Understanding The Blockchain Ecosystem From The Ground Up

Author: Mihai Avram | Date: 12/08/2020

There is no doubt about it that Blockchain has started exploding both as a topic and technology for a few years now. Maybe you are a professional who simply has seen the word blockchain too many times and want to learn it once and for all. Or maybe you are a blockchain enthusiast who wants to dive in deeper in understanding the internals of the blockchain ecosystem. In both cases, you came to the right article place!

Here we will cover:

  • How blockchain technology works
  • What blockchain is used for and what industries use it
  • What programming languages to use to build a blockchain
  • What are the leading providers of blockchain technologies
  • How to build a blockchain from the ground up (with code)
  • How to learn more about blockchain

If you want to learn any of these notions then keep reading!

What is Blockchain and How Does it Work

In a nutshell, blockchain is a piece of technology that ensures that transactions (e.g. paying for your groceries, a doctor visit, an artist signing a record label contract, etc.) are transparent in a securely decentralized fashion, so there is no longer a need for a central authority (such as a bank or government) to oversee or regulate it. Because blockchain is also built with privacy in mind, it is very difficult to alter or tamper with.

In order to understand how blockchain does this and how it works, let’s envision the following example:

Simple Blockchain Example

Imagine that you and two other friends (let’s call them Friend 1 and Friend 2) are using a blockchain to update your shared expenses online. All three of you will have a file on your computers that automatically updates when you buy or sell an item, either from the internet or from each other. You buy some tickets to a concert, and when you do, your computer quickly updates your file and sends copies of your file to your friends. Once your friends receive those files, their computers quickly check if your transaction makes sense (e.g. did you have enough money to buy the tickets, and it is really you who is buying the tickets). If both friends agree that everything checks out, everyone updates their file to include your transaction. This cycle repeats for every transaction that either you or your friends make so that all three of your files are synced up, and there is no authority to oversee the process.

There is of course a bit more nuance to it and gets very technical very quickly in understanding to build such a system from a programming perspective. If you want to understand how blockchain works in-depth, you can read the academic paper by Satoshi Nakamoto who created the first blockchain database

Original blockchain paper by Satoshi Nakamoto (link)

What is Blockchain Used For?

Blockchain is quickly becoming very widespread where almost every industry is touched by this technology. For inspiration, here are just a handful of examples of how Blockchain is used today.

Monetary Payments – Blockchain used in monetary transactions creates a more efficient and secure payment infrastructure.

Global Commerce – Global supply chains are governed by blockchain technologies to ensure a more efficient transactional trade system.

Capital Markets – Blockchain enables audit trails, quicker settlements, and operational improvements.

Healthcare – Secondary health data that cannot identify an individual by itself can be placed on the blockchain which can then allow administrators to access such data without needing to worry about the data all being in one place which makes it very secure.

Energy – Utility processes such as metering, billing, emission allowances, and renewable energy certificates all can be tracked via blockchain transactions in one decentralized place.

Media – Media companies use blockchain to protect IP rights, eliminate fraud, and reduce costs.

Voting – The notion of each vote being in a decentralized blockchain solves the problem of elections being hacked or tampered with.

Cybersecurity – Blockchain solutions in the security space ensure that there is no single point of failure, and it also provides privacy as well as end-to-end encryption.

Other real-life examples exist in Regulatory Compliance and Auditing, Insurance, Peer-to-Peer Transactions, Real Estate, Record Management, Identity Management, Taxes, Finance Accounting, Big Data, Data Storage, and IoT among many others.

What are the Most Popular Types of Cryptocurrency?

Bitcoin – The cryptocurrency that started it all. It was started in 2009, and follows closely to the original Satoshi Nakamoto cryptocurrency paper referenced earlier. It is mostly used for monetary transactions.

Litecoin – Crated in 2011 as an alternative to Bitcoin. Litecoin is a little faster than Bitcoin, has a larger limit and, operates on different algorithms.

