Why You Can Trust a System with No Boss: Blockchain for Beginners

What Is Blockchain?

Imagine a notebook that everyone can see and write in, but no one can erase or secretly edit. That’s the basic idea behind blockchain – a digital ledger (or database) shared across many computers.

Blockchain is a decentralised system, meaning no single person or company controls it. Instead, it relies on a network of computers working together to record and verify information. Once data is added to the blockchain, it’s incredibly hard to change, making it useful for recording things like transactions, contracts, and even digital ownership (as in the case of NFTs).

How It Works: Blocks, Chains, and Nodes

A blockchain is made up of three main parts:

• Blocks: These are individual data packages. Each block contains a list of transactions (or other data), a timestamp, and a unique code called a hash.

• Chain: Each block is connected to the one before it using that hash. This creates a chain of blocks – hence, the name blockchain.

• Nodes: These are the computers on the network. Each node keeps a full copy of the blockchain and helps validate new transactions.

When someone makes a new transaction, it’s broadcast to the network. The nodes check if the transaction is valid, and if most of them agree, the transaction is grouped into a block. That block is then added to the chain.

Key Concepts and Terms

Understanding blockchain starts with a few important ideas. These terms often come up in articles and discussions, so it’s helpful to know what they actually mean:

Decentralisation. In most systems today (like banks or social media), a central company or authority is in control. In a decentralised system like blockchain, there is no single owner. Instead, many computers (nodes) share the responsibility. This helps prevent fraud and censorship, because no single person can secretly change things.

Immutability. Once something is added to a blockchain, it can’t be changed or deleted – not by anyone. This is called immutability. It means the records are permanent and tamper-proof, which is one reason blockchain is trusted for things like money and contracts.

Transparency. Most blockchains are public, meaning anyone can view what’s on them. You can see every transaction, when it happened, and which wallet addresses were involved. Even though the data is open, the identities behind wallet addresses are usually hidden – so you can see what happened, but not necessarily who did it.

Consensus Mechanism. Since there’s no central authority, blockchain networks need a way for all the computers (nodes) to agree on what’s true. That’s where a consensus mechanism comes in. It’s a set of rules that helps everyone stay in sync.

Here are two common types:

• Proof of Work (PoW): Computers solve complex puzzles to prove that a transaction is valid. This process uses a lot of energy but is very secure. Used by Bitcoin.

• Proof of Stake (PoS): Instead of solving puzzles, people put up (or “stake”) some of their cryptocurrency as a guarantee. If they try to cheat, they lose their stake. This method is faster and uses less energy. Used by Ethereum 2.0 and others.

A Short History of Blockchain

Blockchain might feel like a very modern invention, but the ideas behind it started forming several decades ago. Here’s how it all came together:

Before Blockchain: The Early Ideas

The concept of storing data in linked blocks (like a digital chain) dates back to the early 1990s. In 1991, two researchers – Stuart Haber and W. Scott Stornetta – came up with a system to timestamp digital documents, so they couldn’t be altered later without being noticed. This was one of the first building blocks of blockchain.

2008: The Birth of Blockchain

The real breakthrough came in 2008, when a mysterious person (or group) using the name Satoshi Nakamoto published a paper called: “Bitcoin: A Peer-to-Peer Electronic Cash System”

This paper introduced Bitcoin, the first digital currency that worked without a central authority like a bank. It also described the technology behind it – blockchain.

Fun fact: To this day, no one knows who Satoshi Nakamoto really is.

2009: Bitcoin Goes Live

In January 2009, the Bitcoin network officially launched. The very first block of the blockchain, known as the Genesis Block, included a hidden message: “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks”.

This was a reference to a newspaper headline and possibly a quiet protest against traditional banking systems.

2015: Ethereum and Smart Contracts

Blockchain took a big step forward with the launch of Ethereum in 2015. Created by programmer Vitalik Buterin, Ethereum wasn’t just for currency. It introduced the idea of smart contracts – small programs that automatically run when certain conditions are met.

This made blockchain useful for much more than money, such as apps, games, NFTs, and digital agreements.

Today: More Than Just Crypto

Now, blockchain is used in many areas:

• Finance (cryptocurrencies, cross-border payments)

• Art and Collectibles (NFTs)

• Gaming (digital ownership of in-game items)

• Supply Chains (tracking goods)

• Healthcare (storing patient records securely)

• Voting (secure, tamper-proof election systems)

And it’s still evolving.

Hard Forks and Soft Forks: How Blockchains Evolve

Blockchains are like living systems – they need to adapt and grow. Sometimes, changes to the rules of a blockchain are necessary. These changes are called forks, and they come in two main types: soft forks and hard forks. Let’s break it down.

What is a Fork? A fork happens when the developers or community decide to change the blockchain’s code. It’s like updating the rules of a game. But with thousands of participants around the world, everyone has to agree on the new rules – or not. There are two ways this can go:

Soft Fork: A Gentle Update

A soft fork is a change that’s backward-compatible. This means that old and new nodes (computers in the network) can still work together.

• Example: Imagine changing the game to allow fewer moves per turn – but old players can still follow along.

