Blockchain Fundamentals

26/6/2025
5-minute read

Understanding the core concepts of blockchain technology, including distributed ledger, cryptographic principles, consensus mechanisms and other fundamental knowledge.

1.1 Blockchain Concepts & Principles

What is Double Spending

Double spending refers to the same digital currency being used repeatedly two or more times.

In digital currency systems, since digital information can be copied, without proper mechanisms, there could be situations where the same money is paid to multiple recipients.

Why Digital Signatures Cannot Solve Double Spending in Peer-to-Peer Communication

The purpose of digital signatures is to verify the authenticity and integrity of transactions, ensuring that the transaction is initiated by the private key holder and has not been tampered with during transmission.

However, digital signatures cannot ensure that the same money hasn’t been spent twice. This is because digital signatures only focus on the validity of individual transactions, not whether this money has been spent before.

Illustrated Explanation

Step 1: Alice initiates Transaction 1 (payment to Bob)

┌─────────┐
│ Trans 1 │ → Digital signature valid ✅
└─────────┘
(Alice's 1 BTC payment to Bob)

Step 2: Alice simultaneously initiates Transaction 2 (payment to Charlie)

┌─────────┐
│ Trans 2 │ → Digital signature also valid ✅
└─────────┘
(Alice's *same* 1 BTC payment to Charlie)

Result: Both transaction signatures are valid, but the system cannot automatically identify which one should be rejected.

How to Actually Solve Double Spending?

Blockchain Solution

Achieved through Distributed Ledger + Consensus Mechanism:

Transaction Ordering: All transactions are recorded in blocks in chronological order
Global State Verification: Nodes check whether currency has been spent (trace transaction history)
Consensus Rules: Among conflicting transactions, only the first confirmed transaction is valid

Blockchain Double Spending Prevention Diagram

Block 0: Genesis Block
    └─ Transaction 0: Alice receives 1 BTC (unspent)

Block 1 (confirmed first)
    └─ Transaction 1: Alice → Bob (1 BTC)
        → Verification passed: Transaction 0's 1 BTC *unspent* ✅

Block 2 (confirmed later)
    └─ Transaction 2: Alice → Charlie (1 BTC)
        → Verification failed: Transaction 0's 1 BTC *already spent in Block 1* ❌

What is Blockchain

Blockchain is a distributed database technology that stores data in blocks linked chronologically. Each block contains a batch of transaction records and a hash value pointing to the previous block, forming an immutable chain structure.

Distributed Ledger Technology

Distributed Ledger is a database that is shared and synchronized across multiple nodes, with each node maintaining a complete copy of the ledger. This design eliminates dependence on central authorities and improves system transparency and trustworthiness.

Characteristics of Blockchain

Decentralization: No need for central authorities
Transparency: All transaction records are publicly verifiable
Immutability: Confirmed transactions cannot be modified
Consensus Mechanism: Network consistency ensured through algorithms
Anonymity: User identities protected through public key addresses

1.2 Cryptographic Foundations

Hash Functions

Hash functions are algorithms that convert input data of any length into fixed-length output. In blockchain, hash functions are used for:

Creating unique identifiers for blocks
Verifying data integrity
Building Merkle tree structures

Digital Signatures

Digital signatures use public key cryptography principles to ensure:

Authentication: Prove the identity of transaction initiators
Integrity: Ensure transaction content hasn’t been tampered with
Non-repudiation: Initiators cannot deny signed transactions

Merkle Trees

Merkle trees are binary tree structures used to efficiently verify the integrity of large amounts of data. Blockchain uses Merkle trees to:

Quickly verify if transactions are included in blocks
Reduce data transmission volume
Support lightweight clients

1.3 Consensus Mechanisms

Proof of Work (PoW)

Proof of Work requires miners to solve computationally intensive mathematical problems to create new blocks. Characteristics:

High Security: Requires massive computational resources to attack
High Energy Consumption: Requires substantial electricity for mining
Decentralized: Anyone can participate in mining

Proof of Stake (PoS)

Proof of Stake selects validators based on the amount and duration of tokens held. Characteristics:

Low Energy Consumption: No need for massive computation
Environmentally Friendly: More sustainable
Economic Incentives: Validators have economic motivation for honest behavior

Other Consensus Algorithms

Delegated Proof of Stake (DPoS): Token holders vote to select validators
Practical Byzantine Fault Tolerance (PBFT): Suitable for consortium chains
Proof of Authority (PoA): Identity-based consensus

1.4 Blockchain Network Types

Public Blockchains

Fully decentralized blockchains where anyone can:

Participate in the network
View all transactions
Submit transactions
Participate in consensus processes

Examples: Bitcoin, Ethereum

Private Blockchains

Controlled by a single organization blockchains with characteristics:

Restricted access
Fast transaction speeds
Good privacy protection
High degree of centralization

Consortium Blockchains

Maintained by multiple organizations blockchains, between public and private chains:

Semi-decentralized
Access control
Better performance
Suitable for inter-enterprise cooperation

1.5 Bitcoin Case Study

Bitcoin Whitepaper Analysis

Satoshi Nakamoto’s Bitcoin whitepaper published in 2008 first proposed:

Peer-to-peer electronic cash system
Value transfer without third parties
Using proof of work to solve double spending

Bitcoin Network Architecture

User Wallet → Tx Broadcast → Mempool → Miner Package → Block Confirm
     ↓            ↓           ↓          ↓            ↓
 Generate Tx → Network Prop → Wait Conf → Mining Comp → Chain Record

Transaction Verification Process

Syntax Verification: Check transaction format
Digital Signature Verification: Verify initiator identity
Balance Verification: Check for sufficient balance
Double Spending Check: Ensure UTXO hasn’t been spent
Consensus Confirmation: Wait for network confirmation