Blockchain Basics for Crypto Beginners & Enthusiasts
Learn About Blockchain Origins, what blockchain technology is, and what role it plays in crypto.
Differentiate Types of Blockchain, read about sidechains, consortiums, and public or private chains.
Get to know Central Concepts like Proof of Work, Proof of Stake, Smart Contracts, and more.
What about Pros & Cons? Understand the advantages and limitations of blockchain technology.
Learn about Safety & Risks and what could potentially compromise it.
Find out answers to the FAQ (the major questions) you might have about the topic.
What's The History of Blockchain?
This technology traces back to the founding of Bitcoin by the anonymous person or collective identity of Satoshi Nakamoto. Conceptualized together with Bitcoin itself in the 2008 white paper and implemented in 2009, it has not only served as a backbone to Bitcoin but has been in use by multiple other cryptocurrencies and applications alike.
How Does It Work?
As explained above, this system works by creating a chain of blocks, where each block is a record of multiple transactions. Within each block is a cryptographic hash—a unique code that is assigned to the previous block. . The blockchain is then maintained by a network of computers known as “nodes” working together to verify each transaction, validate blocks, and ensure the overall integrity of the blockchain. Since it is a collective responsibility, no single entity controls the process.
Though the term “blockchain” is often used without further description, there are a number of different types of blockchains, and we cover the key ones below.
Public Blockchains & Their Purpose
A public blockchain is a decentralized digital ledger accessible to all parties. It enables the viewing of the entire transaction history, verification of new transactions, and contribution by adding new blocks. This type of blockchain maintains transparency and security through collective efforts.
In contrast, a private blockchain is a closed ledger accessible only to a select group of individuals or organizations. It requires special permissions for access, making it suitable for maintaining controlled security within a specific group. A consortium is a type of private blockchain controlled by a group of organizations rather than a single entity. This shared control ensures equal contributions from each entity.
A side chain is a smaller branch of the main blockchain. While connected to the main system, it can have its own rules, enabling experimentation and testing of new features before their integration into the main blockchain. Assets can be securely transferred between the side chain and the main blockchain, ensuring flexibility and security.
Smart Contracts
To put it simply, a smart contract is a computer program that automatically completes a deal once the required conditions are met, not unlike a vending machine dispensing a product when the necessary amount of money has been inserted. What makes these contracts especially “smart” is that because of their inalterable nature, they do not require an intermediary to be completed. The process is entirely automated but remains fully trustworthy and secure. Meanwhile, Proof of Work (PoW) is a method of validating transactions used by cryptocurrencies such as Bitcoin. In this process, computers (aka “miners”) compete to solve a complex mathematical problem. The first “miner” to succeed adds the new block of transactions to the blockchain and receives a reward in cryptocurrency. PoW prevents potential intruders. Proof of Stake, similarly to PoW, validates transactions used by various cryptocurrencies. However, in PoS “miners” are substituted with “validators” who are selected based on the amount of the cryptocurrency they hold.
The higher the stake, the more likely a “validator" is chosen to add a new block. The security of this method is ensured by the economic incentives for participants to act honestly. To record and monitor - transactions securely and transparently, we use Ledger technology. Just like blockchains, this technology can either be public and accessible to all or private, requiring special permission.
And finally for this list, there are Lightning Networks, a technology that both accelerates and reduces the cost of cryptocurrency transactions. They work by creating a secondary layer on top of the main blockchain, allowing people to complete microtransactions without recording each one on the main network. Once a series of these smaller transactions is complete, they are collectively recorded on the main blockchain in a single batch, ensuring the network remains efficient and scalable.
Blockchain provides a transparent ledger where all transactions are visible and verifiable by anyone—or, in the case of the private blockchain, by anyone granted access. Since everyone has to verify the accuracy of the data, such an approach builds trustworthiness. Blockchain also uses strong cryptography to securely encode data and prevent any unauthorized access. It is nearly impossible to alter the data without being detected once it is recorded on the main blockchain, ensuring its security.
