To gain a deep understanding of blockchain technology, one should use the analogy of a simple accounting ledger. In centralized organizations, the primary database is maintained on servers that only a limited group has access to for modifying, verifying, or deleting information. If these servers are compromised or if the custodian decides to manipulate the records, the end user has no tool for independent validation.

Blockchain is a special type of Distributed Ledger Technology (DLT). In this model, an identical copy of all data is available to thousands of independent computers around the world, known as nodes. No user can record or modify data without obtaining the consent of other network members. The recording of new data is performed based on pre-defined software rules, and after collective validation, each transaction is archived in a readable and irrefutable format.

A blockchain consists of a chain of units called "blocks," each of which has a limited capacity for storing data. Once a block's capacity is filled, a new block is created and attached to the previous one. However, this is not a physical continuity, but rather one established through precise cryptographic computations.

Fundamental components of each block

Each block is generally divided into two parts: the body and the header. The block body contains the list of verified transactions, while the Block Header is considered its technical identifier. There are three key elements in this header:

• Transaction data: Information such as the sender, receiver, and transfer amount.
• Block Hash: A 64-character digital fingerprint resulting from one-way mathematical functions (such as SHA-256) that represents the identity of the content of that block.
• Previous Hash: The mathematical signature of the previous block that creates the unbreakable connection of the chain.

If someone attempts to change the content of an old transaction even by a single digit, the hash of that block changes immediately. Since the next block contains the previous hash of this block, the chain loses its credibility, and the rest of the network nodes identify and reject this fraud in a fraction of a second.

In the absence of a central manager, how is decision-making regarding the accuracy of information made possible? This vital task is the responsibility of consensus mechanisms. These algorithms are mathematical rules that align the economic incentives of participants with the security of the network.

Proof of Work and Proof of Stake

In the Proof of Work method, computers utilize their processing power to solve complex mathematical equations to earn the right to add a new block; this is the same process that occurs in Bitcoin mining. The high cost of energy consumption prevents malicious behavior, as attacking the network would require an astronomical cost.

In contrast, the Proof of Stake algorithm eliminates energy consumption, and instead of processing power, validators lock their digital assets as collateral in the network. If a node attempts to cheat, their collateral is burned. These incentive models, based on game theory, ensure that honest cooperation is always more profitable than attempting to manipulate the system.

Blockchain technology is not a monolithic and one-dimensional structure; it is categorized into various types based on the access level and identity of the participants.

Permissionless blockchains

In these networks, any individual can act as a node, read the ledger, and record transactions without the need for identity verification or organizational approval. High resistance to censorship and direct transparency are considered core pillars of this model.

Permissioned blockchains

In this architecture, the user authorization level is managed in advance. Insurance companies, commercial ports, or banking consortiums benefit from real-time data synchronization by implementing this system, without publishing their trade secrets in a public environment.

Despite the disruptive potential of this technology, viewing blockchain as a perfect solution for every software challenge is incorrect. Understanding the engineering of this system requires recognizing its weaknesses and technical trade-offs:

• Scalability Challenge: Synchronizing thousands of distributed nodes is time-consuming; therefore, transaction processing speed will be lower compared to traditional cloud databases.
• Immutability of Transactions: The deterministic and immutable design of blockchain means that user error in registering an address or disclosing a private key comes without any support mechanism for recovery.
• Insufficient Efficiency for Big Data: Recording heavy volumes of files, images, and videos on the main chain is technically and economically extremely expensive and requires off-chain storage solutions.