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What is a blockchain? Concepts, principles, technology


A blockchain – literally meaning a chain of blocks – is a decentralized database that contains information about all transactions made by members within its network. The technology is based on cryptographic information security methods. The data is stored as a chain of blocks, each of which contains a certain number of transactions.

The blockchain is powered by lots of computers, or nodes, located all over the world. They process the transactions, create new blocks, exchange them and store copies of the blockchain.

A brief history of blockchain technology

The story of blockchain technology dates back to the late 1970s when American cryptographer Ralph Merkle patented his hash tree invention, also known as the Merkle tree.

The Merkle tree involves organizing data and storing it securely in a system of blocks that are linked together using the hash function cryptography method.

In 1991, Stuart Haber and W. Scott Stornetta published the first outline of the blockchain concept. The computer scientists used Merkle trees as the basis of their creation, laying the foundation for the emergence and development of blockchain technology as we know it today, cryptographic encryption and the Web3 industry. Their research was geared towards creating a database of immutable public data encrypted with cryptography. The technology was even patented (the patent expired in 2004), but it appears to have been too far ahead of its time to receive funding.

In terms of real-world applications, the blockchain story began in earnest in 2008 with Satoshi Nakamoto and the whitepaper for Bitcoin, the world’s first cryptocurrency. Haber and Stornetta are the two most cited experts in the founding document.

Basic operating principles of the blockchain

Regardless of whether it’s being used in the financial sector or elsewhere, a blockchain must meet the following criteria:

  • Decentralized. The data isn’t stored on a central server, but on multiple computers located all over the world.
  • Transparent. Anyone can view any transaction they are interested in on the blockchain and track the movement of coins, even from the moment they are minted.
  • Immutable. Blocks that have already been added to the blockchain cannot be edited, deleted or moved. You can only add new blocks. The immutability and irreversibility of the blockchain is ensured by the distributed network architecture and the use of the hash function.
  • Secure. Cryptography, consensus mechanisms, the immutability of data and decentralized storage methods all help to make blockchains more secure.

How the blockchain is structured and how it works

  • Processing transactions. The parties to a transaction exchange data that has been encrypted using a cryptographic algorithm. This data could represent cryptocurrency or any other digital information or assets.
  • Confirmation. The transaction is placed in the mempool, which is a queue of transactions awaiting confirmation. The network nodes group transactions into blocks, verify them and confirm their legitimacy.
  • Blockchain structure. Every block is identified by a hash, which contains a block header, the hash of the previous block, and the transactions contained in the block. A sequence of interconnected hashes creates an interdependent chain of blocks.
  • Block verification. Before a block is added to the chain, it is checked for data consistency. The rules for verification are known as a consensus mechanism. The most popular consensus mechanisms are proof-of-work (PoW) and proof-of-stake (PoS), but there are many others, including proof-of-burn, proof-of-history and proof-of-authority. The algorithm used by a given blockchain is chosen based on the project’s requirements. You can find out more in our article on “How a blockchain transaction is validated”.
  • Mining. The continued operation of networks using PoW is ensured by the work of miners, who verify transactions and create new blocks using complex mathematical calculations. In exchange, they receive rewards in the form of the network’s native token and/or a commission for processing transactions. For networks based on different consensus algorithms things are a little different, but the essence remains the same: verifying transactions, creating new blocks, and ensuring network security and decentralization.
  • Data security. If a fraudster tries to change even one transaction in a block, the block’s hash will change, after which the other nodes in the network will detect the malicious interference and ensure that the block is excluded from the main chain.

You can read our article for more information about how blockchains work.

Where are blockchains used?

The main application for blockchains is in the crypto industry, but this is by no means the only sector where it has proven its usefulness. One of the key strengths of blockchains is that they serve as very reliable databases, given that the information they contain cannot be changed or deleted. This gives the technology utility beyond decentralized finance, and there are blockchain projects being implemented in banking services and insurance, the public sector, logistics, healthcare, energy and many other industries.

The crypto industry. The first and most famous application of blockchain technology is the crypto industry, particularly the Bitcoin network, which gave rise to a wave of decentralized networks and cryptocurrencies. The blockchain made it possible to conduct transfers of assets from one person to another without intermediaries in an accessible, quick, secure and transparent fashion.

The banking sector. The use of the blockchain in the finance and credit sector improves security, reliability and transparency in money transfers, lending, securities transactions and other business processes.

Cybersecurity. Copies of the entire database are stored on many blockchain nodes at once, meaning that the infrastructure will remain viable even in the event of a successful attack on one or several nodes.

Logistics. Blockchain technology helps to quickly and efficiently process large amounts of data about transportation, cargo routes, suppliers, customers and more.

Decentralized identifiers (DIDs). An individual's personal data can be stored on the blockchain, rather than in a centralized database belonging to an organization.


The blockchain is an innovative technology with the potential to revolutionize our ideas about doing business, managing society, and communicating with each other. It provides high levels of efficiency, transparency, and security in data transmission, storage and transactions. It is already being adopted in many industries, from crypto to lending, insurance, logistics and more.

This is a new and continually evolving technology, so we can certainly expect more blockchain-based applications in the future, as well as some unexpected use cases.