Ethereum – Ethereum was created in 2015 and is also focusing on decentralized applications with smart contracts instead of just monetary transactions. This way different transactions outside of monetary exchange can happen, such as digital trading cards, or IoT activations on a smart-grid network.

Ripple – A cryptocurrency that is not blockchain-based. However, it is often used by companies to move large amounts of money quickly across the globe.

For a more extensive list, check out these resources.

  • An ever-growing list of cryptocurrencies on Wikipedia (link)
  • Understanding The Different Types of Cryptocurrency by SoFi (link)
  • Types of Cryptocurrency Explained by Equity Trust (link)

What are the Best Programming Languages to Develop Blockchain?

C++ – Best if you need to build a blockchain from scratch or change some low-level internals of how blockchain works.

Solidity – Best if you are set on using the Ethereum Blockchain framework and platform.

Python – Best if you want to bring blockchain to general-purpose apps, especially in Data Science.

JavaScript – Best if you want to build a blockchain for the web.

Java – Best if you want to build a general, and large-scale object-oriented application.

There are, however, blockchain developments in almost all programming languages, so pick the one you’re most comfortable with or is required for the project.

What are the Leading Providers of Blockchain Technologies

Coinbase – A very secure and free API that supports many different cryptocurrencies such as bitcoin and ethereum, and also supports different blockchain transactions such as generating digital wallets, getting real-time prices, and crypto exchanges. Use it if you want to create blockchain apps cost-effectively.

Bitcore – Another free and speedy option with many different blockchain transactions possible. Use it if you want to build very fast blockchain applications with quick transaction times.

Blockchain – The oldest and most popular blockchain framework. It has a large developer community and low timeouts. Use it if you need to implement blockchain wallet transactions.

For a more extensive list check out the following resources.

  • Top 10 Best Blockchain APIs: Coinbase, Bitcoin, and more (link)
  • How to Choose the Best Blockchain API for Your Project by Jelvix (link)

How to Learn More About Blockchain

The fastest way to learn about blockchain is to first take a course, and then start building one yourself. If you’re also serious about blockchain and want to learn it continuously, you should subscribe to some blockchain newsletters.

Here are some links to the courses. Look for the ones with the highest ratings and popularity:

  • [Top 10] Best Blockchain Courses to learn in 2020 (link)
  • 10 Best Blockchain Courses and Certification in 2020 (link)

Also, if you want to build a blockchain, check out this well-sourced Quora post. Furthermore, here is a list of good newsletters to learn more about blockchain from your inbox!

How to Build a Blockchain, a Brief Introduction (With Code)

Let’s build a simple blockchain so that we can understand some of the more subtle nuances of one. The most important inner workings of a blockchain are the following. The chain itself which stores transactional information, a way to mine new possible slots in the chain, the proof of work that identifies if the chain is valid, and a consensus algorithm that can allow nodes or computers to vote whether the chain is valid. The code will label these important notions as #CHAIN step, #MINING step, #POW step, and #CONSENSUS step respectively to trace back to these notions. Note that there is an important aspect of the proof of work. The proof of identifying if a new block is valid should very easily be verified; however, it should be very hard to create from scratch (mining a new block). This property is important because it allows us to easily validate if a blockchain is not tampered with, and prevents hackers from re-creating a blockchain easily (it becomes immutable). We will build all these things below. Pay close attention to the comments as they explain the purpose of each component. Also, note that some functions, such as (is_valid_proof_pattern, get_blockchain, block_matches_proof, etc.) have yet to be implemented to keep this post short, so just imagine that they exist and that they do what they are supposed to do.

Note: that the code below is not an exact replica of a blockchain. Instead it is a simplified representation which can be used for inspiration/intuition and not for rigorous implementation of a blockchain.