• Use case: Adding new features, tightening security, or limiting how blocks are structured.

Why it works: As long as a majority of the network upgrades, the old version doesn’t break.

Hard Fork: A Split in the Road

A hard fork is a more dramatic change. It is not backward-compatible – which means nodes that don’t upgrade can no longer interact with the upgraded chain.

• Example: Imagine rewriting the game’s rules completely. Some players continue with the old rules, others follow the new ones and now there are two separate games.

• What happens: This creates two blockchains, each going its own way. All past history is shared, but from the fork point onward, they are independent.

Famous hard forks:

• Bitcoin Cash (from Bitcoin) – disagreed over how to scale Bitcoin.

• Ethereum Classic (from Ethereum) – split after a disagreement on how to handle a major hack.

Why Forks Happen

Forks can happen for many reasons:

• Fixing bugs or improving performance

• Adding new features or capabilities

• Community disagreements over the direction of the project

• Security updates or responses to attacks

Forks are a natural part of blockchain evolution, showing that the technology is open, flexible, and governed by the people who use it.

Public vs Private Blockchains

Not all blockchains work the same way. Some are open to everyone, while others are restricted to specific users or organisations. Here's the difference:

Public Blockchains

Public blockchains are completely open and decentralised. Anyone can join the network, read the data, or add new transactions.

• Examples: Bitcoin, Ethereum.

• Transparency: All transactions are visible to anyone.

• Security: Maintained through decentralisation – thousands of nodes verify transactions.

• Use Cases: Cryptocurrencies, NFTs, decentralised finance (DeFi), smart contracts.

Think of public blockchains like Wikipedia: anyone can view it, and with the right permissions, anyone can contribute. But everything is recorded and traceable.

Private Blockchains

Private blockchains are restricted and controlled by a single entity or a group.

• Examples: Hyperledger Fabric, Corda.

• Access: Only approved participants can use the network.

• Speed: Often faster and more efficient than public blockchains.

• Use Cases: Supply chain tracking, banking, corporate data management.

A private blockchain is more like an internal company database – it uses blockchain principles but limits who can participate or see the data.

Limitations and Challenges

While blockchain is a powerful and exciting technology, it’s not perfect. There are still many challenges that need to be solved before it can reach its full potential.

1. Scalability

Blockchains can struggle to handle a large number of transactions at once. For example, Bitcoin and Ethereum can only process a limited number of transactions per second – much less than systems like Visa or Mastercard.

• Why it happens: Every transaction must be verified by many nodes, which takes time.

• Possible solutions: New technologies like Layer 2 solutions (e.g., Lightning Network) or blockchains with faster consensus mechanisms (like Solana or Avalanche).

2. Energy Consumption

Some blockchains, especially those using proof of work (like Bitcoin), consume a lot of electricity.

• Why it happens: Powerful computers compete to solve puzzles to validate transactions.

• What’s being done: Many newer blockchains now use proof of stake, which uses far less energy.

3. Storage Limits

Blockchain data grows over time, and every full node needs to store the complete history of transactions.

• The problem: As the blockchain grows, it becomes harder and more expensive to run a node.

• Efforts to fix: Projects are exploring more efficient storage methods and pruning techniques.

4. Regulation and Legal Uncertainty

The legal status of blockchain-related projects (like cryptocurrencies or NFTs) is still unclear in many countries.

• Why it matters: Without clear rules, businesses may be hesitant to adopt blockchain.

• Current state: Governments are slowly catching up, but laws vary widely between regions.

5. User Experience

Using blockchain apps (wallets, dApps, etc.) can still be confusing for beginners.

• Examples: Managing private keys, dealing with gas fees, or understanding how to reverse mistakes.

• What’s improving: Developers are working on more user-friendly tools and interfaces.

6. Centralisation Risks

Even though blockchains are designed to be decentralised, some networks end up being controlled by a few large players (like mining pools or validator groups).

• Why it’s a problem: This weakens the security and fairness of the system.

• Ongoing solutions: Encouraging decentralised participation and designing better incentive structures.

Summary: What You Should Now Know About Blockchain

By now, you’ve taken your first deep dive into the world of blockchain - and you’ve learned that it’s not just about Bitcoin. Let’s quickly go over the key takeaways:

• Blockchain is a digital ledger made up of blocks of data linked in a chain, maintained by a network of computers called nodes.

• It works using decentralisation, meaning no single company or person controls it.

• Cryptography keeps everything secure, ensuring that once something is recorded, it can’t be changed.

• Consensus mechanisms like Proof of Work or Proof of Stake are used to agree on what gets added to the chain.

• And when the community wants to make changes, they do it through forks – with soft forks keeping things compatible and hard forks splitting the network in two.

• You’ve explored the differences between public and private blockchains, and how they serve different needs – from open networks like Bitcoin to permissioned ones used by companies.

• Blockchain isn’t perfect – it faces challenges like scalability, energy consumption, and regulatory concerns.

Whether used for cryptocurrencies, supply chains, digital identity, or voting systems, blockchain has the potential to change the way we trust and exchange information.

And the best part? You don’t need to be a tech expert to understand or use it – you just took your first step.