The idea of blockchain has been around since the 90s. However, it was first introduced in 2008 as the distributed ledger behind bitcoin transactions. As blockchain continues to grow stronger and become more popular with users, have you ever wondered “How does blockchain work?”. This article will answer your question.
I. What is blockchain?
Blockchain is a combination of the two words “block” and “chain”. This is a decentralized platform created to promote decentralization, transparency, and data security.
There are many definitions of blockchain. According to IBM, Blockchain is a shared ledger, immutable that facilitates the process of recording transactions and tracking assets within a business network.
What is Blockchain? – Image: operavps.com
III. The structure of blockchain
Each block includes 3 main parts:
- Data: Data will be different types of information depending on the blockchain network.
- Hash of the current block: This is the identifier for each block. Each block has a unique hash and is considered our fingerprint.
- Hash of the previous block: This is the hash that helps the blocks to link together and create a chain. The first block is called the primitive block because it is not associated with any other blocks.
III. Types of blockchain networks
1. Public Blockchain
This blockchain is open to everyone and it is owned by no one. Anyone with a computer and internet can join the network. People often use the public blockchain to exchange and mine cryptocurrencies.
Bitcoin, and Ethereum are 2 examples of public blockchains.
Bitcoin and Ethereum – Image: todayscrypto.news
2. Private Blockchain
Like the name private blockchain network, it is only open to a few authorized users. A single organization controls the private blockchains, which are operated within a closed network.
3. Hybrid Blockchain
This is a combination of a public blockchain network and a private blockchain network. It can choose the participants in the blockchain and decide which transactions can be made public.
4. Consortium Blockchain
Similar to a hybrid blockchain network, a hybrid blockchain network has both public and private components, but multiple organizations will manage a blockchain network.
Although these types of blockchains are initially more complicated to set up, they can provide better security.
Type of blockchain network – Image: techbullion.com
IV. How does blockchain work?
Blockchain technology can automate most of the following steps:
1. Record transaction
First, a participant in the blockchain network executes a transaction. Transactions are recorded as a block of data and include a variety of details.
2. Reach consensus
Blockchain does not have a centralized entity, transactions reside in a decentralized peer-to-peer network to be verified. Because of that, other members of the blockchain network begin to verify the authenticity of the transaction.
A consensus mechanism conducts the verification process. The transaction will be sent to the verification nodes. If the majority of the network agrees that the transaction is legit, then the transaction is verified.
3. Linking blocks
Once consensus is reached, transactions are written to the block, which is equivalent to a place in a ledger. In addition, it will contain a timestamp and a unique ID to secure it from any changes.
How does Blockchain work? – Image: 200lab.io
This block is formed and then connected to the previous block via a cryptographic-hashing protocol. And then a new block will form a link with this block. In this way, it creates a chain of blocks.
4. Share Ledger
When data is updated on the ledger, all members in the network are also shared and updated in real-time. It cannot be reversed or modified. Likewise, a new transaction can be entered but the previous transaction remains unchanged.
So, “How does blockchain work?” probably won’t be the question of many people. Hopefully, this article will help you get more useful information about blockchain as well as a basic look at how it works.
