

⚡ Significantly Improved Efficiency
Distributed record-keeping simplifies transaction verification and clearing, supporting fast and low-cost cross-region and cross-institution payments.

✓ Higher Transaction Accuracy
Multiple independent nodes verify each transaction, greatly reducing human errors. Additionally, since every asset change is independently recorded, double spending is almost impossible.

Challenges Facing Blockchain Today

❌ Risk of Key Loss
Losing your wallet’s private key may result in permanently losing access to your cryptocurrencies.

❌ High Energy and Resource Consumption
Public chains like Bitcoin that use PoW require enormous computational resources and electricity.

❌ Time-consuming Consensus
Achieving consensus in private and consortium chains is complex and slow, leading to slower upgrades and development.

❌ Potential Misuse
Although blockchain itself is neutral, it can be used for illegal purposes.

Practical Applications of Blockchain in Various Fields

Blockchain technology has moved from theory to practice, demonstrating transformative potential across industries.

Cryptocurrency and Finance

The most direct application is cryptocurrencies. Tokens like Bitcoin and Ethereum are built on blockchain, enabling peer-to-peer value transfer without intermediaries. Furthermore, blockchain has fostered decentralized finance (DeFi) ecosystems, allowing users to lend, trade, and invest directly, breaking traditional financial barriers.

Supply Chain Transparency

Walmart and IBM collaborated on Food Trust to track food from farm to table via blockchain. When issues arise, it allows quick identification of contamination sources. Taiwan’s tea brand “Wang De Chuan” uses blockchain to record the origin and processing steps of tea leaves; consumers can scan QR codes to view the full history, greatly enhancing consumer confidence.

Intellectual Property and Copyright Management

NFTs (Non-Fungible Tokens) combined with art and music provide new ways to verify and trade rights. Jay Chou’s “Phanta Bear” NFT project allows fans to support their idol directly and receive exclusive content. This approach offers better protection and management of intellectual property.

Medical Data Security

Estonia uses blockchain to store medical records, requiring authorized access by doctors to prevent data tampering and privacy breaches. Taiwan’s Ministry of Health and Welfare is also exploring blockchain for secure sharing of medical records among hospitals, allowing patients to transfer hospitals without carrying paper reports.

How to Participate in Blockchain Investment

Blockchain itself is a technology, not an investment product, but you can participate in its ecosystem through various methods:

Method 1: Spot Trading — Simple and Direct

Similar to stock trading, buy low and sell high to profit from the difference. For example: buy 1 BTC at $30,000 and sell at $50,000 to net a $20,000 profit. You can also hold long-term or transfer to a personal wallet for safekeeping.

Method 2: Mining — Requires Expertise

Participate by deploying specialized mining hardware to verify transactions and earn block rewards. This method has high investment thresholds and risks, more suitable for experienced players.

Method 3: Contract Trading — Efficient and Convenient

Contracts are financial derivatives that allow trading without owning the actual asset. You can use leverage to amplify your investment. For example, with $1,000 and 2x leverage, you can trade $2,000 worth of Bitcoin. Be aware that profits and losses are also magnified.

Choosing the right platform is crucial. Opt for platforms with strict regulation, low fees, and comprehensive risk control tools to ensure a safer investment experience.