Blockchain Server Code

""" Blockchain Server Code

On the blockchain server is where we store the main
implementation of the blockchain. The clients (or apps
such as your banking app) would hit a server like this
as they create new transactions and store them on the
blockchain, or as miners try to mine new blocks.
The classes and code below represents the code that
sits on the blockchain server.

# Imports

from datetime import datetime  # Generates unique timestamps
import hashlib  # Used for hasing our blocks

# Classes

class Transaction():
    A given monetary transaction.
    Example: Joe pays Amy 10 mBTC.
  __init__(self, frm, to, amount):
    self.frm = frm
    self.to = to
    self.amount = amount

class Block():
    A block on the blockchain containing blockchain
    transactions. Note that every block has a hash
    that is associated to previous blocks.

    self.index = index
    self.previous_hash = previous_hash
    self.proof_of_work = proof_of_work
    self.timestamp = timestamp
    self.transactions = transactions

class Blockchain():
		The blockchain containing various blocks
		that build on each other as well as methods
		to add and mine new blocks. (# CHAIN step)
		self.blocks = []
		self.all_transactions = []

		# Every blockchain starts with a genesis first block
		genesis_block = new Block(


	def add_block(block):
		"""Adds a new block to the blockchain.

		       block (Block class): A new block for the


	def add_new_transaction(transaction):
	    """Adds a new transaction to the blockchain.

		       transaction (Transaction class): A new transaction
			                                    for the blockchain

	def get_full_chain():
	    """Returns all the blockchain blocks.

	           all_blocks (List[Block class]): All the blocks in
			                                   the blockchain.
	    all_blocks = self.blocks
	    return all_blocks

	def get_last_block():
	    """Gets the last block in the blockchain.

	           last_block (Block class): The last block in the
	    last_block = None
	    if self.blocks:
	        last_block = self.blocks[-1]

	    return last_block

    def hash(block):
        """Computes a hashed version of a block and returns it.

               block (Block class): A block in the blockchain.

               hashed_block (str): A hash of the block.
        stringified_block = json.dumps(
			block, sort_keys=True
        hashed_block = hashlib.sha256(
        return hashed_block

	def mine_new_block(possibilities):
	    """An attempt to mine a new block in the blockchain.
           (# MINING step)

		       possibilities (List[Possibility class]):
			   	All possibilities for mining that the
				miners compute/create.
		       reward (str): A reward for the miners if they

        last_block = self.get_last_block()

		# Go through many possible proofs, which is equivalent to
		# using computational power, to find the new block.
		for possibility in possibilities:
			mining_success = False
			previous_hash = self.hash(last_block)
			possible_proof = hashlib.sha256(

			# We imagine this method exists (# POW step)
			if is_valid_proof_pattern(possible_proof,
				# Our possible proof was correct, so miner was
				# able to mine a new block!

				# Forge the new Block by adding it to the chain
				index = last_block.index + 1
				proof_of_work = possible_proof
				timestamp = timestamp.utcnow()
				transactions = self.all_transactions

				new_block = new Block(

				# The mining was a success, we stop mining
				mining_success = True

		# Give reward to miner if mining was a success
		reward = '0 mBTC'
		if mining_success:
		    reward = '0.1 mBTC' # The reward can be anything

		return reward

In short, the server code contains a blockchain which contains blocks and transactions. Miners can use computational power to mine new blocks and as an incentive for doing so, they get rewarded. Consumers can add transactions to the blockchain (e.g. you pay a friend back for lunch) and that transaction will then live on the blockchain. The blockchain is really then a chain of transactions that have the property of being tied to one another and able to be verified if that tie is correct or not.

