Blockchain Basics
Understand how blockchain technology works, from distributed ledgers to consensus mechanisms.
1. What is a Blockchain?
A blockchain is a distributed digital ledger that records transactions across many computers in a way that makes it nearly impossible to alter retroactively. Think of it as a chain of digital "blocks" that contain information.
Key Characteristics:
- Decentralized: No single authority controls the network
- Transparent: All transactions are visible to network participants
- Immutable: Once recorded, data cannot be altered
- Secure: Cryptographic techniques protect the data
Real-World Analogy
Imagine a notebook that everyone in a classroom shares. When someone writes something in it, everyone gets a copy of that page. If someone tries to erase or change what was written, everyone else's copies will show the original version, making fraud obvious.
2. How Transactions Work
When you make a transaction on a blockchain, several steps occur:
Transaction Initiated
You create and sign a transaction using your private key
Broadcast to Network
The transaction is broadcast to all nodes in the network
Validation
Network nodes validate your transaction and signature
Added to Block
Valid transactions are grouped into a new block
Confirmation
The block is added to the chain and your transaction is confirmed
3. Understanding Consensus
Consensus mechanisms are the protocols that ensure all nodes in a blockchain network agree on the current state of the ledger.
Proof of Work (PoW)
How it works: Miners compete to solve complex mathematical puzzles
Pros: Highly secure, battle-tested
Cons: Energy-intensive, slower
Used by: Bitcoin, Ethereum (formerly)
Proof of Stake (PoS)
How it works: Validators are chosen based on their stake in the network
Pros: Energy-efficient, faster
Cons: Potential centralization
Used by: Ethereum, Cardano
Delegated Proof of Stake (DPoS)
How it works: Token holders vote for delegates who validate transactions
Pros: Very fast, scalable
Cons: More centralized
Used by: EOS, TRON
4. Public vs Private Blockchains
Public Blockchains
- Open to anyone
- Fully decentralized
- Transparent transactions
- Permissionless
- Examples: Bitcoin, Ethereum, NetworkCoin AI
Private Blockchains
- Restricted access
- Centrally controlled
- Private transactions
- Permissioned
- Examples: Hyperledger, R3 Corda
Test Your Knowledge
Question 1: What makes blockchain data immutable?
Cryptographic hashing and the distributed nature of the network make it practically impossible to alter historical data without detection.
Question 2: What is the main difference between PoW and PoS?
PoW requires solving computational puzzles (mining), while PoS selects validators based on their stake in the network.