Introduction
Blockchain technology emerged a few years after the creation of Bitcoin, as people began to recognize its potential beyond digital currency. It has since evolved into a distinct field of innovation. At its core, blockchain is a decentralized, distributed ledger technology initially designed to record information in a tamper-proof manner, eliminating the need for third-party verification.
With the advent of Ethereum, blockchain expanded its capabilities to execute programs—known as smart contracts—in a decentralized way. This ensures that program execution remains free from interference or manipulation, transforming blockchain into a public computing platform.
What Is Blockchain Technology?
In a narrow sense, blockchain refers to a chain of blocks linked through cryptographic hashes. This structure makes any alteration easily detectable, as modifying a block would break the chain. This design provides verifiability and immutability.
Broadly speaking, blockchain is a shared, immutable ledger used to record transactions and track asset movement within a network. "Assets" can encompass anything of value—currency, stocks, real estate, intellectual property, or brands. Transparent asset transfer on a blockchain reduces risks and costs across various domains.
Economic activities rely heavily on information for decision-making. The authenticity and speed of information dissemination are critical. Blockchain is ideal for transmitting such information because it offers instant, shared, and fully transparent data stored on an immutable ledger.
Blockchain comprises three key elements:
- Distributed Ledger Technology: All network participants have access to the distributed ledger and its immutable transaction records.
- Immutable Records: Once a transaction is recorded on the shared ledger, no participant can alter or tamper with it.
- Smart Contracts: Self-executing contracts with terms directly written into code.
Smart Contracts
In 2013, Vitalik Buterin proposed Ethereum, introducing the revolutionary concept of smart contracts. These are executable codes on a blockchain, allowing users to deploy custom code for execution by Ethereum nodes. This significantly expanded blockchain's programmability.
Before Ethereum, cryptocurrencies like Bitcoin had limited scripting capabilities for transactions. Ethereum enhanced this by enabling transactions to execute code, embedding logical operations directly into transactions (with Turing completeness). This allows complex operations such as installment payments, multi-party loans, or insurance contract executions based on predefined conditions. The ability to store and execute code on a blockchain opens endless possibilities.
Blockchain Consensus Mechanisms
As a distributed network with independently operated nodes, blockchain requires a common set of rules—a consensus mechanism—to guide node operations. Common consensus mechanisms include:
- Proof of Work (PoW)
- Proof of Stake (PoS)
- Proof of Authority (PoA)
Proof of Work (PoW)
PoW requires nodes to perform extensive computations (finding solutions that meet specific conditions) to prove their contribution. The first node to solve the computational problem receives a reward, a process known as "mining."
Blockchains using PoW include Bitcoin, Bitcoin Cash (BCH), Litecoin, Monero, Nervos, and Ethereum Classic (ETC).
Advantages of Proof of Work
PoW is considered one of the most secure and reliable consensus mechanisms. Its ability to ensure network security and sustainability has been proven through long-term practice in the Bitcoin network.
Additionally, PoW does not require trust among participants. Instead, it relies on computational power, allowing permissionless network participation and enhancing security and reliability.
Disadvantages of Proof of Work
The primary drawback is its high consumption of computational resources and electricity, leading to significant physical costs. In Bitcoin mining, for example, thousands of devices often form mining pools to compete. Reports indicate that Bitcoin's energy consumption reaches 14.79 TWh per hour, equivalent to 0.5% of global electricity consumption or the annual energy use of all cars worldwide.
Moreover, intense competition for computational power can lead to miners forming groups that control over 50% of the network's hash rate, enabling 51% attacks.
51% Attack
In PoW, miners compete to solve mathematical problems based on computational power. The greater the computational power, the higher the chance of mining a block. If a node controls over 51% of the network's hash rate, it gains a significant advantage in block creation, potentially allowing it to modify blockchain data. The most common example is a double-spend attack.
In a double-spend attack, the attacker engages in stealth mining (e.g., on an orange chain) without broadcasting blocks. With superior computational power, the attacker mines blocks faster on this chain. The attacker modifies their transactions on the orange chain, and once it becomes longer than the main chain, they broadcast it. Other miners, following the protocol, discard the original chain and adopt the orange chain, completing the double-spend attack.
Executing a double-spend attack on Bitcoin is extremely challenging due to the high costs of hardware and electricity. As Bitcoin's network hash rate grows, the likelihood of such an attack diminishes.
Before Ethereum switched to PoS, Ethereum Classic experienced multiple 51% attacks. Its smaller hash rate made it vulnerable when malicious miners redirected Ethereum's computational power to Ethereum Classic.
Proof of Stake (PoS)
PoS relies on stakeholders' economic interests rather than computational power. "Stake" is typically calculated based on the amount of cryptocurrency pledged. Similar to PoW, PoS involves solving cryptographic puzzles, but the probability of being chosen to validate a block is proportional to the stake. Staked currency also acts as collateral against malicious behavior; validators who act maliciously risk losing their stake (slashing).
In PoS, nodes are referred to as validators.
Different blockchains implement PoS in varied ways. Some consider the duration of currency holding, while others use delegated proof-of-stake (DPoS) to achieve higher throughput (TPS) with lower consensus costs. Some employ voting mechanisms, such as BFT-like algorithms for multi-block voting.
Blockchains using PoS include Ethereum (ETH), Polkadot (DOT), Cosmos (ATOM), and Tezos (XTZ).
Ethereum transitioned from PoW to PoS.
