How Does a Blockchain Work?
Blockchain technology serves as the foundation for cryptocurrencies, enabling secure, transparent, and tamper-proof transactions. It consists of a distributed ledger that records all transactions in blocks, which are linked in chronological order, forming a chain.
1. Decentralization
Unlike traditional databases, a blockchain operates on a decentralized network of computers (nodes). Each node has a copy of the entire blockchain, ensuring that no single entity controls the data, which elevates security and trust.
2. Transactions and Blocks
When a transaction is initiated, it is broadcast to the network, where it is verified by nodes through cryptographic algorithms. Once validated, the transaction is grouped with others into a block.
3. Consensus Mechanisms
To add a new block, nodes must reach consensus via mechanisms such as Proof of Work (PoW) or Proof of Stake (PoS). In PoW, miners solve complex mathematical puzzles; the first to solve it gets to add the block and is rewarded with cryptocurrency.
4. Immutability
Once a block is added to the blockchain, it cannot be altered without altering all subsequent blocks, which requires consensus from the majority of the nodes, making the blockchain highly secure and immutable.
5. Transparency and Auditability
Each transaction on the blockchain is visible to all participants, offering complete transparency. This feature enhances trust and allows for easy auditing by users or regulatory bodies.
In conclusion, blockchain technology provides a robust framework for cryptocurrencies through decentralization, verification, consensus, and immutability, paving the way for secure digital transactions.