Client Code Accessing The Blockchain

""" Client Code Accessing The Blockchain

The client or blockchain application that gets
API requests for new transactions. It primarily
interacts with the blockchain server from above,
but has some internal helper functions to store the
new transactions. Note that there could be dozens if
not thousands of these clients that do the same things
as decentralized transactions are written to the
blockchain. Imagine an app like Apple Pay where
everyone is paying each other, client connections
like these would register the transactions on the
blockchain. Below are the client helper functions and

# Functions

def check_consensus(all_nodes, our_blockchain):
    """Compares our blockchain with blockchains from
	   other nodes in the network, and attempts to
	   find the longest valid blockchain, and returns it.
       (# CONSENSUS step)

	       all_nodes (List[Node class]): All nodes in
		   								 the network.
	       our_blockchain (Blockchain class): Our blockchain.

           longest_valid_blockchain (Blockchain class):
		   		The longest valid blockchain.
	longest_valid_blockchain = our_blockchain
	longest_blockchain_len = len(

	for node in all_nodes:
		# Imagine the get_blockchain method exists on the node
		node_blockchain = node.get_blockchain()

		is_valid_chain = True
		for block in node_blockchain.get_full_chain():
			# Imagine the block_matches_proof method exists
			if not block_matches_proof(block):
				is_valid_chain = False

		current_blockchain_len = len(
		if (is_valid_chain
		    and current_blockchain_len > longest_blockchain_len):
			longest_valid_blockchain = node_blockchain
			longest_blockchain_len = len(

	return longest_valid_blockchain

def get_other_nodes_in_network():
	    Returns all nodes, or servers/computers in the network.
	    Code not written here as it is application dependent.
	return all_nodes

def get_our_stored_blockchain():
	    Retrieves the current blockchain on our node or server.
	    Code not written here as it is application dependent.
	return our_blockchain

def set_our_stored_blockchain(new_blockchain):
	    Sets the current blockchain on our node or server.
	    Code not written here as it is application dependent.
	return status

# Now let's say that Joe wants to pay Amy 10 mBTC and
# the client prepares this transaction to write it
# to the blockchain. This is roughly what happens below.

# We first prepare the transaction
frm = 'Joe'
to = 'Amy'
amount = '10 mBTC'
new_transaction = new Transaction(frm, to, amount)

# Then we get the longest valid blockchain we can write our
# new transaction to.
our_blockchain = get_our_stored_blockchain()
all_nodes = get_other_nodes_in_network()
longest_valid_blockchain = check_consensus(
	all_nodes, our_blockchain
if our_blockchain != longest_valid_blockchain:
	# We have an out of date or invalid blockchain
	# so we update our blockchain as well.
	our_blockchain = get_our_stored_blockchain()

# Now that we have the current up-to-date blockchain
# we simply write our new transaction to our blockchain.

All the client code needs to do is to make sure that the blockchain it is working with is up to date by checking the consensus between all the nodes (or servers) in the blockchain network. After the client code has the proper and up to date blockchain, a new transaction can be written.

Code That Miners Use

""" Code That Miners Use

The miners also leverage the blockchain server from above. 
The role of the miners is to come up with compute possibilities 
to create new blocks using compute power. They first retrieve 
the most current blockchain, and then try to mine a new 
block via calling the following methods, and getting rewarded 
in the process if they are successful.

# Code for the generate_possibilities function is application 
# dependent.
possibilities = generate_possibilities()  
reward = current_blockchain.mine_new_block(possibilities)

As the miners keep mining new blocks, the blockchain grows and more transactions can be stored on the blockchain. With understanding the server, client, and miner parts of the blockchain lifecycle you should have a good understanding of different components of a blockchain. There are also more intricacies to a blockchain than the components covered here, such as the details of the proof of work, how transactions are stored, hashed, and regulated, double spending, the verification process, and much more. Taking a course is one of the best ways to understand these nuances.

Below are some resources to other simple blockchain implementations if you’re curious.

Learn Blockchains by Building One (link)

Simple Blockchain in 5 Minutes [Video]

In Conclusion

Well, there you have it, a good primer on this new technology that is dawning upon us. I hope that by understanding blockchain high-level and by diving deeper into the links provided, you can become proficient with blockchain in no time!

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