What is blockchain: A step by step guide

What is blockchain

Bitcoin, which appeared in 2009 and made a sensation in the first generation. Behind that is a technology called blockchain, and without this technology virtual currency was not born.

However, according to “Blockchain White Paper 2019”, as of January 2019, 73.2% of people know the virtual currency, but 63.2% do not know about blockchain. It can be seen that quite a few people are not familiar with blockchain technology knowledge.

So this article will explain what is blockchain. However, it is also true that words that are unfamiliar to you will come out if you try to explain the blockchain. Therefore, in this article, I will give you plenty of space to introduce the terminology.

Blockchain Mechanism

Blockchain mechanism

First of all, it is safe to think of a blockchain as a database that records information by managing blocks that collect information by many computers. 

Blockchain is said to be a distributed ledger technology.

Dispersion is literally divided into pieces, and a ledger records the flow of money. In other words, even if it is interpreted literally, it seems that it can be said to be a technology that puts together ledgers that are separated.

More on this below.

Accumulate information for each block

What is indispensable for understanding the mechanism of blockchain is that there are blocks that store information. A block is a collection of what is called a transaction.

Transaction: Transaction data per transaction. For example, if Mr. A sent $100  to Mr. B, the amount of $100 sent from Mr. A to Mr. B will be accumulated in the block as a transaction.

The block is encrypted by a hash function, and you cannot see what it is from outside. The safety is guaranteed.

Hash function: A function that replaces one piece of data with another, random string of characters. This replacement makes it impossible to read the original data from the string and acts as a cipher.

What is called a block here is the part that corresponds to the “ledger” called distributed ledger technology.

A network consisting of a series of confirmations

Blockchains are called "chains", so it is meaningless if the blocks are connected in chains.
The “block” mentioned above should be connected on an equal basis without central control. This is the essence of blockchain.

So what does it mean to connect the chunks of data that have been replaced with hash values?

In fact, the joint management of blocks is the blockchain mechanism. The blockchain is managed by multiple PCs called nodes, and the blockchain is established when everyone confirms the transaction

Node: Originally a word that indicates a knot or a node. Here, we refer to each person's computer, which has the role of connecting data.

A ledger, which is a set of distributed data, and original blocks must be connected through nodes. Instead of having one big management place in the center, the blockchain is to manage data in a P2P method where individuals are connected equally.

P2P method: Officially called Peer to Peer. It is a name that calls for communicating by equal individuals, and in the context of blockchain, it means that computers are linked to each other and manage information.

If you want to do mining to add a new block, you need to encrypt the transaction with a hash function, check its integrity with the previous block, and then add it.

However, astronomical calculations are required to verify integrity.

Therefore, all the nodes participating in the blockchain participate in the calculation and check whether they are consistent.

In the conventional data method, the central institution only confirmed it, but this method is safe and error-free because many nodes participate in the calculation.

Mining: Issuing a new block. This issuance needs to be confirmed to be consistent by calculation by computers involved in the blockchain.

Explain the blockchain using the concrete example

Explain blockchain

However, there are some who say that the above explanation is vague and difficult to understand.

Therefore, I would like to once again organize the blockchain mechanism while explaining the bitcoin mechanism.

What is bitcoin?

Bitcoin is a type of virtual currency.

Cryptocurrencies are exchanged online, unlike money that has a physical form.

However, unlike e-money, it does not trade using the existing national standards for passing such as INR and Dollars but rather uses a completely different unit.
In fact, Bitcoin uses a unit called BTC.

It may be helpful to think of it as a currency in an online game that is effective in the real world.

A further difference between Bitcoin and real currencies is the presence of a central governing body.

For example, the Indian currency is issued by the Bank of India with the trust of the people, but Bitcoin does not have such an institution.

There are institutions that operate Bitcoin, but they do not manage it.

The mechanism to create "credit" of currency

So how does Bitcoin relate to blockchain?

And just as real currency is collateralized by credit, credit is indispensable to make Bitcoin a currency.
How is that related to Bitcoin?

In conclusion, Bitcoin users are profitable by managing all information traded on Bitcoin on the blockchain and being involved in mining calculations.

Bitcoin, once again, is an imaginary currency with no central control. In the currency of the past, banks would manage and keep records of transactions if they wanted to.

