What is blockchain? The complete guide for those who do not understand yet.

Let's start with the basics

If you still don't know exactly what blockchain is, don't worry – you're not alone. Many have heard of it in connection with Bitcoin and Ethereum, but truly don't understand it. The truth is, blockchain is simpler than you think.

In a sentence: the blockchain is a digital notebook that preserves the history of transactions, and no one can delete or alter it. That's all there is to it.

But how does this “notebook” work? And why is it so exciting? Let's go through it!

How does blockchain work? The 5 steps you need to know

A transaction is created

Imagine that you want to send some bitcoins to your friend. The first step is to connect to the network. The transaction is immediately sent to thousands of computers – these are called nodes. Each node verifies: do you really have that much bitcoin? The verification works through digital signatures – essentially a secret code that proves you are indeed authorizing the transfer.

2. The verification and authentication

If the nodes accept the transaction ( that is, if all validations work ), then the transaction is added to a “pending list”. It is not yet permanently recorded – it is just there, like a temporary station.

3. Block is born

Now comes the interesting part: multiple such transactions accumulate and form a block. Imagine it like a photocopied page in a ledger. Each block contains:

• The details of the transactions
• The timestamp was created (when )
• The block's unique “fingerprint” – the so-called hash
• The fingerprint of the previous block

This last point is what “chains” everything together. Each block references the previous one, like a tight photo series.

4. The consensus - the agreement of the network

But how does the network decide if a block is valid? This is determined by a set of rules known as the consensus mechanism. There are essentially two main methods:

Proof-of-Work (PoW) – The method used by Bitcoin. Miners compete to solve complex mathematical puzzles. The first one to solve it gets to add a new block and receives a cryptocurrency reward for it.

Proof-of-Stake (PoS) – The method of Ethereum. Here, validators are selected because they have “staked” cryptocurrencies – essentially providing a guarantee that they will act honestly.

The trick in both systems is that staying honest is much more profitable than getting involved in fraud.

Becomes final

When the block is validated, it is permanently recorded on the blockchain. Along with this, every node updates its own copy of the ledger. This information is now present on tens of thousands of computers around the world, and it is almost impossible to change.

Why can't the blockchain be broken?

Here is the magic: cryptography. There's no need to understand it at a mathematician's level, but the basics are simple.

Every block receives a code (hash) that is generated from its data. If you change even a single character in the data, the hash will be completely different. It's like saying, “If the first married person were to marry, history would take a different direction” – a small change, a huge impact.

But there is more: since every block contains the hash of the previous block, if someone tried to modify an old block, they would also have to change all subsequent blocks. And this would not go unnoticed, because all nodes in the network would be looking at it: “Hey, this doesn't add up!”

Since there are tens of thousands of computers on the Bitcoin network tracking events in real time, an attacker would need to compromise all the computers at once. This is practically impossible.

What is decentralization, and why does it matter?

Have you heard this word in relation to blockchain? It's interesting how it works.

In the traditional banking system, an institution (a bank) decides which transactions are valid. You entrusted all your money to its authority.

In the blockchain, there is no such “boss”. Instead, thousands of computer nodes collectively decide what is real. There is no single point where the system can fail. There is no single person that you have to trust.

This is attractive to many because it means that banks cannot gain power like before. However, this does not mean that it is completely unregulated – the rules are simply known by everyone and are automatically enforced.

Why is blockchain interesting?

Because it's good for more than just cryptocurrency.

Smart Contracts

Imagine: agreements that execute themselves. For example: “If the package does not arrive by 6 PM on Friday, the customer automatically receives their money back – without human intervention.” Such contracts run on Ethereum, and they establish the world of decentralized finance (DeFi).

Supply chain tracking

In the real world – for example, the journey of a piece of clothing from the factory to the store – the blockchain can trace the path. Every step is recorded, and no one can erase or conceal it. This is important for healthcare products, luxury goods, and things where the origin matters.

Digital ownership

NFTs or tokenized real estate mean that anything – images, houses, stocks – can be recorded on the blockchain as “ownership”. This opens up new opportunities for trade.

Voting

A tamper-proof voting system where users know that their vote is accounted for and cannot disappear. Neither can anyone vote twice, nor can the vote counter be tampered with.

Who uses blockchain?

Public blockchain

Like Bitcoin or Ethereum. Anyone can join, anyone can see all transactions, and no one controls it alone. This is what we call “decentralized.”

Private blockchain

When a company runs its own blockchain. Only people who are inside can see the data. This can be useful for a bank or a larger company that wants to protect its data.

Consortium blockchain

Several companies operate a blockchain together. It operates under both open and closed rules – it can be open for certain things, and closed for others. Banks like these because they can cooperate without being completely open.

Summary of the Basics

The blockchain is ultimately a technology that allows people to trade directly with each other – without banks, insurers, or other intermediaries. It is not revolutionary because the internet already existed. It is revolutionary because it brings security and trust to an environment where a central authority was previously needed.

You don't have to be a geek to understand: once money changes hands, it is forever recorded in a chain that is shared among thousands of computers. That’s why it cannot be changed later. That’s how it works.

The technology is still evolving, and many new use cases may emerge in the coming years. But the underlying idea remains simple: trust through technology, not through institutions.