Advantages of Proof of Stake
Compared to PoW, PoS consumes significantly less energy. It offers stable block times and faster finality, often resulting in better transaction throughput (TPS). As PoS matures, more new blockchains adopt this consensus mechanism.
Disadvantages of Proof of Stake
PoS is still evolving and lacks long-term validation. It has faced challenges such as the tragedy of the commons, long-range attacks, and nothing-at-stake attacks. Solutions to these issues remain complex and untested over extended periods.
Additionally, participating in PoS requires staking currency, which must be confirmed by existing validators. If malicious validators control over 51% of the stake, they could censor transactions or prevent new participants from joining, causing permanent network damage.
Proof of Authority (PoA)
PoA is a reputation-based consensus algorithm that selects central authorities to maintain network state. Instead of synchronizing transactions among nodes, all transactions are sent to authority nodes (possibly multiple) for validation. After verification and signing, regular nodes synchronize data from these authorities. PoA is primarily used for consortium blockchains.
PoA's advantages and disadvantages are clear: it offers excellent performance but is highly centralized. Attacks on authority nodes can paralyze the network.
No consensus mechanism is inherently superior; each represents a trade-off within the "impossible triangle" of decentralization, security, and scalability.
Besides these three main types, other consensus mechanisms exist, such as Solana's Proof of History (PoH) combined with PoS, and Filecoin's Proof of Storage (replication proof + spacetime proof). Many teams continue to explore and innovate in consensus mechanisms.
Blockchain Forks
Like traditional systems, blockchains may require upgrades to add new features or fix vulnerabilities. These upgrades often result in forks.
Blockchains are distributed systems, so upgrades require all node clients to update simultaneously. Sometimes, nodes refuse to upgrade due to conflicting interests or ideologies. This leads to two versions of the client software: updated nodes follow the new protocol, while non-updated nodes continue using the old one. Since nodes don't recognize each other's blocks, the chain splits into two distinct paths—a hard fork.
Hard forks represent a分裂 in consensus. Bitcoin experienced a notable hard fork when mining groups led by Bitmain and core developers led by BTC Core disagreed on block size expansion. Bitmain advocated for larger blocks, while the core developers opposed this. At block height 478,559, Bitcoin split into Bitcoin (BTC) and Bitcoin Cash (BCH). Later, BCH forked into multiple chains, including BSV.
Ethereum also underwent a significant fork following a hacking incident. On June 17, 2016, The DAO was hacked, resulting in the loss of millions of dollars worth of ETH. The community split: one faction supported modifying the code to recover the stolen funds, while the other believed code should remain immutable. The latter group formed Ethereum Classic (ETC).
More recently, Ethereum's transition to PoS led some miners to fork the network, creating EthereumPoW (ETHW).
Hard forks carry security risks, such as transaction replay attacks across chains. Disputes over the "legitimate" chain can cause extreme price volatility. Applications running on both chains may become worthless on one, and contracts relying on external conditions (e.g., oracle price feeds) may fail entirely.
Overall, hard forks should be viewed as a natural part of blockchain evolution. They represent short-term consensus分裂s, but historical experience shows that consensus often re-forms stronger than before.
Soft forks, by contrast, are backward-compatible. Non-updated nodes can still recognize blocks generated by updated nodes, but updated nodes may not recognize blocks from non-updated ones.
Even without upgrades, transient forks (short-range forks) can occur in PoW blockchains when two nodes simultaneously solve a block, creating a temporary split. This resolves when one chain produces the next block, and the network adopts the longest chain per protocol. The probability of consecutive blocks being solved simultaneously is nearly zero, so these forks are short-lived—usually one or two blocks. This is why transactions are considered final after a few confirmations.
Frequently Asked Questions
What is the primary purpose of blockchain technology?
Blockchain technology serves as a decentralized ledger for recording transactions and tracking assets. It ensures transparency, immutability, and security without relying on central authorities, making it ideal for applications requiring trustless verification.
How do smart contracts enhance blockchain functionality?
Smart contracts allow blockchain to execute code in a decentralized manner, enabling automated agreements and complex operations. They expand use cases beyond simple transactions to include decentralized finance, supply chain management, and more.
What are the key differences between PoW and PoS?
PoW relies on computational power to secure the network, consuming significant energy. PoS uses economic stakes, reducing energy consumption but introducing different security considerations like stake concentration risks.
Can blockchain networks interact with each other?
Yes, through interoperability protocols and cross-chain bridges, blockchains can communicate and share data. This enables asset transfers and data exchange between different networks, enhancing overall ecosystem connectivity.
What is a 51% attack, and how can it be prevented?
A 51% attack occurs when a single entity controls most of the network's mining power, allowing them to manipulate transactions. Prevention involves increasing network decentralization and using consensus mechanisms like PoS that discourage centralization.
Are private blockchains different from public ones?
Private blockchains restrict participation to authorized entities, offering higher speed and privacy but less decentralization. Public blockchains are open to all, emphasizing transparency and security over control.
Further Learning
To deepen your understanding of blockchain technology, consider exploring these resources:
- Read the Bitcoin whitepaper: Original English Version or Chinese Translation.
- Watch Professor Xiao Zhen's public lectures on Blockchain Technology and Applications, which cover Bitcoin, Ethereum, and other blockchain designs.
- Try building a simple blockchain yourself. Tiny Xiong's course, Python for Implementing a Minimal Blockchain, guides you through packing transactions, calculating hashes, and node communication. Practical experience solidifies theoretical knowledge.