What is blockchain — A complete guide from technical principles to real-world applications

Many people are confused about what blockchain is and even confuse it with cryptocurrencies. In fact, what exactly is blockchain? It is a revolutionary technological infrastructure that has gradually transformed how multiple industries operate. This article will systematically introduce the full picture of this technology, from basic concepts, technical principles, practical applications to investment methods.

Understanding the Core Concepts of Blockchain

Imagine a ledger maintained collectively by thousands of participants worldwide—that is the essence of blockchain. Unlike traditional record-keeping systems controlled by a single institution, blockchain uses a distributed architecture. Anyone with the appropriate equipment can become a network node, participating in transaction verification and data recording.

The name “blockchain” comes from its unique data organization method. Each transaction is grouped into a data block, similar to a page in a traditional ledger. When a block reaches capacity, new transactions go into the next block. More importantly, these blocks are not isolated; they are cryptographically linked in chronological order, forming an unbreakable chain. This chain structure ensures the integrity of historical data—altering any block would require changing the cryptographic hash of all subsequent blocks, which is practically impossible.

Decentralization is the fundamental feature that distinguishes blockchain from traditional databases. Conventional systems rely on central authorities (like banks or governments) to verify and approve transactions, whereas blockchain achieves this through consensus mechanisms involving multiple parties. Multiple nodes (often called “miners” or “validators”) independently verify each transaction. Only after majority consensus is reached is the transaction officially confirmed. This mechanism has strong fault tolerance—if some nodes fail or data is lost, the entire network can still operate normally.

Internal Structure and Operating Principles of Blockchain

Each block consists of three core elements, which together determine the security and traceability of the blockchain.

The first element is transaction data. In cryptocurrencies like Bitcoin, this data includes sender’s wallet address, receiver’s wallet address, transfer amount, and timestamp. Different types of blockchains may record different content—for example, supply chain blockchains might log product movement information, while medical blockchains record patient treatment histories.

The second element is the cryptographic hash. Each block has a unique hash value, similar to a fingerprint—changing any bit of information in the block will produce a completely different hash under known computational power. This feature allows the system to detect any tampering immediately. Hashes also serve as identifiers, helping the network quickly locate and retrieve specific blocks.

The third element is the hash of the previous block. This is crucial to the security architecture of blockchain. Each new block records the hash of the previous block, forming a continuous chain. If a hacker attempts to alter a historical block, its hash will change, invalidating the “previous block hash” recorded in all subsequent blocks. This chain reaction makes tampering easily detectable.

Further strengthening security is the Proof of Work (PoW) consensus mechanism. In PoW systems, miners must solve complex mathematical puzzles to add new blocks. This process requires significant computational resources and electricity. Even if an attacker has the technical ability to tamper, the cost (buying extensive hardware and paying high electricity bills) far exceeds potential gains, economically deterring malicious attacks.

Complete Process of Blockchain Transactions

Theoretical knowledge becomes clearer through practical examples. Suppose Xiao Lin wants to transfer 1 Bitcoin to Xiao Zheng. Let’s trace how this transaction proceeds on the blockchain.

Initial stage: Initiate and broadcast the transaction. Xiao Lin uses a Bitcoin wallet app, entering three key pieces of information—his wallet address (sender), Xiao Zheng’s wallet address (receiver), and the amount (1 BTC). After confirming, this transaction is packaged into a message and broadcasted to thousands of nodes in the network, entering the pending verification queue.

Verification stage: Multiple checks ensure security. Miners receive this transaction and perform two key validations. First, balance verification—checking the blockchain’s full transaction history to confirm Xiao Lin has at least 1 Bitcoin. Second, digital signature verification—using cryptography to confirm the transaction was indeed initiated by Xiao Lin, not an imposter. Once validated, the transaction moves into the candidate pool for inclusion in a block.

Packaging stage: Multiple transactions are combined into a block. In Bitcoin, miners select hundreds of transactions from the pool every approximately 10 minutes, bundling them into a new block. This process requires solving a complex mathematical puzzle (proof of work), ensuring that adding the new block consumes real computational effort.

Confirmation stage: Achieving network consensus. After the new block is completed, it is propagated to all other nodes. Each node independently verifies the validity of all transactions and checks that the block’s hash correctly links to the previous block. When over 51% of nodes confirm the block’s validity, it is officially added to the blockchain, making Xiao Lin’s transfer to Xiao Zheng irreversible. This entire process typically takes 10-60 minutes, depending on network congestion.

Various Forms of Blockchain and Their Characteristics

Blockchain is not a single standardized technology but exists in multiple implementations tailored to different scenarios.

Public Blockchains are the most transparent and decentralized. Anyone with a computer and internet connection can join the network, participate in transaction verification, and mine blocks. Examples include Bitcoin, Ethereum, Solana, Cardano, Polkadot, Litecoin, and BNB Chain. The main advantages are full transparency, near-impossibility of tampering, and strong resistance to censorship. However, they also have disadvantages—slower transaction speeds (Bitcoin averages about 7 transactions per second) and high energy consumption due to proof-of-work.

