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Introducing blockchain technology

You might have heard the parable of the blind men and an elephant. It is a folk tale about each of six blind men’s individual descriptions of the same elephant based on their own touch and feel of the animal. It highlights the fact that different perspectives may lead to distinct viewpoints, emphasizing the limits of perception and the importance of a complete context.

When Satoshi invented Bitcoin, the fundamental concept in its vision was to build a blockchain, a shared public ledger (longest proof-of-work (PoW) chain), that verifies and records immutably all transactions through a decentralized computer network (P2P network) and a consensus mechanism with computational proof. Satoshi came up with an elegant solution solving the double-spend problem of electronic monies. A double-spend is an attack when someone tries to spend money through a transaction that isn’t actually available anymore as the money was already spent before.

Blockchain is a new elephant in the digital world. To most of the public, blockchain is nothing but an obscure pseudonym for all cryptocurrencies, including Bitcoin, Ethereum, and more. So, what is blockchain? What does a blockchain look like? How does it work? Where can we use blockchain? Do you need a blockchain? Although there are many ways to describe a blockchain, mainly from different perspectives, there is no universal definition of a blockchain.
On the contrary, there are prevalent debates over the essential attributes or qualities of a blockchain. It is perceived as a new architecture with existing technologies, the next generation of the internet and web, a future database and distributed shared ledger, the new Napster (a P2P file-sharing system used in the 90s) with a pure decentralized P2P network, a cryptocurrency, or a trustless secure transaction system, and so on. It is all of them. Only by combining all of them can we understand the whole picture of blockchain technologies and get a sense of the true potential of blockchain.
The following diagram illustrates different viewpoints of blockchain technology:

intro to blockchain

So, what is a blockchain anyway? Think of blockchain as a new architecture paradigm and a new trust protocol. It is a computer science primitive forming the foundation of most cryptocurrencies and decentralized applications. It is a P2P transaction model that can enable two parties to transact in a way that is tamper-resistant and cryptographically proven. As the technology behind Bitcoin and other cryptocurrencies, blockchain is an open, distributed ledger that can be simultaneously used and shared within a large decentralized, publicly accessible network.
In essence, blockchain is a distributed shared ledger technology supported by three pillars, as shown in the following screenshot; these are P2P networks, cryptography, and a consensus mechanism:

how blockchain works

To understand how blockchain works, let’s start with the fundamental concepts and key building blocks of blockchain technologies. Then, we’ll discuss the key differences between centralized, distributed, and decentralized systems in our next article. We will then dive into the blockchain data structure and discuss how transactions, blocks, and chains are maintained and how the network reaches a consensus on the state of the chain, as well as how to secure the blockchain with cryptographic technologies.

Following is a list of the key building blocks of blockchain technologies:

  • Transactions: A transaction is a value transfer between two parties. It could be a transfer of money, tangible assets, or cryptocurrency. Transactions are broadcasted to the blockchain network. They are validated and verified by all nodes and collected into blocks. Once the block reaches a certain depth—in Bitcoin, this is 6 blocks—those transactions in the block can be considered irreversible.
  • Block: All verified transaction records are collected into a data structure called a block. It has a header and body part, where the header contains a cryptographic hash of the previous block, a timestamp, and a Merkle tree root hash of all transactions in the block. The body is the container of transaction data.
  • The chain of block (blockchain): A blockchain is a linked list of a chain of blocks. Blocks are linked together using a cryptography hash as the pointer to the previous block.
  • Decentralized P2P network: It is a P2P network in which interconnected nodes share resources amongst each other without the use of a central authority or some sort of intermediary.
  • Consensus protocol: The consensus protocol in blockchain is a set of rules that all network nodes will enforce when considering the validity of a block and its transactions. The consensus mechanism is the process used by the network nodes to achieve agreement on the network state. It is a fault-tolerant mechanism to ensure the reliability and integrity of the network.
  • Mining: Mining is the process by which network nodes in blockchain systems add new blocks to the blockchain and get rewarded with crypto-incentives.


Next Article

In the next article (How Decentralized Peer-To-Peer Network Works), we go over how decentralized peer-to-peer networks in general and specifically in blockchain work.

This article is written in collaboration with Brian Wu who is a leading author of “Learn Ethereum: Build your own decentralized applications with Ethereum and smart contracts” book. He has written 7 books on blockchain development.


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