Cracking the Blockchain Code: A Comprehensive Guide

Over the past decade, blockchain technology has evolved from a financial experiment with a devoted following into a potential game-changer for data management. But here's the thing: many still struggle to grasp what blockchain really is and why it's so valuable. That's why we're here with SmashingBlox, our blockchain practice, to demystify this revolutionary technology and lay the groundwork for understanding blockchain and cryptocurrency.


At its core, blockchain is a modern-day ledger, a powerful database that revolutionizes the way information is stored. But before we dive into the unique characteristics of blockchain, let's take a step back and explore the different types of ledgers that exist.

Get ready to explore the fascinating world of blockchain and unleash its potential for transforming data management!

  1. Distributed vs Localized: Just like collaborating on an online Google Sheet, multiple users can share a copy of a distributed ledger. On the other hand, a localized ledger is saved on only one device, similar to a Microsoft Excel file saved on your desktop.
  2. Decentralized vs Centralized: A decentralized ledger has no central owner or single point of failure. In comparison, a centralized ledger, such as a bank account balance, has one owner (the bank).
  3. Public vs Private: A private ledger is an invitation-only ledger. You must be given permission to view or edit it. In contrast, anyone can access a public ledger.
  4. Peer-to-Peer Network vs Central Network: In a central network, all data is stored on one central server. Think about your favorite website. When that website's server goes down, you are unable to access it. In contrast, a peer-to-peer network has data stored on multiple devices. If one server fails, the data is still accessible.
  5. Tokenized vs Tokenless: Tokenized ledgers require cryptocurrency coins to operate. These ledgers are constructed around an incentive system that provides coins to those who operate the network. On the other hand, tokenless ledgers do not have such systems in place.
  6. Immutable vs Mutable: Immutable ledgers are unable to be edited over time, while mutable ledgers can be changed as needed.
Types of Ledgers
Figure 1: Types of Ledgers

Public blockchains are distributed, decentralized, public, on a peer-to-peer network, and immutable. These unique traits are what make blockchains innovative.

Distributed ledger examples
Figure 2: Distributed Ledger


Imagine a public blockchain as a decentralized, distributed ledger - a secure public database. It's like a new way to store information securely. In our previous post, we explored the key characteristics of a public blockchain:

🔒 Public blockchains are decentralized, with no single owner.

🌐 Blockchains are distributed, sharing information across multiple devices, much like a Google Doc.

⏳ Blockchains are immutable, meaning data cannot be edited over time.

📊 Typically, blockchains are public, allowing real-time viewing and tracking of data.

📚 Ultimately, blockchains are a type of ledger, a collection of information like a database.

Join us as we delve deeper into the fascinating world of blockchain!

Blockchain key characteristics
Figure 1: Key Characteristics of Blockchain

A blockchain is like a puzzle made up of interconnected data "blocks" secured by the power of cryptography. Imagine each block as a piece of the puzzle, carefully linked to the entire chain. This intricate connection makes it incredibly challenging for anyone to tamper with the data. Even if a hacker attempts to change a single block, they would have to alter the entire chain. Blockchains are governed by a set of underlying rules known as protocols, ensuring trust and security in this fascinating technology.

blockchain composition
Figure 2: Blockchain Composition

Traditional networks typically store data in a single central server. In contrast, blockchain technology utilizes a peer-to-peer network (P2P), where data is shared across multiple devices. This decentralized approach enhances the network's resilience by making it harder to disrupt. Unlike centralized systems, the failure of a single device does not impact the entire network. Each electronic device that participates in the blockchain network is referred to as a node. Nodes collaborate using consensus protocols to validate and add new information to the blockchain.

central vs peer to peer network
Figure 3: Central vs Peer to Peer Network


In the final section of Blockchain 101, we explored the essence of a blockchain - a secure database. For a blockchain to function effectively, it requires rules to validate new information and prevent double spending. Consensus protocols are the mechanisms used to validate and add new data to a blockchain. These protocols enable all nodes within the blockchain system to reach an agreement on the validity of new information, without the need for centralised leadership. Consensus protocols also possess Byzantine Fault Tolerance (BFT), allowing peers to achieve consensus even if some nodes fail.

