The mechanism of blockchain technology and its fundamental principles

Comprehensive Introduction

The past few years have witnessed a real revolution in the world of financial technology, where blockchain technology has emerged as one of the most important innovations that changed the way data and transactions are recorded and processed. This technology started as an underlying foundation for creating digital currencies like Bitcoin, but its applications have extended far beyond to include various fields such as supply chain management, healthcare services, voting systems, and many other cases.

What is meant by blockchain technology?

Blockchain is essentially a specialized database system that is completely different from traditional systems. It is a decentralized digital ledger maintained by a distributed global network of computers. The information is organized in it in the form of time-ordered blocks and is secured using advanced encryption techniques.

This unique building offers three essential features:

• Full Transparency: All participants can access the same database.
• Guaranteed Security: It is impossible to alter the data once it has been added to the chain.
• Decentralization: There is no single entity that controls the system.

Origin and Historical Development

The concept of blockchain dates back to the early 1990s when scientists Stuart Haber and W. Scott Stornetta developed sequential cryptographic techniques to secure digital documents. This pioneering work inspired generations of specialists and researchers in the field of cryptography and ultimately led to the emergence of Bitcoin as the first digital currency backed by real blockchain technology.

Since then, we have witnessed rapid growth in the adoption of this technology, making cryptocurrencies a true global phenomenon. While the initial application was on cryptocurrencies, blockchain proves every day that it is suitable for various types of digital data.

Key Features and Main Advantages

true decentralization

Instead of relying on a single central server, information is distributed across thousands of nodes ( computers ) in the network. This distribution gives large networks exceptional resistance to attacks and failures.

absolute transparency

Most blockchain networks are open public systems, meaning that every participant can access the complete data. All operations and transactions are visible to everyone.

immutability

Once the data is recorded on the blockchain, changing it becomes practically impossible without the consent of the entire network.

high protection

Advanced consensus mechanisms and encryption provide very strong layers of protection against data manipulation attempts.

efficiency and speed

By eliminating the need for traditional intermediaries, transactions can be conducted faster and at a lower cost, with almost instant processing.

The Concept of Decentralization in Blockchain

Decentralization means that control over the network is distributed among all users, rather than being monopolized by a single entity such as a bank, government, or corporation. In a decentralized blockchain system, there is no central authority that controls the movement of data or transactions.

Instead, a distributed network of computers verifies and records each transaction collaboratively. This system maintains the integrity and security of the network without the need for an intermediary.

How Blockchain Works: The Complete Path

Blockchain is essentially a secure digital ledger that records transactions between two parties in a tamper-resistant manner. A global distributed network of computers records and stores the data of these transactions.

Let’s take a real-world example: when user A sends some cryptocurrencies to user B, this transaction is broadcast to the entire network. Every computer in the network verifies the validity of the transaction by checking the digital signatures and other data.

After verification, the transaction is added to a new block with other verified transactions. We can liken each block to a page in a massive ledger. The blocks are linked together using encryption techniques, forming a strong chain.

The entire process is governed by a consensus mechanism - a set of rules that determines how all nodes reach an agreement on the validity of the data and the state of the chain.

Detailed Process Steps

Phase One: Transaction Registration

When a transaction (, such as a cryptocurrency transfer ), is initiated, it is immediately broadcast to the network of nodes. Each node verifies the transaction according to predefined rules.

Phase Two: Block Formation

Trusted transactions are collected together in a single block. Each block contains:

• Transaction details
• A timestamp indicating the creation time
• Unique cryptographic hash (Exclusive identifier )
• The hash of the previous block ( the link that connects the blocks together )

Phase Three: Implementing the Consensus Mechanism

To add a new block to the chain, the nodes must reach an agreement. This is done through a pre-agreed consensus algorithm.

Phase Four: Linking the Chain

After verification and consensus, the block is added to the chain. Each new block refers to the previous block, creating a structure that is resistant to tampering.

Phase Five: Continuous Transparency

One of the key features is that anyone can verify the entire blockchain data, including all transactions and blocks, through specialized sites known as “blockchain explorers.” For example, you can see all Bitcoin transactions from the beginning, including wallet addresses, transaction numbers, and time periods.

Encryption: The Backbone of Security

Encryption plays a crucial role in maintaining a secure, transparent, and tamper-proof transaction record.

Hashing (

Hashing transforms any input of any size into a fixed-length string. The functions used in the blockchain have unique properties:

Collision Resistance: The likelihood of different data producing the same output is extremely low.

