Want to understand blockchain but always feel confused? Just read this article, and you'll get it.

Many people have heard of blockchain, but they don’t quite understand what it is or what it can do. In fact, the core concept of blockchain is not complicated at all. Today, we will start from the most basic definition to help you gradually understand this world-changing technology.

Understanding Blockchain in the Simplest Way

Imagine you and your friends jointly manage a ledger to record transfers between each other. The most special thing about this ledger is that it is not kept by a single person or bank, but each participant holds a copy. Every time someone makes a transfer, everyone verifies whether the transaction is genuine and valid. Only if more than half agree will the transaction be officially recorded.

This is the basic principle of blockchain.

Where Does the Name Come From

The words “block” and “chain” actually describe its structural features. Each transaction is recorded in a block, similar to a page in a diary. When a page is filled, it is automatically sealed, forming a new block. These blocks are then linked together in chronological order through cryptographic techniques, like an unbreakable chain, hence the name “blockchain.”

The Power of Decentralization

In traditional systems, banks are central—they decide who has money and who doesn’t. But blockchain is different—each computer (called a “node”) participating in the network has equal rights and responsibilities. These nodes verify transactions and store data; no single organization can control the entire system.

This is what is called decentralization. Its benefits include: even if a node crashes or data is lost, the entire system can still operate normally. No single point of failure means no one can do whatever they want.

The Technical Composition of Blockchain

A blockchain is composed of many blocks linked together. Each block usually contains three key parts:

① Transaction Data

On the Bitcoin blockchain, this part stores transfer information—who sent to whom, and how much. Depending on the blockchain application, the data content may vary.

② Hash Fingerprint

The hash value can be understood as the ID card of the block—unique. Its role is to help us quickly locate a block and determine whether its content has been tampered with. Even a single character change in the data will completely alter the hash value. This is the secret behind blockchain’s tamper resistance.

③ Hash of the Previous Block

This is the key to linking the entire chain. If someone tries to forge historical transactions by altering data in a block, the hash value of that block will change, causing all subsequent links to break. The attack cost becomes extremely high—requiring recalculating the hashes of all subsequent blocks and convincing more than half of the network nodes to accept this false version. This is why the Proof of Work (PoW) mechanism effectively prevents attacks.

How Blockchain Processes a Transaction

Let’s look at a concrete example of how a transaction is completed. Suppose Xiao Wang wants to transfer 1 Bitcoin to Xiao Li.

Step 1: Initiate the Transaction

Xiao Wang opens his wallet software, inputs Xiao Li’s wallet address, the amount (1 BTC), and the transaction fee, then clicks confirm. This transaction is immediately broadcasted to the entire Bitcoin network and enters a “pending confirmation” state.

Step 2: Node Verification

Nodes (often called “miners”) in the network receive this transaction and start verifying:

• First question: Does Xiao Wang’s wallet really have 1 Bitcoin?
• Second question: Is this transfer instruction signed by Xiao Wang?

Once both are confirmed, the transaction enters the packing queue.

Step 3: Packaged into a Block

In the Bitcoin system, approximately every 10 minutes, miners bundle hundreds of pending transactions into a new block.

Step 4: Network Consensus

After the new block is generated, it is broadcasted to the entire network. All nodes check:

• Whether all transactions in the block are valid
• Whether the hash links correctly to the previous block
• Whether the Proof of Work is valid

If more than 51% of the nodes agree, the block is officially added to the blockchain, and the transaction is complete. Xiao Wang’s balance decreases by 1 BTC, Xiao Li’s balance increases by 1 BTC, and all nodes have this record.

Types of Blockchain

Depending on participant access and permissions, blockchains can be divided into three main types, each with its advantages and disadvantages:

Most people encounter cryptocurrencies based on public chains, such as Bitcoin and Ethereum.

Core Advantages of Blockchain

Blockchain is hailed as the “future infrastructure” mainly because it has advantages that traditional databases cannot match:

✅ Security far surpasses traditional systems

Every transaction on the blockchain is encrypted and permanently recorded. Even system administrators cannot delete or tamper with records.

