What Exactly Is a Blockchain? A Beginner’s Guide to Public and Private Chains

In 2013 the author first heard of Bitcoin and later became curious about the underlying technology, blockchain. This article breaks down what a blockchain actually is, why it works, and how it can be applied.

What Is a Blockchain?

A blockchain consists of two concepts: blocks and a chain. Digital information is split into individual blocks, each of which is linked to the previous one, forming a chain. An illustration shows blocks representing countries, each containing city names.

How Integrity Is Ensured

Each block contains a hash—a string derived from the block’s data. The hash of a block is stored in the next block, creating a mandatory link. If anyone alters a block, its hash changes, breaking the link and exposing the tampering.

Distributed Nature

The blockchain data is not stored on a single computer. Every participant’s computer holds a copy, and the network reaches consensus on the correct version. This replication prevents a single node from forging the ledger.

Public Blockchains

Examples include Bitcoin and Ethereum. Bitcoin functions as a digital currency and a payment system, storing all transactions in immutable blocks. Miners who contribute computing power are rewarded with bitcoins. Ethereum adds the ability to run custom code (smart contracts) on its chain, though executing such contracts consumes significant computational resources.

Private Blockchains

Private blockchains restrict participation to known parties. The article tells a story about Mark, who repeatedly fails to pay rent, and Sara, who needs a reliable payment mechanism. A smart contract can automate the rent transfer on the 30th of each month.

If today’s date is 30th and rent is not paid then

Transfer $500 from Mark’s account to Sara’s account

Joe, a merchant facing delayed payments from a retailer, can use a similar contract to enforce payment once contract conditions are met. The contract code is deployed to every participant’s computer, ensuring automatic execution without manual intervention.

Future Directions

Having grasped the basics, readers are encouraged to explore further through online courses (e.g., free offerings on edX) that teach how to build applications on blockchain platforms.