Blockchain

What is blockchain in simple words

Blockchain is a continuous digital chain of blocks that stores information. Its main difference from ordinary databases is the absence of a central server. The entire chain is copied and stored by thousands of independent computers (nodes) around the world, and old records cannot be deleted or forged.

Imagine a shared notebook kept simultaneously by thousands of people. Every time someone makes an entry, everyone else verifies it and adds it to their copies. If someone tries to change an old entry in their copy, the others will see the discrepancy and refuse to accept it. This is how blockchain works — except instead of a notebook it is a digital database, and instead of people it is computers.

Read about how cryptocurrencies based on blockchain work in the article Cryptocurrency.

How blockchain works

1. Recording data (transactions): When you transfer digital assets to someone, this information is combined with other records into one common list — a “block”.
2. Creating a cryptographic snapshot: Computers (miners or validators) solve a complex mathematical problem to seal this block. They generate a unique digital “fingerprint” (a hash) that links the new block to the previous one.
3. Community verification: Before a new block is added to the common chain, it is verified by thousands of other network computers. If the data is correct, the transaction is confirmed.
4. Adding to the ledger: The block is permanently embedded in the chain. Each network participant updates their copy of the database.

Read about hashing and cryptography in the article Hashing.

Key properties of blockchain

• Immutability: Information cannot be retroactively changed or deleted. To forge a record, you would need to hack more than half of all network computers simultaneously, which is practically impossible.
• Transparency: Any participant can trace the history of any record from the very beginning.
• Decentralization: There is no single center of control. No one can block an operation or cancel it.
• Security: Data is protected by cryptography. Access to assets requires a private key.

Types of blockchain

• Public: Open to everyone. Anyone can view transactions and participate in the network. Examples: Bitcoin, Ethereum. Full decentralization.
• Private: Access is limited. Managed by one organization. Examples: corporate systems. High speed, but centralized.
• Consortium: Managed by a group of organizations. Examples: banking systems. A balance between decentralization and speed.
• Hybrid: Combines the properties of public and private. Part of the data is open, part is closed.

Where blockchain is used

• Cryptocurrencies: Bitcoin, Ethereum and other digital currencies.
• Smart contracts: Automatic execution of agreements without intermediaries.
• Logistics and supply chains: Tracking the origin of goods, fighting counterfeits.
• Voting: Transparent and forgery-proof elections.
• Digital documents: Diplomas, certificates, property rights.
• Medicine: Secure storage and exchange of medical records.

Read about smart contracts in the article Smart contract.

Advantages and disadvantages of blockchain

Advantages:

• High security and protection from hacking
• Transparency of all operations
• No intermediaries and their related commissions
• Global availability 24/7

Disadvantages:

• Scalability: Public blockchains process a limited number of transactions per second (Bitcoin — ~7, Ethereum — ~30).
• Energy consumption: Mining requires large amounts of electricity.
• Complexity: The technology requires special knowledge.
• Regulatory risks: Different countries have different legislation.

Read about scaling problems in the article Server cluster.