How does Blockchain work?
Blockchain is a decentralized and distributed digital ledger technology that records transactions across many computers so that the record cannot be altered retroactively without the alteration of all subsequent blocks and the consensus of the network. It works like a chain of blocks, where each block contains a group of transactions. Here’s a breakdown of how it works:
1. Transaction Initiation
- A user initiates a transaction (e.g., sending cryptocurrency, sharing data) by creating a request.
- This request is broadcast to a network of nodes (computers) within the blockchain system.
2. Transaction Verification
- The network of nodes verifies the transaction using consensus mechanisms (like Proof of Work or Proof of Stake).
- The nodes ensure the transaction is valid, checking if the sender has the necessary funds or permissions.
3. Block Creation
- Once the transaction is verified, it is grouped with other transactions to form a “block.”
- Each block contains:
- A list of transactions.
- A hash (a unique identifier) of the previous block.
- A timestamp.
- A nonce (a random number used for cryptographic purposes).
4. Block Addition to the Chain
- The new block is added to the blockchain in a linear, chronological order.
- Each new block is linked to the previous block through its hash, creating a chain of blocks.
5. Decentralized Consensus
- The updated blockchain is distributed across all nodes in the network.
- Since the blockchain is decentralized, all nodes have a copy of the same ledger, ensuring transparency and security.
6. Immutability
- Once a block is added to the blockchain, it is extremely difficult to alter.
- To change any information in a block, an attacker would need to change every subsequent block and gain control of more than 50% of the network, which is practically impossible in most cases.
7. Security
- Blockchain uses cryptographic techniques to secure the data. Each block is encrypted, and each transaction is signed with a private key.
- This makes it highly secure and resistant to fraud or tampering.
Summary:
- Decentralization: No central authority controls the blockchain.
- Transparency: All participants can view the blockchain’s transaction history.
- Immutability: Once data is recorded, it cannot be altered.
- Security: Blockchain uses cryptography to secure data and transactions.
Blockchain has applications beyond cryptocurrencies, including supply chain management, voting systems, digital identity verification, and more.
