Blockchain Explained

October 2021 · Derick Zr · 3 minutes read

People hear "blockchain" and think "Bitcoin."

They're not the same thing. Bitcoin is one application built on blockchain technology. There are many others.

I spent months confused about this. Everyone talked about blockchain like it was magic. No one explained what it actually does.

Here's what I learned.

What Blockchain Actually Is

A blockchain is a database that stores data in blocks, then chains those blocks together chronologically.

That's it. No magic.

What makes it interesting:

Immutability: Once data is written, it's extremely hard to change. You'd need massive computational power to alter historical blocks. Ethereum tried to reverse a hack once. It resulted in a hard fork, splitting into Ethereum and Ethereum Classic. Messy.

Transparency: Everyone can see the data. Everyone can verify it. No central authority controls what's "true."

Security: Good blockchains use battle-tested cryptography. Though quantum computing might break this eventually.

High availability: The network runs on thousands of computers. No single point of failure.

How It Works

Each block contains:

  • A set of transactions
  • A timestamp
  • A cryptographic hash of the previous block

If you change one block, every subsequent block becomes invalid. That's the chain.

To add new blocks, the network needs consensus. Two main approaches:

Proof of Work (PoW): Bitcoin uses this. Miners solve computational puzzles to validate transactions. Slow. Energy-intensive.

Proof of Stake (PoS): Ethereum switched to this. Validators stake coins to confirm transactions. Faster. Less energy.

Types of Blockchains

Public: Anyone can join. Fully decentralized. Bitcoin and Ethereum.

Private: One organization controls it. Used for internal systems.

Consortium: Multiple organizations govern it together. Common in industries like banking.

What You Can Build With It

Blockchain isn't just crypto:

  • Finance: Cross-border payments, DeFi, remittances
  • Supply chain: Track products from factory to customer
  • Healthcare: Secure patient records
  • Real estate: Property tokens, fractional ownership
  • Digital ownership: NFTs for art, music, gaming
  • Identity: Self-sovereign identity systems

The Problems

Scalability: Most blockchains are slow. Bitcoin handles about 7 transactions per second. Visa handles thousands.

Energy: Proof of Work blockchains consume massive amounts of electricity. Bitcoin's annual energy use rivals some countries.

Regulation: Governments are still figuring out how to regulate this. Laws vary wildly by country.

Interoperability: Different blockchains don't talk to each other well. Moving assets between chains is messy.

The Reality

Blockchain isn't magic. It solves specific problems around trust and decentralization.

For some use cases, it's revolutionary. For others, a regular database works fine and costs less.

The hype will fade. The useful applications will remain.

Blockchain Explained