How does blockchain work?

Blockchain technology is a distributed database that maintains a continuously growing list of ordered records, called blocks. These blocks are linked and secured using cryptography. By design, blockchains are resistant to modification of the data.

Let’s break down how a blockchain works:

1. Transactions: A transaction is any data that needs to be recorded on the blockchain. In the case of cryptocurrencies, a transaction might involve sending or receiving a certain amount of digital currency.

2. Blocks: Transactions are grouped together into blocks. Each block has a set storage capacity. Once a block is filled with transactions, it’s closed and linked to the preceding block using cryptography.

3. Hashing: Each block contains a cryptographic hash of the previous block, creating a chain-like structure. A hash function is a mathematical operation that takes data as input and outputs a unique fixed-size string of letters and numbers. Even a minor change to the data will result in a completely different hash. This cryptographic hashing ensures the integrity of the data on the blockchain.

4. Decentralization: There is no central authority that governs a blockchain network. Instead, a network of computers, known as nodes, maintains a copy of the blockchain. Whenever a new transaction is added, each node on the network verifies its legitimacy. This process, depending on the specific blockchain, can involve solving cryptographic puzzles or voting. Once a transaction is verified, it’s added to a new block, and the updated blockchain is distributed across the network.

5. Immutability: Once a block is added to the blockchain, it’s very difficult to alter the data within it. Any attempt to modify a block would require changing all subsequent blocks on the chain, which would be computationally infeasible due to the hashing mechanism.

Blockchain technology offers several advantages, including:

• Security: Due to its cryptographic hashing and decentralized nature, blockchains are highly resistant to tampering and fraud.
• Transparency: All transactions on a blockchain are publicly viewable, promoting transparency and accountability.
• Immutability: Once data is recorded on a blockchain, it cannot be altered, ensuring the integrity of the data.
• Efficiency: Blockchains can streamline processes by automating transactions and eliminating the need for intermediaries.

Blockchain technology has the potential to revolutionize many industries, including finance, supply chain management, and voting systems.