Blockchain 101

What Is a Blockchain?

A blockchain is a special type of database shared across many computers. Instead of one company controlling the data (like a bank controls your account balance), thousands of computers around the world each keep an identical copy. When someone makes a transaction, every computer updates its copy at the same time. This makes the data extremely difficult to tamper with — you would need to hack thousands of computers simultaneously.

Think of it like a shared Google Doc that everyone can read but nobody can secretly edit. Every change is recorded permanently, and everyone can see the full history. The key difference is that no single person or company owns the document — it belongs to everyone on the network.

Blocks, Chains, and Transactions

Transactions are grouped together into "blocks" — like pages in a book. Each block is linked to the previous one using a special code called a "hash," creating a chain of blocks (hence "blockchain"). This linking means if someone tried to change a past transaction, every block after it would break, making fraud immediately detectable.

How Blocks Are Created and Validated

When you send cryptocurrency, your transaction is broadcast to the network and enters a waiting area called the mempool. Validators (or miners, depending on the consensus mechanism) select transactions from the mempool, verify they are legitimate (checking signatures, sufficient balances, and proper formatting), and package them into a candidate block.

Each block header contains: the hash of the previous block (creating the chain link), a Merkle root (a single hash summarizing all transactions in the block), a timestamp, and consensus-specific data like a nonce (for Proof of Work) or validator signature (for Proof of Stake). Once the block is finalized, it is broadcast to all nodes for verification and permanent storage.

The Role of Nodes

• Full nodes store the entire blockchain history and independently verify every transaction and block
• Light nodes (SPV nodes) store only block headers and request specific transaction proofs from full nodes when needed
• Archive nodes store all historical state data, useful for querying past balances and contract states
• Validator nodes actively participate in consensus by proposing or attesting to new blocks

The Distributed Ledger Advantage

Traditional databases have a single point of failure — if the server goes down or is compromised, the data can be lost or manipulated. A distributed ledger eliminates this by replicating data across thousands of independent nodes. For an attacker to alter the ledger, they would need to simultaneously compromise a majority of nodes, which is economically and practically infeasible on large networks like Bitcoin or Ethereum.

Merkle Trees and State Management

Merkle trees are the data structure that makes efficient blockchain verification possible. In a Merkle tree, every leaf node is the hash of a transaction, and every non-leaf node is the hash of its two children. The root of the tree (the Merkle root) is a single hash that summarizes all transactions in the block. This allows any single transaction to be verified with O(log n) proof size — you only need to provide the sibling hashes along the path from the transaction to the root, not the entire block.

Ethereum extends this concept with a Modified Merkle Patricia Trie for state management. Unlike Bitcoin's UTXO model (where the state is implicit in unspent transaction outputs), Ethereum maintains an explicit state trie containing every account's balance, nonce, storage, and code hash. This state trie is updated with every block, and the state root is included in the block header, enabling light clients to verify any account's state with a Merkle proof.

Block Propagation and Orphan Blocks

Block propagation time is a critical parameter in blockchain design. If two validators produce valid blocks at nearly the same time (a race condition), the network temporarily has two competing chain tips. The consensus protocol must resolve this — in Proof of Work, the longest chain rule applies, and the shorter fork becomes an orphan (or uncle) block. In Proof of Stake with finality gadgets (like Ethereum's Casper FFG), epochs are finalized so that reverting a finalized block would require an attacker to destroy at least one-third of all staked ether.

UTXO vs. Account-Based Models

• UTXO (Bitcoin) — transactions consume unspent outputs and create new ones; parallel transaction processing is easier, but smart contract logic is limited
• Account-based (Ethereum) — accounts have balances and nonces; smart contracts are more expressive, but sequential nonce-based ordering creates bottlenecks
• Hybrid approaches — Cardano uses Extended UTXO (eUTXO) to combine UTXO parallelism with smart contract capabilities
• Solana uses an account model with parallel transaction execution via its Sealevel runtime, resolving accounts that a transaction will touch ahead of time