Currently, the most widely used consensus algorithm is the Proof of Work (PoW) protocol, employed by Bitcoin and Ethereum. Under this consensus protocol, users compete to solve complex mathematical puzzles to verify data and append new blocks to the blockchain. Miners, who verify the data, are rewarded with cryptocurrency coins for their efforts. The PoW protocol is highly secure, as an attacker would need to control at least 51% of the network to disrupt it, a scenario known as a 51% attack. However, Proof of Work requires substantial computing power and lacks scalability. As a result, alternative consensus protocols like Proof of Stake and Proof of Authority are gaining popularity.

Figure 1: Common Consensus Protocols

The choice of consensus protocol depends on the objectives of the blockchain. In the upcoming section of this series, we explore various potential applications of blockchain technology, along with their associated benefits and challenges.


If you've been following along with our series, we've delved into the fascinating world of blockchains and ledgers, and explored the consensus protocols that empower them. As we shift our gaze towards the future, let's take a moment to step back and unravel the captivating history of blockchain.

Back in 1991, Stuart Harber and W. Scott Stornetta introduced the concept of blockchain technology. While intriguing, it took nearly two decades for it to find real-world applications. Then, in 2009, an enigmatic figure known as Satoshi Nakamoto unveiled Bitcoin, the pioneering cryptocurrency. The true identity of Nakamoto remains shrouded in mystery, leaving us to wonder if it's the work of one genius or a collaborative effort. Bitcoin quickly gained a devoted following, and by 2013, its market value soared to an impressive $1 billion.

But the story doesn't end there. In that same year, Vitalik Buterin rallied the support needed to launch Ethereum, a groundbreaking blockchain platform. Ethereum not only facilitated transactions but also unleashed the power of smart contracts and decentralized applications (dApps) into the world.

The journey of blockchain is filled with intrigue, innovation, and remarkable milestones. Join us as we continue to uncover the endless possibilities that lie ahead!

Blockchain history
Figure 1: Blockchain History

Blockchain, in its current form, offers numerous advantages. It boasts robust security, stability, speed, and transparency. However, certain challenges remain that necessitate attention. Modifying data poses difficulties, energy consumption is demanding, and scalability is limited.

blockchain benefits and challenges
Figure 2: Blockchain Benefits and Embracing

The future: Unlocking the potential of blockchain! 🚀

Imagine cheaper and faster banking transactions, whether it's making payments internationally or locally. Securely store and manage important records, from medical records to property documents. Experience the power of smart contracts, enabling secure and automated agreements. Track and verify products every step of the way in the supply chain. Dive into the world of energy trading, where electricity and resources can be tracked and traded. And let's not forget about voting – reducing fraud and increasing transparency in elections. The possibilities are limitless with blockchain technology! 💡

Blockchain Business Applications
Figure 3: Future Blockchain Business Applications

Today, the biggest application of blockchain is in cryptocurrency. 

Digital Currency

Have you ever wondered what gives value to the dollars in your bank account? Currency, the backbone of our daily transactions, is often taken for granted. But let's take a moment to unravel the mystery behind it, starting with a closer look at various types of currencies and the fascinating world of cryptocurrencies.

While the term "Fiat" may remind you of cars, it actually refers to the most common form of currency we use every day - government-backed currencies like the US dollar or the Euro. On the other hand, private currencies are issued by non-government entities. For instance, universities may provide students with points to spend at campus stores, creating a unique private currency system.

But what about cryptocurrencies? These digital private currencies, powered by blockchain technology, have gained popularity in recent years. Bitcoin, Litecoin, Ripple, and Ethereum are just a few examples of the exciting world of cryptocurrencies.

So next time you handle money or explore the realm of cryptocurrencies, remember the intricate web that underlies our financial systems.

Cryptocurrency networks
Figure 1: Cryptocurrency Networks

Cryptocurrencies called coins exist on their own blockchains and are not backed by any assets. Coins are generated through mining, which involves adding data to a blockchain. Examples of coins include bitcoin for the Bitcoin network and ether for the Ethereum network. When a group aims to introduce a new cryptocurrency, they may conduct an Initial Coin Offering (ICO), a public crowdfunding campaign to raise funds for launching a new cryptocurrency coin or application. Investors receive coins in return for their investment.