Private Blockchains are the opposite extreme. Read/write permissions are fully controlled by a specific organization or entity, and only authorized participants can join. They offer the highest privacy, fastest transaction speeds, and lower costs, but sacrifice decentralization. Private blockchains are mainly used for internal data management, auditing, and tracking.

Consortium Blockchains lie between the two. Managed jointly by multiple organizations, participants must be verified to join, but no single entity controls the entire network. Platforms like Hyperledger, FISCO BCOS, and Quorum are well-known consortium blockchain platforms. Compared to public chains, consortium chains provide better controllability and higher transaction speeds, making them popular in interbank cooperation, supply chain management in energy sectors, insurance claims, etc. However, reaching consensus can be complex and may slow development and upgrades.

Core Advantages of Blockchain Technology

Immutable record system. Once transactions are confirmed on the blockchain, they are cryptographically protected and permanently recorded. Even system administrators cannot delete or modify them. This is critical for fields like finance, legal contracts, and medical records that require long-term integrity.

Full transaction traceability. Because all transactions are recorded on a distributed ledger, anyone can trace the complete history of an asset from origin to current owner. This helps combat counterfeiting, theft, and fraud.

Significant efficiency improvements. Traditional cross-border transactions often require multiple intermediaries and can take days. Blockchain enables peer-to-peer interactions and automated verification, allowing 24/7 low-cost, rapid cross-border payments.

Multiple layers of transaction accuracy. Conventional databases lack multi-party verification, risking errors and data chaos. Blockchain’s requirement for multiple independent nodes to verify, along with cryptography, ensures each asset change has a unique, tamper-proof record—making double-spending nearly impossible.

Practical Limitations of Blockchain

Despite its advantages, blockchain faces significant current limitations.

Key management risks. Losing private keys means assets stored in the wallet are unrecoverable—equivalent to losing the assets themselves. Users need strong security awareness and technical literacy.

Environmental impact of energy consumption. Public chains using proof-of-work (especially Bitcoin) require millions of computers worldwide running continuously, consuming vast amounts of electricity. This raises environmental and sustainability concerns.

Time costs of reaching consensus. Private and consortium chains involve complex negotiations and validations among multiple parties, which can slow network upgrades and new feature deployment.

Risks of illegal activities. The anonymity and immutability of blockchain can be exploited for illegal activities such as illicit trade and money laundering, posing regulatory challenges.

Real-World Applications of Blockchain

Cryptocurrency ecosystem. Bitcoin and Ethereum are the most direct applications—serving as new forms of currency and stores of value. A complete ecosystem has formed, including exchanges, wallets, and lending platforms.

Supply chain transparency. IBM’s Food Trust uses blockchain to track food from farm to table. When food safety issues arise, contaminated batches can be quickly identified. Taiwan’s WANG DE CHUAN tea brand records origin and processing details on the blockchain, allowing consumers to verify authenticity and quality via QR code.

Intellectual property and digital asset management. Non-fungible tokens (NFTs) provide blockchain-based proof of ownership for art, music, and virtual collectibles. Jay Chou’s “Phanta Bear” NFT project allows fans to support the artist directly and access exclusive content and community benefits.

Healthcare data sharing. Estonia’s e-Health system uses blockchain to store national medical records, allowing patients to authorize specific doctors to access their data, with a complete audit trail to prevent tampering. Taiwan’s Ministry of Health is exploring blockchain for secure inter-hospital medical record sharing, eliminating the need for paper reports during transfers.

Financial innovation tools. In mid-2023, Bank of China International issued structured notes worth over $30 million on Ethereum, marking traditional financial institutions’ native adoption of blockchain for issuing financial products. DeFi platforms further extend this by offering lending, trading, and insurance services automated via smart contracts.

How to Participate in the Blockchain Ecosystem

Blockchain itself is a foundational technology and cannot be directly invested in. Instead, you can participate by investing in applications and related companies.

The most straightforward method is spot trading. Buying Bitcoin, Ethereum, or other tokens—similar to stocks—buy low, sell high. For example, buying 1 BTC at $30,000 and selling at $50,000 yields a $20,000 profit. Tokens can be stored in personal wallets or transferred to others.

Mining suits those with technical skills and capital. Deploying specialized mining hardware to verify blocks and earn rewards requires significant investment in equipment and electricity, along with technical expertise.

Contract trading offers maximum flexibility. Without owning actual tokens or private keys, traders can go long or short on virtual assets with leverage, amplifying gains or losses. Platforms like Mitrade provide regulated, zero-commission, low-spread contract trading, supporting 24-hour operations and risk management tools. However, leverage also increases risk.

Future Outlook

Blockchain is not an isolated technological innovation but will reach its full potential through integration with AI, IoT, and other emerging technologies. As the technology matures and regulatory frameworks improve, blockchain will transition from a “hype cycle” to a “practical phase,” playing an increasingly vital role in supply chains, healthcare, finance, and more. Understanding what blockchain is has become an essential skill in the modern era. For investors, practitioners, and ordinary users alike, mastering the basics of blockchain will help you better understand and seize opportunities in this digital age.