How Does a Blockchain Work - Simply Explained

1. Transaction Initiation: The process begins when someone initiates a transaction. This could be anything from sending cryptocurrency to another person to recording a business agreement.

2. Transaction Data: The details of this transaction are then packaged into a “block.” Each block contains a set of transactions, a timestamp, and a unique identifier called a hash.

3. Block Verification: Before this block can be added to the blockchain, it must be verified by a network of computers (nodes). These nodes use a consensus mechanism to ensure the transaction is valid. This step is crucial for maintaining the integrity of the blockchain.

4. Consensus Mechanism: There are different methods for reaching consensus among nodes. For example, in Proof of Work (PoW), nodes solve complex mathematical problems to validate transactions. In Proof of Stake (PoS), nodes are chosen based on the number of coins they hold and are willing to “stake” as collateral.

5. Adding the Block: Once the block is verified, it’s added to the existing chain of blocks. Each block contains the hash of the previous block, which links them together in a secure chain.

6. Immutable Ledger: After a block is added, it’s nearly impossible to alter the information in it without changing all subsequent blocks. This is because each block’s hash is dependent on the previous block’s hash, creating a secure and unchangeable record.

7. Distributed Ledger: The blockchain is maintained by a network of computers, which means every participant has a copy of the entire blockchain. This decentralized nature ensures that even if some nodes fail or are compromised, the integrity of the blockchain remains intact.

In summary, a blockchain works as a decentralized, secure ledger that records transactions in a series of linked blocks. Its strength lies in its ability to provide transparency and security through consensus mechanisms and cryptographic hashes.