A comprehensive guide to blockchain applications: from basic concepts to practical investment

The Essence of Blockchain: A Ledger Maintained by Multiple Participants

When it comes to blockchain, many people feel unfamiliar. In fact, it’s like a ledger recording the flow of money, but this ledger is not managed by a single person or organization. Instead, it is maintained collectively by thousands of participants worldwide (called “nodes” or “miners”).

Why is it called “blockchain”? Because each transaction is recorded in a data unit called a “block.” Multiple blocks are linked together in chronological order through cryptographic methods, forming a “chain.” This decentralized design means that even if a node fails or data is lost, the entire system can still operate normally, avoiding a single point of failure.

Structure of Blockchain: The Three Core Elements

Each block contains three key parts:

Data Layer is the information carrier of the block. In the Bitcoin network, data records include the sender, receiver, and transfer amount of each transaction.

Hash Value acts like a unique ID for the block, with uniqueness. Its functions are twofold: first, to help quickly locate block content; second, to detect if the block has been tampered with through its uniqueness.

Previous Block Hash records the hash value of the previous block. This chain-like connection has a clever feature—if a hacker attempts to tamper with a block, it will invalidate the hash values of all subsequent blocks, making the tampering immediately detectable. To further prevent attacks, blockchain uses the Proof of Work (PoW) mechanism, making tampering unprofitable and protecting the integrity of the entire network.

How Blockchain Works: An Example of Transactions

Suppose Xiao Wang wants to transfer 1 Bitcoin to Xiao Li. How is this transaction processed on the blockchain?

Stage 1: Transaction Initiation. Xiao Wang fills in the sender’s address, receiver’s address, and transfer amount using a wallet software. The transaction is broadcast to the entire blockchain network, awaiting validation.

Stage 2: Node Verification. Miners need to confirm two things: whether Xiao Wang’s wallet actually has 1 Bitcoin, and whether the transaction is signed by Xiao Wang himself. Once verified, the transaction enters the “pending packing queue.”

Stage 3: Packing into a Block. Under the PoW mechanism, approximately every 10 minutes, miners will pack multiple pending transactions into a new block.

Stage 4: Network Consensus. The new block is broadcast to every node in the network. All nodes verify the legality of transactions within the block and the correctness of the hash value. When over 51% of nodes agree on the block, it is officially added to the chain, completing the transaction. The entire process involves multiple participants and consensus, greatly reducing scam risks.

Important Tip: Bitcoin transactions are irreversible. If the transfer address is entered incorrectly, funds cannot be recovered. After verification, miners receive rewards, such as transaction fees or newly generated Bitcoins.

Types of Blockchain: Three Modes with Their Pros and Cons

Blockchain is not a single form; depending on participants and permissions, it can be divided into three categories:

Public Chain is fully open; anyone can participate. Examples include Bitcoin, Ethereum, Solana, Polkadot, Cardano, Litecoin, BNB Chain. Its advantages are transparent transaction data and near-impossibility of tampering. Disadvantages include slower processing speeds and high energy and computing power consumption. Suitable for cryptocurrencies, IoT, smart contracts, digital identities, etc.

Consortium Chain is maintained jointly by specific organizations, with only authorized entities allowed to join. Examples include Hyperledger, FISCO BCOS, used in finance, energy, insurance sectors. Its advantages are faster transaction speeds, lower costs, and resistance to attacks. However, the consensus mechanism takes time, affecting development efficiency.

Private Chain is fully controlled by a single organization, with read/write permissions held by that organization. It offers the fastest transaction speeds and minimal security risks but can be easily manipulated in terms of tokens. Commonly used for internal enterprise data management and auditing.

Advantages of Blockchain: Why It’s Worth Attention

Security: All transactions on the blockchain are encrypted. Once verified, they cannot be tampered with, even by system administrators. This feature significantly reduces risks of financial scams and identity theft.

Traceability: Every transaction is permanently recorded in an immutable database, allowing precise tracking of the origin and flow of funds. This is especially useful for anti-money laundering, audits, and compliance checks.

Efficiency: Distributed ledgers enable quick reconciliation between parties, reduce intermediaries, and lower cross-region payment costs. Traditional bank transfers may take 3 to 5 days, while blockchain can do it in minutes.

Transaction Accuracy: Multiple nodes verify each transaction, greatly reducing human errors. Additionally, each asset change has an independent record, making double-spending nearly impossible.

Limitations of Blockchain: Risks to Be Aware Of

Key Risks: Losing wallet keys results in permanent loss of stored assets, with no way to recover.

Energy Consumption: Public chains using PoW require massive electricity and computing power for mining, impacting the environment.

Consensus Time: Private or consortium chains have more complex consensus mechanisms, which take time, reducing system upgrade and development efficiency.

Illegal Use Risks: Due to blockchain’s anonymity, it can be exploited for illegal purposes.

Blockchain Applications: From Concept to Practice

Blockchain is not just the foundation for cryptocurrencies; its applications are expanding continuously.

Cryptocurrencies and Finance are the most mature applications. Bitcoin, Ethereum, and other cryptocurrencies have become important options for global asset allocation. For example, in June 2023, Bank of China International issued structured notes worth over $30 million on Ethereum, demonstrating blockchain’s role in financial innovation. Decentralized Finance (DeFi) allows users to lend, borrow, and trade without traditional banking intermediaries.

Supply Chain Management exemplifies blockchain’s practical use. Traditional supply chains generate massive data, and tracing responsibility is difficult when issues arise. IBM’s Food Trust project uses blockchain to monitor the entire food supply chain. Taiwan’s tea brand “Wang De Chuan” records tea origin and processing via blockchain; consumers can scan QR codes to view the full product history. This greatly enhances food safety transparency and consumer confidence.

Intellectual Property Management shows great potential with Non-Fungible Tokens (NFTs). Creative content like music and art can be registered on the blockchain via NFTs. For example, Jay Chou’s “Phanta Bear” NFT project allows fans to support the artist directly and access exclusive content, while artists’ copyrights are permanently recorded and protected.

Healthcare Data management is also transforming. Estonia uses blockchain to store medical records, with patient authorization required for doctors to access, protecting privacy and preventing tampering. Taiwan’s Ministry of Health and Welfare is exploring blockchain for secure inter-hospital sharing of medical records, enabling patients to transfer hospitals without paper reports, greatly improving efficiency.

Blockchain Investment: Three Main Approaches

Blockchain itself is a technological infrastructure and cannot be invested in directly. However, investors can participate in the ecosystem by investing in blockchain products or applications.

Spot Trading is the simplest. Similar to stock trading, users buy cryptocurrencies at low prices and sell at high prices to profit. For example, buying 1 Bitcoin at $30,000 and selling at $50,000 yields a $20,000 profit. The acquired cryptocurrencies can be stored in wallets or transferred to others.

Mining suits investors with certain technical skills and capital. Miners provide computing power to verify transactions and earn block rewards. However, this requires specialized mining equipment and electricity costs, making it unsuitable for small investors.

Crypto CFDs (Contracts for Difference) are the most efficient and convenient. They are financial derivatives allowing traders to speculate on price movements without owning actual cryptocurrencies or managing keys. Leverage trading is supported, enabling larger investments with less capital, but risks are amplified, and profits or losses can multiply.

For investors interested in participating in the blockchain ecosystem, choosing an appropriate approach based on risk tolerance is essential. Regardless of the method, understanding market risks and investing cautiously is crucial.