Blockchains are ever-expanding ledgers of transactions with distinct features and functionalities that differentiate them from traditional centralized networks.

As a result, they open doors to new ways of doing things.

How Blockchains Work

Blockchains operate through a network of computers that validate and record transactions.

1. Users submit transactions to the network
2. Validators (computers) group these transactions into lists called blocks
3. The network reaches a consensus on the validity of these blocks
4. Valid blocks are permanently added to the chain of previously approved blocks
5. This process creates an unchangeable, append-only ledger

The computers that participate in validation can earn rewards for their work. This incentive structure helps maintain network security and decentralization. While the technical complexity is being abstracted away through enhanced user interfaces, it's important to understand these fundamentals.

Consensus Methods and Trust

Consensus methods are the backbone of any blockchain. They allow disparate network participants to verify the truth without trusting anyone or relying on centralized entities to act accurately or ethically.

Not wanting to trust a counterparty may sound counterintuitive, but if there is no counterparty, then there is no counterparty risk. If there are no ethics, there is no misbehavior. It's a technical philosophy embodied in the code behind decentralized systems, and it's all made possible because of consensus methods.

To interact with a blockchain, you need an account, which acts as a digital container for your assets. An account can hold any value, from $0.00 to infinity, and both users and developers can use the assets within an account to engage with compatible applications. Accounts are permissionless, meaning anyone can create one at any time. When best practices for security and operations are followed, only the creator has control over the account.

Accounts & Wallets

Accounts can connect to any application and must pay a fee to execute transactions. These transactions could be trading one asset for another or sending a message to a friend. These transaction fees vary based on the blockchain used and are required to prevent network overloads and ensure consistent performance.

Unlike traditional markets with limited operating hours, holidays, censorship, and barriers to entry that many cannot reach, blockchains function globally and continuously, enabling on-chain markets to operate 24/7. Anyone with an internet connection can participate anytime, providing global accessibility and uninterrupted engagement.

Digital Transparency and Traceability

Most public blockchains offer complete transaction transparency by design, though some prioritize privacy features.

Using blockchain explorers, anyone can:

• Track transactions in real-time
• View wallet balances and history
• Monitor network activity and health
• Verify code and smart contracts

Smart Contracts

Ethereum, Solana, and other blockchains support smart contracts, which are self-executing, and the terms of the agreement are directly written into code.

Smart contracts are the building blocks of decentralized applications, enabling the creation of complex, automated systems that can execute transactions without intermediaries.

Censorship Resistance

Some, not all, blockchains are intended to resist censorship. The goal is for anyone to build and use them, regardless of circumstance. There are no credit checks, and an internet connection is the only requirement to open a digital wallet, granting access to financial services unavailable to many.

The reality is that censorship resistance across chains and applications operates on a spectrum. Blockchains themselves become more censorship-resistant as more globally distributed validators join the network, and the measure of this resistance is called the Nakamoto Coefficient. Even with a perfect Nakamoto Coefficient, there are still many ways for censorship to take place, e.g., through a centralized RPC provider sharing or blocking a user's IP address if the user is operating from a sanctioned location.

DoYourOwnResearch

The oldest blockchains are barely teenagers, and there are many evolving schools of thought regarding how they should operate. Maximalism, tribalism, game theory, and investor bias contribute to a never-ending conversation on which consensus methods, blockchain infrastructure, and policies are the most secure and censorship-resistant, so DYOR.