How does Blockchain work?

Blockchain technology works by grouping transactions into blocks. Each block is linked to the previous one, creating a chain of blocks, hence the name. Every transaction is verified and encrypted before being added to the chain, making it nearly impossible to alter once it’s recorded.

• Transaction Initiation: A transaction begins when one party creates and sends a request to the blockchain network. This request typically includes details such as the amount to be transferred, the recipient's address, and other relevant data. The transaction is then broadcasted to the network, where it awaits verification and validation by participating nodes.
• Validation: After a transaction is initiated, network nodes (the participants in the blockchain) work to verify its validity. These nodes check the transaction against predefined rules, ensuring that it meets the necessary conditions such as correct signatures, sufficient funds, and no double-spending. Once validated, the transaction is grouped with other verified transactions into a "block."
• Block Creation and Adding: Once a transaction is validated, it is grouped into a block along with other transactions. This block is then added to the existing blockchain, linking it securely to the previous block through cryptographic hashes. This process creates a continuous and immutable chain of blocks, ensuring a chronological, transparent, and tamper-resistant history of all transactions in the network.
• Distribution: Once a block is added to the blockchain, the updated chain is distributed across the entire network. All nodes within the blockchain network receive and store a copy of the latest version of the blockchain. This decentralized distribution ensures that every participant has access to the same, consistent data, maintaining transparency and preventing tampering or discrepancies across the network.

Blockchain is a decentralized, distributed ledger technology that securely records and stores transactions across a network of computers, ensuring data integrity, transparency, and immutability. Each transaction is verified by multiple participants in the network, creating a transparent and tamper-proof record. Here's a simplified breakdown of how blockchain technology works:

Transaction Creation

When a person initiates a transaction—whether it’s a cryptocurrency transfer, the execution of a smart contract, or any other type of data exchange—the transaction is represented as a "block" of data. This block contains essential information such as the amount being transferred, the unique identifiers (addresses) of the sender and receiver, a timestamp, and sometimes additional metadata like transaction fees or contract terms. Before the block can be added to the blockchain, the data within it is securely hashed using a cryptographic algorithm. This hash acts as a unique identifier for the block, ensuring its integrity. After hashing, the block is then prepared for validation by the network. Once verified, it is added to the blockchain, becoming a permanent, immutable record. This process guarantees that the transaction is securely recorded, without the risk of tampering or alteration after the fact.

Verification and Consensus

Before a transaction is added to the blockchain, it must be verified to ensure its authenticity and compliance with the network's rules. This verification process is carried out by participants in the network, known as nodes or miners. To achieve agreement on the validity of transactions, blockchain networks use consensus mechanisms, such as:

• Proof of Work (PoW): In Proof of Work, miners compete to solve complex mathematical puzzles, requiring significant computational power and energy. The first miner to solve the puzzle gets the right to add the newly verified block to the blockchain. This process ensures that the network is secure, as it makes it difficult for any single entity to control the blockchain or manipulate transactions.
• Proof of Stake (PoS): In Proof of Stake, validators are chosen to add a new block to the blockchain based on the amount of cryptocurrency they hold and are willing to "stake" as collateral. The more cryptocurrency a participant holds and locks into the network, the higher their chances of being selected to validate transactions. This mechanism is energy-efficient compared to Proof of Work, as it doesn't require extensive computational power, and it incentivizes users to act honestly in maintaining the integrity of the blockchain.
• Delegated Proof of Stake (DPoS): Delegated Proof of Stake is a variation of the traditional Proof of Stake (PoS) mechanism where stakeholders vote for delegates, also known as "witnesses," who are responsible for validating transactions and adding new blocks to the blockchain. By allowing only a selected group of delegates to validate transactions, DPoS improves the speed and scalability of the network while reducing the potential for centralization. This system increases transaction throughput and decreases block generation time, making it more suitable for high-performance blockchain applications.
• Proof of Authority (PoA): Proof of Authority is a consensus mechanism where a limited number of trusted validators, often pre-approved by the network, are given the authority to validate transactions and add new blocks. PoA is known for its speed and efficiency, as the number of validators is smaller and the process is less resource-intensive. However, it sacrifices some level of decentralization since the network’s trust is concentrated in a few entities, making it more suitable for private or permissioned blockchains rather than public ones.
• Practical Byzantine Fault Tolerance (PBFT): Practical Byzantine Fault Tolerance is a consensus mechanism primarily used in permissioned blockchains. PBFT ensures that the network can reach consensus even if some nodes behave maliciously or fail to follow protocol. By requiring a supermajority (usually two-thirds) of nodes to agree on the validity of transactions, PBFT makes the blockchain resilient to Byzantine faults, where nodes may act arbitrarily or incorrectly. This makes PBFT ideal for private networks, where trust between participants is less distributed but still necessary for security and accuracy.