✅ Fully traceable

Every fund movement can be traced. You can track where a Bitcoin has moved from which wallet to which wallet, forming a complete transaction history chain.

✅ More efficient transactions

No intermediaries are needed; participants can conduct peer-to-peer transactions directly. Cross-border payments can be completed within minutes, at a much lower cost than traditional banking systems.

✅ Greater accuracy

Transactions require verification by multiple independent nodes, greatly reducing human error and fraud. Double spending is virtually impossible.

Limitations of Blockchain

However, blockchain is not perfect and has obvious limitations:

❌ Loss of keys means permanent asset loss

There is no “forgot password” recovery mechanism on the blockchain. If you lose your private key, all virtual currencies in that wallet are gone forever.

❌ Energy consumption issues

Public chains like Bitcoin that use Proof of Work require miners to perform大量 calculations to compete for block rewards, consuming huge amounts of electricity and computing power.

❌ Scalability limitations

Since each node must verify every transaction and store all data, transaction throughput is limited. For example, before Ethereum’s upgrade, it could only process a dozen transactions per second, far below Visa and other traditional payment systems.

❌ Potential use for illegal activities

The anonymity of blockchain also provides space for illegal activities.

How Blockchain Is Used in Reality

Blockchain technology has moved from theory to practice, with increasing application fields:

Cryptocurrency—most direct application

Bitcoin, Ethereum, and others are the most mature applications of blockchain. No bank is needed; anyone can perform peer-to-peer value transfers.

Supply chain and logistics—solving information silos

In traditional supply chains, goods circulate through multiple links, making it difficult to track responsibilities at each stage. Recording on blockchain provides verifiable data from raw material procurement, production, transportation, to sales.

IBM’s Food Trust system uses blockchain to trace the entire process from farm to table. Taiwanese tea brands record origin and processing details on blockchain, allowing consumers to scan QR codes to see the full production history.

Intellectual property and NFTs—digital asset rights confirmation

Traditional rights registration is prone to errors and tampering. Storing artworks, music, designs, etc., on blockchain ensures transparency of ownership.

NFTs (Non-Fungible Tokens) are a typical application. Artists can directly mint their works as NFTs; buyers support creators and obtain exclusive ownership rights.

Medical data management—balancing privacy and sharing

Patients’ medical records and sensitive information can be stored on blockchain. Patients can authorize specific doctors to view certain records, with each access recorded to prevent privacy leaks.

Estonia already uses blockchain to store national medical records. Taiwan is also exploring blockchain for secure inter-hospital sharing of medical data.

Financial innovation—Decentralized Finance (DeFi)

Blockchain enables issuance of bonds, promissory notes, and other financial products, forming a complete decentralized financial ecosystem. Participants can lend, borrow, trade, and invest directly without banks.

How to Invest in Blockchain-Related Assets

Blockchain itself is a technology and cannot be directly invested in. However, you can invest in blockchain applications, mainly cryptocurrencies and related derivatives.

Method 1: Spot Trading

Buy cryptocurrencies like Bitcoin and Ethereum directly, and profit from price differences. Similar to stock trading, but the assets are digital. For example, buy 1 BTC at $30,000 and sell at $50,000 to earn a $20,000 profit.

Method 2: Mining

Purchase mining hardware and join mining pools. Miners verify transactions and maintain the network, earning block rewards and transaction fees as compensation. This requires hardware and electricity costs, suitable for investors with technical background.

Method 3: Contract Trading

CFDs (Contracts for Difference) are financial derivatives. You don’t need to own Bitcoin but predict its price movement. You can go long or short, and use leverage to amplify gains. Be cautious: leverage is a double-edged sword; it can increase both profits and losses.

Final Advice

Blockchain is a revolutionary technology that is transforming finance, supply chains, intellectual property, and more. If you’re interested in crypto investment, start by learning the basics, understand the risks, and decide on your investment scale.

Remember: blockchain transactions are irreversible. Sending to the wrong address cannot be recovered. Always think carefully before acting.