Introduction to Blockchain (Mostly Empty Words I Copied from Resources on the Internet, But Still Recommend Reading)

1. What Is a Blockchain?


• A blockchain is a distributed, append-only, cryptographically linked ledger.
  It is shared among a network of independent computers (nodes), ensuring that:
  • past records cannot be altered (immutability),
  • participants do not need to trust each other (trustlessness),
  • all data is verifiable (transparency).


• A blockchain can be seen as:
  • a database with no central authority,
  • a log of events that anyone can verify,
  • a global state machine that evolves through transactions.



2. Fundamental Components
• Blocks:
  • Contain batches of validated transactions.
  • Include metadata: timestamp, nonce, block height, previous hash.
• Chain:
  • Each block contains a hash of the previous block, forming a linked structure.
  • This hash dependency guarantees tamper-evident integrity.
• Distributed Network:
  • Every node holds a copy of the blockchain.
  • Any update must be agreed upon by the network (consensus).
• Cryptography:
  • Hash functions ensure each block’s content is uniquely represented.
  • Digital signatures authenticate transactions.



3. Structure of a Block (Deep Dive)
• Block Header:
  • Previous Block Hash:
    • Cryptographically links the current block to the previous one.
    • Changing any byte in an earlier block changes its hash, invalidating the entire chain after it.
  • Merkle Root:
    • A single hash representing all transactions in the block.
    • Constructed using a Merkle tree:
      • Pairs of transaction hashes are combined and hashed repeatedly.
      • Allows efficient proof that a transaction is included in the block.
      • Used in SPV (Simple Payment Verification) clients.
  • Timestamp: Approximate time the block was mined.
  • Nonce (in PoW chains): Random number miners adjust to find a valid block hash.
  • Difficulty Target: Defines how hard it is to find a valid block.


• Block Body:
  • A list of validated transactions.
  • In smart contract chains, this includes:
    • Contract calls,
    • State updates,
    • Gas consumption info.



4. How Transactions Work


• A transaction is a signed instruction modifying blockchain state.
• A typical cryptocurrency transaction includes:
  • Sender Address
  • Receiver Address
  • Amount
  • Digital Signature proving the sender owns the funds
  • Nonce (to prevent replay attacks)
• Workflow:
  • User signs a transaction with their private key.
  • Transaction is broadcast across network nodes.
  • Nodes verify signature & balance.
  • Valid transactions go into a mempool (pending pool).
  • Miners/validators include them in the next block.



5. Consensus Mechanisms (Very Detailed)


• Why consensus is needed?
  • In a decentralized network, nodes may disagree on:
    • which transactions are valid,
    • which block is the latest,
    • how to resolve forks.
  • A consensus protocol defines:
    • who can propose a block,
    • how blocks are verified,
    • how conflicts are resolved.


• Proof of Work (PoW)


• Miners solve a difficult mathematical puzzle:
  • Find a nonce so that: SHA-256(blockheader) < target
• Requires massive computation → energy-intensive.
• Secure: attacking requires > 50% of total network hash power.
• Used by:
  • Bitcoin
  • Bitcoin Cash
  • Litecoin (modified PoW)


• Proof of Stake (PoS)


• Validators lock coins as a stake.
• Probability of proposing the next block is proportional to stake.
• Slashing: dishonest validators lose staked funds.
• Energy-efficient and scalable.
• Used by:
  • Cardano (Ouroboros)
  • Ethereum 2.0
  • Polkadot (NPoS)


• Other Mechanisms


• PBFT (Practical Byzantine Fault Tolerance):
  • High throughput.
  • Used by permissioned chains (Hyperledger Fabric).
• DPoS (Delegated PoS):
  • Token holders elect block producers.
  • Used by EOS, Steemit.
• PoA (Proof of Authority):
  • Identified authorities create blocks.
  • Used in private/enterprise chains.



6. Node Architecture


• Full Node:
  • Stores the entire blockchain history.
  • Verifies all block and transaction rules.
  • Most secure and decentralized.


• Light (SPV) Node:
  • Downloads only block headers.
  • Uses Merkle proofs to verify transactions.
  • Suitable for mobile wallets.


• Mining/Staking Node:
  • Participates in consensus by producing blocks.
  • Rewards for securing the network.



7. Smart Contracts


• A smart contract is a program deployed on the blockchain.
• Executed deterministically across all nodes.
• Once deployed, code becomes immutable.
• Supports decentralized applications (dApps).


• Examples of smart contract logic:
  • Decentralized exchange (AMM)
  • Loan collateral locking
  • Auction mechanisms
  • Minting NFTs


• Popular Smart Contract Languages:
  • Solidity (Ethereum)
  • Plutus/Haskell (Cardano)
  • Move (Aptos, Sui)
  • Rust (Solana)



8. Blockchain Use Cases (Deep Examples)


• Financial Applications:
  • Decentralized exchanges (Uniswap)
  • Lending platforms (Aave, Compound)
  • Stablecoins (USDC, DAI)


• Supply Chain:
  • Track goods end-to-end.
  • Detect counterfeit products.
  • Ensure transparent provenance.


• Healthcare:
  • Patient records with audit trails.
  • Privacy-preserving access controls.


• Identity and Authentication:
  • Self-sovereign identity (SSI).
  • Verifiable credentials.


• Government & Legal:
  • Digital land registry.
  • Smart contract–based legal agreements.
  • Voting systems.



9. Challenges & Limitations


• Scalability: Blockchains often process limited transactions per second compared to centralized systems.
• Energy Usage: Proof-of-Work chains consume significant electricity.
• Immutability: Mistaken transactions cannot be easily reversed.
• Smart Contract Bugs: Code vulnerabilities may lead to irreversible losses.
• Regulatory Uncertainty: Laws differ across jurisdictions.
• Complexity: Requires expertise in cryptography, networking, distributed systems.