For example, let's say A sent a child, B, for $50,000.

Naturally, the passbook records the $50,000 transaction.

However, let's say that you made a remittance worth about $50,000  with Bitcoin.

In that case, that information is stored on everyone's computer participating in Bitcoin.
Even if Mr. B says that he is not remitted, if you show it with that information, you can immediately understand Mr. B's lie.

Here, accuracy is guaranteed.

Also, if you want to add information about Mr. A's and Mr. B's new transactions, that is, you want to mine, a huge amount of calculation is required as described above.
In that case, all the computers of each person participating in Bitcoin will participate in the calculation.
And as a reward for calculation, Bitcoin users can receive a certain amount of Bitcoin.

In this way, many computers participate in the P2P method, which gives credit to Bitcoin and makes it a currency.

Blockchain Type

Blockchain can be broadly divided into "public type" and "private type".

public type

"Public type" refers to a blockchain that does not have a centralized management period, is open to any unspecified number of people, and can participate in mining. Bitcoin is typical.

private type

The "private type (private chain)" is characterized by having an administrator. Since mining can be controlled by the permission of the administrator (public type must have the approval of the miner), it can be used for managing the financial system.

Blockchain Challenges

Blockchain is a technology that has just started to be used. Processing speed will be an issue for the future. Since distributed data management and real-time processing are not possible, it will be an issue in the future to utilize the system for real-time payment such as in physical stores.

On the other hand, it can be said that the advantages of security due to the "distributed" and "irreversible" characteristics of blockchain are extremely large. 

In the case of the conventional centralized type, the load on the server is heavy and it can withstand situations where the system goes down. Although there are challenges due to the new technology, it can be said that it is a technology that is expected to gather in the future because the merit obtained is great.

Blockchain features and benefits

Blockchain is a new technology. So what are the benefits?

Strong against attacks because there is no central administrator

If there is a central administrator, if the administrator is attacked and goes down, all transactions will be ruined.

However, there is no central administrator on the blockchain, so that is not a concern.
In fact, Bitcoin has been in operation since 2009, but it has never been down.

Cannot be tampered with

The process that takes place on the blockchain involves a huge amount of computers and is encrypted.

If the information is tampered with, the hash value will replace it, and you will know that tampering has been done to nodes around the world.

Therefore, it can be said that it is protected very firmly.

Low management and operation costs

You don't have to have a huge amount of servers or spend money maintaining them to get started with blockchain.

Information is distributed and managed so there is no need to centralize it.

The larger the number of participants, the cheaper the operation.

Also useful for marketing

Blockchain is an image that seems to be used only for Fintech such as virtual currency, but it does not actually happen.

For example, Wal-Mart, the world's largest supermarket chain, uses blockchain technology for shipping.

This technology allows us to see the location and condition of items in transit, but according to Walmart, security is the number one reason for introducing this technology.
In this way, blockchain shines not only in the field of Fintech.

One way to consider is to introduce blockchain as one of your marketing strategies.

Already, a company called Kind Ads has published an advertising platform using blockchain, and it seems that blockchain will be an eye-catcher in the marketing field.


So far, I have explained the mechanism of the blockchain.

It can be said that blockchain has high security because it has no core.

It may be good to think about how you can utilize blockchains that are effective in various fields.

Although it is a complex blockchain, it seems that it has infinite possibilities as it depends on how it evolves.

Frequently asked a question about blockchain on google.

Q. What is a blockchain?

A. "Blockchain" refers to the "transaction data" technology that is the core of Bitcoin. Transaction data (history) is called a "transaction", and a collection of multiple transactions is called a "block". "Blockchain" is a state in which these blocks are stored in series.

The feature of blockchain is that it is managed in a decentralized manner, and it is stored on the computer of any user who uses Bitcoin or the like.

Since there is no specific governing body like a bank, authority is not centralized.

Therefore, it is expected to be able to operate financial services at a low cost and resistant to system failures.

Q. What are the types of blockchain?

A. Blockchain can be broadly divided into "public type" and "private type".

  • Public type
  • private type
Q. Why you need a blockchain?

A. There is no doubt that the existence of a manager establishes a society, but of course, the negative effects of having a manager also exist.

Blockchain is what realizes this "same mechanism is established when there is no administrator."

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