How does Blockchain work?
Blockchain is a decentralized, distributed ledger technology that allows for the secure recording, storing, and verification of transactions across multiple computers. It operates on the principles of transparency, immutability, and consensus. Transactions are grouped into blocks, which are then added to a chain in a linear and chronological way. Each block contains a unique cryptographic hash that links it to the previous block, creating an unbroken chain of blocks. This makes it difficult for any unauthorized party to alter or tamper with the data stored on the blockchain.
Long answer
Blockchain is composed of a network of computers (nodes) that participate in maintaining and validating a shared digital ledger. When a transaction occurs, it needs to be verified by multiple participants on the network known as miners or validators. These validators compete to solve complex mathematical puzzles to validate and add new transactions to the blockchain.
Once validated, the transaction is grouped with others in a “block,” containing a unique identifier called a cryptographic hash. The block also includes the hash of the previous block in the chain, linking them together and forming an unbroken sequence. This not only ensures data integrity but also makes it almost impossible to alter past transactions without affecting subsequent blocks—providing security against fraud and tampering.
To maintain consensus among participants about the valid state of the blockchain, different mechanisms like Proof-of-Work (PoW) or Proof-of-Stake (PoS) are employed. PoW requires miners to solve computationally intensive puzzles, while PoS selects validators based on how many coins they hold or “stake” within the system.
Newly added blocks propagate throughout the network so that each participating node maintains its own copy of the entire blockchain. This decentralized nature prevents any single entity from controlling or manipulating the blockchain’s content.
Blockchain technology can be used for various purposes beyond cryptocurrencies. Smart contracts can execute automatically based on predefined conditions whenever certain triggers are met—facilitating complex transactions without intermediaries. Additionally, blockchain enables traceability by recording and timestamping data, making it useful for supply chain management, voting systems, identity verification, intellectual property rights, and more.
In summary, blockchain is a distributed ledger technology that securely records transactions in a transparent and immutable manner. It relies on consensus algorithms, cryptographic hashes, and decentralization to provide reliability, security, and trust in various applications.