Adding to the Blockchain

Once a block is verified through the consensus process, it is permanently added to the existing chain of blocks in chronological order. Each new block is cryptographically linked to its predecessor through a unique hash, creating a secure chain of blocks. This cryptographic linkage ensures that each block is firmly connected to the previous one, making tampering virtually impossible. The blockchain is designed to be immutable—once a block is added, it cannot be modified without altering every subsequent block in the chain. Altering even a single block would change its hash and break the connection to the following blocks, making such tampering immediately obvious to the network. Moreover, to change the blockchain, an attacker would need to control more than 50% of the network's computing power or stake (depending on the consensus mechanism used), a feat that is extremely difficult and costly. This process ensures that the blockchain remains secure, transparent, and resistant to fraud or unauthorized changes. The integrity of the entire blockchain is thus maintained, making it one of the most secure and reliable methods for storing and verifying data in a decentralized system.

Decentralized and Transparent Ledger

Every participant (node) in the blockchain network maintains a full copy of the entire blockchain, ensuring complete transparency, accountability, and data integrity. Since each node holds an identical version of the blockchain, any attempt to modify one copy would immediately be detected by the others. If any discrepancies are found between copies, the network automatically rejects the altered version, ensuring that all participants are working with the same, up-to-date information. This decentralized and distributed approach prevents any single entity from gaining control over the network or altering the blockchain's data. As a result, the ledger remains consistent, immutable, and secure, providing an added layer of trust. The system is designed to be resistant to tampering or fraud because to alter the blockchain, an attacker would need to change the majority of the copies held by nodes across the entire network, which is nearly impossible without significant computational power. This distributed ledger technology promotes a more secure and trustworthy way of conducting transactions and managing data.

Security through Cryptography

Each block in the blockchain is secured through a process called cryptographic hashing. The data contained within a block is passed through a cryptographic algorithm, which generates a fixed-size hash value—essentially a unique digital fingerprint for that block. This hash is directly tied to the contents of the block, including transaction data, timestamp, and other relevant information. Any alteration to the block’s data would result in a completely different hash, creating an immediate mismatch between the block’s hash and the rest of the blockchain. This means that even a small change in the block’s contents—such as modifying a transaction—would disrupt the chain, making it obvious to the network that tampering has occurred. Additionally, each block contains the hash of the previous block, which further strengthens the chain’s security. If one block’s hash is altered, it will change the hash of every subsequent block, effectively breaking the entire chain. This cryptographic mechanism makes unauthorized changes or tampering detectable and ensures the integrity and security of the entire blockchain. It is this design that provides blockchain with its key feature of immutability—once data is recorded in a block, it cannot be changed without the entire network recognizing the attempt.

Execution and Validation

Once blocks are added to the blockchain, they become permanent and are considered immutable, meaning that the transactions within them are final and cannot be reversed or altered. Each block in the chain acts as a reliable, secure record of transactions that, once recorded, cannot be modified without affecting every subsequent block in the chain. This inherent immutability ensures that the history of transactions remains transparent and tamper-proof, making it nearly impossible to manipulate data without the network detecting the changes. The system relies on cryptographic techniques and consensus mechanisms to maintain this level of security, providing a high degree of trust and accountability for all participants. The transparency of the blockchain also fosters confidence among users, as every participant has access to the same verified, unalterable record of transactions. This trust and accountability are key features that make blockchain technology suitable for a wide range of applications, from financial transactions to supply chain tracking, ensuring that the data is both reliable and secure.