Tokens, another type of digital currency closely associated with cryptocurrencies, are non-mineable blockchain-based currencies. Anyone can create their own blockchain token, and tokens can represent a wide range of assets. Tokens are designed to meet specific technical standards, such as ERC-20, ERC-223, and ERC-721. Similar to an ICO, investors receive tokens as a representation of their investments in a Security Token Offering (STO). Tokens, like stocks, represent partial ownership of the blockchain product.

Cryptocurrency Coins vs Tokens
Figure 2: Cryptocurrency Coins vs Tokens


Cryptocurrency is the future of money, a digital revolution empowered by blockchain technology. It transcends physical limitations, untethered from traditional assets. In our previous guide section, we explored different currencies, but what makes cryptocurrencies truly remarkable?

With blockchain as its foundation, cryptocurrencies offer unparalleled security and lightning-fast transactions. No central authority governs them, giving you complete control. Your personal information remains private, ensuring global financial freedom. However, be aware that values can fluctuate, much like an unpredictable stock market.

To trade cryptocurrencies, you'll need an exchange, just like you would for stocks. Safeguarding your digital assets requires two keys: a public key, akin to an account number shared with the world, and a private key, your digital passport. Remember, keeping your private key secure is paramount. Losing it means losing access to your cryptocurrency, like misplacing the key to a precious safe. Wallets store both keys, with options ranging from internet-based programs (hot wallets) to offline hardware devices for enhanced security (cold wallets). Explore the world of cryptocurrencies and unlock endless possibilities!

Cryptocurrency Overview
Figure 1: Cryptocurrency Overview

When someone initiates a cryptocurrency transaction, it is first broadcasted to the peer-to-peer network (P2P network) at a high level. The network proceeds to verify the transaction by adhering to consensus protocols. Once verified, the transaction data is incorporated into a new block, which is then added to the blockchain, effectively approving the transaction.

Cryptocurrency transaction process
Figure 2: Cryptocurrency Transaction Process


When a cryptocurrency transaction is requested on a blockchain, the network goes through an intriguing process to verify it. This involves following consensus protocols, which ensure agreement among participants. One of the most popular protocols is the Proof of Work (PoW), where the validation process is known as mining.

Mining begins with the formation of a block that contains transaction data. But here's where it gets fascinating: new blocks are created through a data encryption process called hashing. This process utilizes powerful algorithms like SHA-256 and Scrypt to generate a unique code known as a block hash. This block hash serves as the block's identity, uniquely identifying it in the blockchain.

And let's not forget about the hash rate. It measures the speed at which a device can encrypt data, making it a crucial factor in the mining process. So, the higher the hash rate, the faster the mining!

Hashing Overview
Figure 1: Hashing Overview

Once the new block is hashed, a thrilling race ensues among miners to determine the victorious block hash. The lucky winner not only gets to add the block to the blockchain but also receives shiny new cryptocurrency coins! 🏆✨ With bated breath, all miners confirm the arrival of the new data block, and voila! The transaction is executed flawlessly.

But wait, there's more! There's a fascinating twist to this tale of mining. There's a limit to the number of coins that can be won by these diligent miners. Periodically, the rate of new coin issuance is reduced, creating a phenomenon known as "halving". And guess what? Eventually, no more coins will be generated. This intriguing limitation introduces scarcity to the coin supply, effectively skyrocketing its value. 💰💎

Figure 2: Proof of Work Cryptocurrency Mining Process

In conclusion, the process of mining in blockchain technology, characterized by data encryption and hashing, plays a pivotal role in transaction validation. This intricate procedure, fueled by powerful algorithms such as SHA-256 and Scrypt, generates unique block hashes and initiates a competitive race among miners. The winners not only gain the privilege to add the block to the blockchain, but they are also rewarded with new cryptocurrency coins. However, the limited supply of coins introduces an element of scarcity, enhancing their value over time. This captivating blend of technology and economics underscores the ingenuity of blockchain technology and its potential to revolutionize financial transactions.

Ready to unlock the potential of blockchain for your business? Don't miss out on the opportunities it brings. Take the first step towards mastering this revolutionary technology today! Whether you're a business owner, developer, or simply curious, our team is here to guide you. Contact us now and join the growing community of blockchain enthusiasts shaping the future of finance! 🚀💼💡

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