Blockchain

“An incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.” — Don & Alex Tapscott

Blockchain is a decentralized, distributed ledger — a continuously growing list of records (blocks), linked and secured using cryptography. Created as the underlying technology for Bitcoin (Satoshi Nakamoto, 2008).


Core properties

PropertyWhat it means
DecentralizationNo central authority — network of nodes each holding a full copy of the chain
Distributed ledgerEvery node has the complete chain; no single point of failure
ImmutabilityAltering a block changes its hash, invalidating all subsequent blocks — tamper-evident by design
TransparencyAll transactions visible to network participants — clear audit trail
SecurityCryptographic hashing + digital signatures + consensus protect the chain

Block structure

Each block contains:

FieldDescription
Block HashSHA-256 hash of this block’s contents
Block NumberPosition in the chain
Creation DateTimestamp
Previous Block HashLinks this block to the prior one — forms the chain
TransactionsThe data payload (e.g. financial transactions, contract data)

Why immutability is hard to break: changing any data in a block changes that block’s hash. Since each subsequent block contains the previous hash, every block after it also becomes invalid. An attacker would need to recalculate the entire chain and control >50% of the network’s computing power simultaneously.

Bitcoin example: ~10 minutes per block; 1000-block chain ≈ 7 days to recalculate. On a live network with thousands of nodes all adding blocks, this is computationally infeasible.


Cryptographic foundations

Hashing

A hash function takes arbitrary input and produces a fixed-size output (the message digest). Properties:

  • Deterministic — same input always produces same hash
  • One-way — cannot reverse a hash to get the input (unlike encryption)
  • Collision-resistant — infeasible to find two different inputs with the same hash
  • Avalanche effect — tiny change in input produces completely different hash
AlgorithmFamilyStatus
MD5Broken (collisions found) — avoid for security
SHA-1SHA-1Deprecated
SHA-256SHA-2Standard — used in Bitcoin
SHA-512SHA-2Stronger variant
SHA-3SHA-3Latest family (different construction)

Hashing ≠ encryption: hashing is one-way; encryption is two-way (reversible with a key).

HMAC — Hashed Message Authentication Code

Combines hashing with a shared secret key. Provides:

  • Integrity — message was not altered
  • Authentication — message came from someone who knows the key

Digital signatures

Asymmetric cryptography (RSA) applied to message signing. Provides:

  • Authentication — verifies the sender’s identity
  • Non-repudiation — sender cannot deny having sent the message

Flow:

Alice (sender):
  1. Encrypts her data with recipient's public key
  2. Hashes the encrypted data
  3. Signs the hash with her own private key
  → sends: encrypted data + hash + digital signature

Bob (recipient):
  1. Decrypts data with his private key
  2. Calculates hash of received encrypted data
  3. Verifies Alice's digital signature using her public key
  4. Compares computed hash to received hash — if they match, data is authentic and unaltered
KeyEncryptionSignatures
Public keyEncryptVerify signature
Private keyDecryptSign message

Proof of Work

The mechanism that makes adding a new block computationally expensive. Nodes (miners) must solve a cryptographic puzzle — finding a nonce value that produces a block hash below a target difficulty. This:

  • Makes adding blocks slow and expensive (Bitcoin: ~10 min/block)
  • Makes tampering prohibitively expensive — you’d need to redo PoW for every subsequent block
  • Creates the economic incentive structure (mining rewards)

Consensus mechanisms

All nodes must agree on the state of the chain:

MechanismHow it worksUsed by
Proof of Work (PoW)Computational puzzle — most work winsBitcoin
Proof of Stake (PoS)Validators chosen proportional to their stake (coins held)Ethereum (post-Merge)
Delegated Proof of Stake (DPoS)Token holders vote for delegates who validateEOS, Tron

PoS uses far less energy than PoW — Ethereum’s switch from PoW to PoS reduced energy use by ~99.95%.


Public vs private blockchains

PublicPrivate
Who holds a copyEvery node — full copySelected nodes only
Who can writeAnyoneEnterprise controls access
Security modelDecentralized consensus — very strongControlled — weaker decentralization
SpeedSlower (PoW puzzles)Faster
ExamplesBitcoin, EthereumHyperledger Fabric, Corda
ControversyEnterprises like control but lose key trust benefits

Smart contracts

Self-executing code stored on the blockchain. Conditions are written directly into code — when preconditions are met, the contract executes automatically with no intermediary.

  • Ethereum is the dominant smart contract platform
  • Written in Solidity (Ethereum) or Rust (Polkadot/Solana)
  • Enable: DeFi, NFTs, DAOs, automated escrow, token issuance

Use cases

DomainApplication
Digital currencyBitcoin, stablecoins, CBDC
DeFiDecentralized exchanges, lending, yield farming
Smart contractsAutomated agreements without intermediaries
Supply chainTrack origin and movement of goods (provenance)
IdentitySelf-sovereign identity — user controls their own credentials
AML / KYCImmutable audit trail for financial compliance
VotingTamper-resistant transparent election records
HealthcareShared patient records across providers with consent control
Intellectual propertyProvable timestamped ownership records
Public recordsLand registries, certificates, licenses

See also