Control over data is spread across a network of many computers rather than relying on a single central authority. As a result, the system does not depend on any single entity. This reduces the risk of a major failure affecting the entire network and allows it to retain functionality even if some parts are compromised.
Blockchain also simplifies transactions and makes them more cost-effective. It rapidly completes processes that otherwise take days with the involvement of intermediaries. This technology accommodates the ever-growing number of users without compromising performance and reducing transaction costs significantly. This is achieved through alternatives to the main blockchain, such as side chains, which maintain the main chain’s efficiency while allowing smaller-scale processes to continue uninterrupted.
Blockchain is efficient and secure; setting up and maintaining it can be an expensive venture. Working on blockchain requires specialized expertise, therefore, specific human resources and necessary storage & equipment costs are expected throughout the process.
While the Energy Consumption issue is more prominent in proof-of-work blockchains, such as Bitcoin, it remains a valid concern. The need to solve complex problems during transaction validation can lead to high energy use, which in turn can present environmental considerations.
A problem of interoperability is also an issue.Different blockchain platforms often operate independently, making data exchange between them challenging. However, with new developments in cross-chain technology improving interoperability, connecting blockchains is gradually becoming easier.
Crypto Investing
Similar to investing in stocks, investing in cryptocurrencies such as Bitcoin or Ethereum generally involves the expectation of an increase in value over time. Once you purchase crypto assets, you can then store them in digital wallets and resell or transfer later.
Crypto Mining
Crypto mining involves solving complex mathematical puzzles to validate and record blockchain transactions and successful miners are rewarded with newly created cryptocurrency coins.
Mining Pool Participation
Mining pools are groups of miners that combine their resources to increase their chances of solving puzzles. While resources are shared, the higher chance of earning crypto can make this more profitable. Rewards are distributed among members based on their contribution in computational power, ensuring fairness and regulation in the process.
As a decentralized and cryptographic technology, blockchain provides one of the highest Security standards. Since no single entity controls the entire network, the risk of system-wide failure is minimal. Additionally, the immutability of blockchain ensures that all transactions are verified and secure.
The greatest risk involved in this technology lies in the personal mismanagement of your private key or data. Also, falling victim to potential scams such as via social media or messenger platforms is a common threat. Nonetheless, it is always advisable to take extra precautions with particularly sensitive data. Here are some tips on how to keep your crypto extra safe:
Tips for Maintaining Security
Use Hardware Wallets
Keep Software Updated
Be Cautious with Private Keys
To protect your wallet from potential threats, store your cryptocurrency in an offline hardware wallet. Because it is not connected to the internet, offline wallets are far less vulnerable to potential threats.
Regularly update your software to have the latest security patches and protections. This prevents attackers from exploiting vulnerabilities in outdated versions.
Additionally, remember your private key, since losing it can mean permanent loss of access to your assets. As with passwords, your private keys should be kept secure and never shared with anyone.
What is blockchain in simple terms?
Blockchain is a digital ledger that securely tracks transactions in a transparent and unchangeable way.
How is blockchain different from traditional databases?
Unlike traditional databases, which rely on control from a single authority, blockchain is decentralized. This means no single entity has control over it. Blockchain can also offer better security and transparency than centralized systems.
Can blockchain be hacked?
While blockchain itself is highly secure, the greatest risk lies in the mismanagement of the private keys, rather than a public security breach. That is why keeping your private key safe and avoiding scammers is the best way to protect your security.
What are the main applications of this technology?
Blockchain is used in different sectors, including finance (primarily cryptocurrencies), healthcare, digital identity verification, and more.
How do I start investing in cryptocurrency?
In case you are wondering how to start investing in crypto, you should at first, choose a reputable exchange. Start with thorough research—our blog posts are here to help you along the way. Continue to learn more about the process, experiment, and learn to better grasp the potential and challenges of blockchain.
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