Impact of Collapse: Any very small change in inputs results in a huge change in outputs.

An example of this using SHA256:

• Input: “Blockchain” → Output: 886c5fd21b403a139d24f2ea1554ff5c0df42d5f873a56d04dc480808c155af3
• Input: “Blockchain” )Change one character( → Output: 4733a0602ade574551bf6d977d94e091d571dc2fcfd8e39767d38301d2c459a7

This fundamental difference is what makes modification practically impossible.

) public key encryption This method ### is also called asymmetric encryption ( to create secure and verifiable transactions.

Every user has a pair of keys:

• Private Key: kept secret by the owner
• Public Key: Published publicly by the owner

When a transaction is initiated, it is signed with their private key ) to create a unique digital signature (. Other users verify the transaction's validity using the sender's public key. This ensures that only the owner of the private key can authorize transactions, while everyone can verify the signatures.

Consensus Mechanisms: Distributed Agreement

The consensus algorithm allows nodes to coordinate and agree in a distributed environment. Its primary function is to ensure that all participants agree on a single version of the truth, even if some of them fail or act maliciously.

When tens of thousands of nodes hold a copy of the data, real challenges arise, such as ensuring consistency and dealing with malicious actors. Therefore, there are multiple consensus mechanisms, each designed to address these challenges in different ways.

) Proof of Work - PoW ###

This original mechanism used in the Bitcoin network requires:

Miners compete to solve a very complex mathematical equation. The first to solve it receives a reward in cryptocurrency and the right to add the next block.

This requires massive computing power and huge amounts of electricity, but it ensures exceptional network security.

( Proof of confiscation ) Proof of Stake - PoS ###

This latest and most efficient mechanism addresses the shortcomings of the previous method:

Instead of competing to solve equations, auditors are selected based on the amount of coins they hold as collateral in the network ( seized ).

The auditors are randomly selected to create blocks and verify transactions. They earn transaction fees as rewards. If they act in bad faith, they lose their staked coins.

This method is more energy efficient while still providing strong security.

( Other mechanisms

There are many other consensus algorithms:

• Delegated Proof of Stake )DeleGated PoS###: Token holders choose representatives to verify on their behalf.
• Proof of Authority (: Validators are selected based on their reputation and identity rather than coins.

Types of Blockchain Networks

) public blockchain A fully open network for anyone who wants to participate. It is usually open source, transparent, and accessible to everyone. Examples: Bitcoin and many modern blockchain platforms.

( private blockchain Closed networks that do not allow random participation. Managed by a single entity such as a company for internal purposes. Require permission for entry and have strict rules about who can read and write. Not truly decentralized.

) federal blockchain A combination of the two previous types. Several organizations unite to create a shared blockchain network. It has governance distributed among the members. It can be open or closed depending on the needs of the consortium. Mechanisms for flexibility in data access and authentication.

Practical Applications of Blockchain

1. Digital currencies and financial transfers

Blockchain was primarily developed to support digital currencies. Cross-border transactions are faster, cheaper, and more transparent than traditional systems. Bitcoin and other currencies act as a store of value and a global medium of exchange.

2. Smart Contracts and Decentralized Applications

Smart contracts are executed automatically when certain conditions are met. Decentralized applications and autonomous organizations are built on these contracts. Decentralized finance platforms provide financial services such as lending, borrowing, and trading without traditional intermediaries, democratizing access to financial tools.

3. Digital Asset Verification

Real assets ### such as real estate, stocks, and art ### can be converted into digital tokens on the blockchain. This improves liquidity and expands investment opportunities.

( 4. Secure Digital Identities Blockchain creates secure and tamper-proof digital identities for verifying personal data and sensitive information, and this will become increasingly important as digital life grows.

) 5. Transparent voting systems A decentralized tamper-proof registry for all votes that ensures election integrity and eliminates the possibility of fraud.

6. Supply Chain Management

Blockchain documents every step in the supply chain. Each transaction is recorded as a block, creating a comprehensive, transparent, and immutable record of the entire process.

Summary and Outlook

Blockchain technology provides a secure and transparent way to record transactions and store data. It is revolutionizing multiple sectors by adding a new level of trust and security.

Whether enabling transactions from person to person, creating new forms of digital assets, or facilitating decentralized applications, blockchain opens up limitless possibilities.

As technology continues to evolve and gain wider acceptance globally, we expect to see more innovative applications that will change the landscape of many fields in the coming years.