Blockchain Basics

What is Blockchain?

What is Blockchain At its core, a blockchain is a decentralized digital ledger that records transactions across a network of computers in a secure, transparent, and immutable way. Instead of relying on a central authority (like a bank), blockchain allows data to be stored and verified by all participants in the network. Here are the key concepts:

Decentralization: Unlike traditional databases, which are stored in one central location, blockchain data is spread across multiple computers (called nodes) in a peer-to-peer network. This decentralized structure makes the system more secure and less vulnerable to hacking or failure.
Blocks: Blockchain is made up of “blocks” that store batches of transactions. Each block is linked to the one before it and the one after it, forming a chain. Once a block is added to the blockchain, it cannot be altered or removed.
Immutability: Once data is added to the blockchain, it is extremely difficult to change. This creates a trustless system where participants can trust the blockchain itself rather than relying on intermediaries.
Transparency and Security: Blockchain transactions are visible to all participants in the network. However, they are also secure because each transaction is encrypted and verified by the network before being recorded.

Consensus Mechanisms

A consensus mechanism is a process used by blockchain networks to agree on the validity of transactions and ensure that the ledger remains accurate. The two most common consensus mechanisms are:

Proof of Work (PoW): Used by Bitcoin and many other blockchains, PoW requires network participants (called miners) to solve complex mathematical puzzles to validate transactions and add new blocks to the chain. Solving these puzzles takes time and computational power, but once a block is validated, it’s added to the blockchain, and the miner is rewarded with cryptocurrency. This process secures the network but can be energy-intensive.
Proof of Stake (PoS): An alternative to PoW, Proof of Stake is used by blockchains like Ethereum 2.0 and Cardano. In PoS, validators are chosen to verify transactions based on the number of coins they hold (or “stake”) in the network. This system is more energy-efficient than PoW and incentivizes participants to behave honestly, as they risk losing their stake if they try to validate fraudulent transactions.

Understanding these core concepts—how blockchain decentralizes data, secures transactions, and reaches consensus—forms the foundation of understanding how blockchain technology works.