October 4, 2025, 2:50 pm | Read time: 7 minutes
Some people consider it the greatest technological innovation since the invention of the internet. Others believe it poses a serious threat to the monetary world order. Still, others see it as a passing trend. Opinions often vary widely when it comes to blockchain. TECHBOOK explains the basics.
In the crypto world, various terms are used: from Bitcoin to Ethereum, coin and token, cryptocurrency to blockchain. The latter is much more than a database limited to financial transactions. But what exactly is behind a blockchain? TECHBOOK explains the term.
Overview
What is the Blockchain?
Simply put, it is a publicly accessible digital ledger where entries can be made but not deleted. The technology has existed since the early 1990s. First of all, it’s not THE blockchain, as there are many. There are now hundreds of blockchains operating in various ways, with more emerging weekly. They all have one thing in common: they record transactions, such as the inflow and outflow of digital tokens. These tokens are essentially value markers that represent themselves or something else. They can be sent and received using electronic addresses.
We know such value markers from our analog everyday life, for example, as deposit tokens for beer glasses at a fair. Such a token represents both the glass and the amount paid, which is refunded when the glass is returned. In principle, these tokens could be traded since they have value. Or they could be painted and sold as artworks, among many other possibilities. If you think of a cloakroom token instead of a deposit token, it becomes clear how difficult it can be to determine the actual value. This is also true for tokens on the blockchain.
If a token has its own blockchain, it is called a coin. Everyone is likely familiar with the digital currency Bitcoin. If the token does not have its own infrastructure but runs on another blockchain, then it is “just” a token. The Metaverse currencies SAND and MANA, for example, use the Ethereum blockchain, so they are tokens and not coins.
Read also: What is Ethereum? An Overview of the Cryptocurrency
Why Do We Need a Blockchain?
Blockchains have many applications–and new ones are constantly being added. Most people are familiar with their use for cryptocurrency transactions. Few know that blockchains can do much more. In the field of digital identity, they play a role in proving who you are online. Personal data, such as patient information, can be independently managed on the blockchain. There are even chains specialized in the medical field.
Blockchains also play a role in the digital management of supply chains. This makes it possible, for example, to trace the origin and processing of organic products step by step. Some blockchains even reward the reduction of CO₂ emissions with tokens, contributing to the fight against climate change. Many more applications are already available or in planning.
What is the Difference Between Blockchain and Bitcoin?
Bitcoin and blockchain may sound like synonyms to some. However, this is incorrect. The Bitcoin blockchain is just one of many. It is, however, the most significant of the available blockchains. Bitcoin transactions are grouped into blocks that, when linked together, form the complete ledger–similar to a bank. Unlike a bank, there is no controlling authority to verify which transactions have actually occurred. The blockchain, therefore, has an integrated mechanism that ensures only valid blocks are added to the chain.
The Proof-of-Work Method
The Bitcoin blockchain operates using a method called Proof-of-Work (PoW). Each block contains a cryptographic hash value that references the previous block. A decentralized network of computers worldwide works to find this value and add the new block to the chain. The reward for this is a fixed amount of Bitcoin–hence the term “Bitcoin mining.” The downside of this method is the immense energy consumption, which is why many municipalities and even entire countries ban mining.
The Proof-of-Stake Method
The main competing method is called Proof-of-Stake (PoS). Here, blocks are not “mined,” but a consensus mechanism determines who gets to add the next block to the chain–and is rewarded with coins. Unlike Proof-of-Work, no proof of work performed–in the form of computationally intensive guessing tasks–is required. Instead, members of the blockchain network must already be invested in the respective cryptocurrency to validate new blocks–thus proving a stake. This ensures that malicious actors cannot simply take over the validation of the blockchain.
This method requires only a tiny fraction of the energy used by PoW. It is therefore more environmentally friendly, more scalable, easier to handle, cheaper, and faster–with almost only advantages. Only in terms of security is PoS considered somewhat more vulnerable.
Most newer blockchains operate using the PoS method. Some chains are now CO₂-neutral, and some are even formally carbon-negative. There are other methods, though less common, such as Proof-of-Capacity or Proof-of-Authority. Overall, the mathematics behind blockchains is much more complex than most people can imagine. However, it offers a wealth of technological possibilities and security.
Read also: Bitcoin is Rising! The Best Apps for Buying and Selling Crypto
The Difference Between the Cryptocurrencies Bitcoin and Ethereum
Pros and Cons of the Cryptocurrency Solana
What Makes Blockchains So Secure?
Several factors make blockchains more secure than other digital technologies. For one, it has no location; it is everywhere and nowhere. A decentralized network of globally connected computers generates the blockchain. Therefore, a burned-out data center or the theft of hard drives cannot harm a blockchain. This is the security factor of decentralization. Additionally, sophisticated mathematical security procedures make unauthorized access to data virtually impossible. Only human error, caused by carelessness, manipulation, phishing, or social engineering, can affect security. This is the security factor of cryptography.
Risks arise more in the peripheral areas than on the blockchain itself. For example, so-called bridges have been successfully attacked by hackers multiple times. These are software bridges that allow tokens to be transferred from one blockchain to another. There is also another significant risk: If I want or need to trust a third party out of convenience or ignorance, such as a central custodian or a crypto service, because I do not want to manage the digital keys myself, so-called third-party risks arise. If the operator of a crypto exchange is criminal, then my digital keys are in bad hands there. However, this is generally true for many sensitive areas. Just think of various bank scandals. A reasonable solution to minimize third-party risks is to use BaFin-licensed crypto exchanges, which now exist.
How Will We Use Blockchains in the Future?
The verification of transactions on a blockchain can be viewed by anyone but cannot be changed by anyone. This feature makes it attractive for many current and future requirements. AI applications are increasingly becoming a topic of innovative discourse within the blockchain scene. Artificial intelligence (AI) provides new possibilities for the blockchain.
Looking to the near future, this could also lead to an application for journalism. A blockchain could use artificial intelligence to distinguish fake photos, fake videos, and fake audios from real events and only digitally capture real news. If an event is not registered on the blockchain, it has not occurred. Every photo, video, and audio recording would be publicly verifiable. This is just one example of many ideas that will emerge around the topic of blockchain and AI. It is more than just Bitcoin, as blockchains offer the potential for technological solutions to various societal problems.