What is blockchain?
Blockchain refers to an innovative decentralized network consisting of a sequential chain of blocks that records each transaction. This chain is simultaneously stored on numerous computers operated by independent users around the world, ensuring high reliability and resilience of the system.
The data in each block is protected by advanced cryptographic methods, making unauthorized modification or deletion virtually impossible. Each block has a unique identifier—a hash —that mathematically links it to the previous block in the chain. Any attempt to alter a block affects the integrity of the entire chain, which is immediately detected by the system. At the same time, new blocks containing updated information can be seamlessly added to the blockchain, fostering the network’s continuous growth.
History of the blockchain
Blockchain technology predates cryptocurrencies. The concept was first presented in 1991, when computer scientist Stuart Haber and physicist W. Scott Stornetta published a paper describing a chain of cryptographically protected blocks. Their goal was to design a system in which document timestamps could not be falsified or retroactively altered.
The major breakthrough came in 2008 with Satoshi Nakamoto’s famous white paper, which designed the first complete blockchain and proposed the algorithm for Bitcoin . This new approach to digital payments is managed by thousands of computers worldwide, operates without a central authority, and relies on independent nodes that verify transactions, which are permanently recorded in the distributed ledger—the blockchain.
In 2009, the first cryptocurrency— Bitcoin —was launched, demonstrating the practical usefulness of blockchain and marking the beginning of a new era for digital finance. Since then, blockchain technology has become widespread and now has applications far beyond cryptocurrencies.
Structure and operation of the blockchain
The blockchain is a sequential chain of blocks, each inextricably linked to its predecessor and successor. Each block comprises two main components: a header containing system data and a transaction list recording all the operations included in that block.
These links are secured by a cryptographic mechanism called a hash. A hash is an encrypted piece of data from a block, presented as a unique, fixed-length string generated by specialized mathematical algorithms and serving as a digital “fingerprint.” Each block contains its own hash and that of the preceding block, creating an unbroken cryptographic connection within the chain. If a single character in a record is modified, the block’s hash changes instantly and no longer matches the hash of the following block, making any attempt at tampering immediately visible to the network.
Miners are key players in the network: they generate a unique hash for each new transaction, link it to the hash of the previous block, and thus create new blocks in the blockchain. This process requires significant computing power and energy consumption. Miners are rewarded for securing and operating the network with newly created Bitcoins, which provides an incentive to support the system.
Advantages of blockchain
- Immutability — Once data is recorded in a block and added to the chain, it is virtually impossible to modify or delete it. Any attempt to alter it is immediately detected by all network participants. Blockchain data is accessible to everyone, maximizing transparency and allowing each participant to independently verify its authenticity.
- Decentralization — The blockchain has no central authority or controlling body. Management is distributed among all network participants, making the system independent of any entity or government. This structure is resistant to censorship and manipulation.
- Reduced fees — With no intermediaries such as banks or payment providers, transaction costs are significantly lower. Users interact directly, saving on commissions, especially for international transfers.
- Security — Advanced cryptographic algorithms make blockchain networks virtually invulnerable to hacking and fraud. An attacker would need to control the majority of network nodes simultaneously, which would require considerable computing resources and make this type of attack economically impossible.
- Speed — Direct transactions between users are completed in minutes, regardless of their location. This offers a particular advantage for international transfers, which can take several days via traditional banking systems.
Consensus algorithm: objective and operation
The consensus algorithm is the central mechanism that allows all participants in a decentralized blockchain network to agree on the current state of the distributed ledger and approve proposed changes. It protects the system and ensures that no participant can modify the ledger data without the consent of the other nodes in the network. Consensus builds trust between users who do not know each other and may be located around the world.
Several consensus algorithms exist, each with its own characteristics and uses:
- Proof-of-Work (PoW) — The first consensus algorithm, proven by Bitcoin since its launch. Miners compete to add the next block by solving complex computer puzzles. The first to solve the problem gets the right to create the new block and receives a reward. This method offers strong security but consumes a lot of energy.
- Proof of Stake (PoS) — A more energy-efficient method based on staking. Validators are selected based on the amount of cryptocurrency they lock as collateral: the higher the stake, the greater the probability of creating the next block. This reduces energy consumption compared to Proof of Work (PoW).
- Delegated Proof of Stake (DPoS) — An advanced variant of Proof of Stake based on delegation and voting. Token holders elect delegates who validate transactions and create new blocks. This system improves transaction speed and network scalability.
- Proof of Capacity (PoC) — This algorithm relies on available storage capacity rather than computing power. Participants pre-generate and store potential cryptographic solutions on their disks, increasing energy efficiency.
- Proof of Burn (PoB) — This unique mechanism requires participants to “burn” (send to an inaccessible address) a small amount of tokens to gain the right to participate in block creation, thus demonstrating their long-term commitment to the project.
Types of blockchains
- Public blockchains — The most decentralized and open systems, allowing anyone to join the network, validate transactions, and create blocks without restrictions or prior authorization. Bitcoin and Ethereum are prime examples. All transactions and the network’s state are public, offering maximum transparency and openness.
- Private blockchain — Typically operated by a single organization or trusted group, with strictly controlled access. Large companies use private blockchains for their internal needs, leveraging distributed ledger technology while maintaining data confidentiality. These blockchains enable faster transactions and greater system control.
- Consortium blockchain — A hybrid solution combining the characteristics of public and private blockchains. Its governance is jointly ensured by several organizations, which collectively decide on system development and transaction validation. This model is common in interbank systems or supply chains, where a shared infrastructure is necessary for data exchange.
Conclusion
Blockchain is a cutting-edge technological tool with considerable potential and diverse uses. Today, it is deployed in finance for payments and settlements, in healthcare for the secure management of medical data, in logistics for tracking goods, in banking for international transfers, and in investment for the tokenization of assets.
Blockchain technologies are evolving rapidly, with new consensus algorithms, increased scalability, and improved interoperability between different blockchains. Many experts anticipate that blockchain could become as fundamental as the internet, transforming interactions between individuals, organizations, and governments. The future of blockchain looks promising, and we will undoubtedly see even more impressive applications across numerous sectors.
