How blockchain works?

Blockchain is a revolutionary technology that allows information to be stored and shared in a secure, transparent, and tamper-resistant way. Instead of relying on a single central authority (like a bank or government), blockchain uses a network of computers (called nodes) to verify and record transactions.

Let’s break it down step by step:

1. The Building Block: A "Block"

• Each block contains a set of data or transactions (e.g., money transfers, medical records, or supply chain updates).
• A block also contains a timestamp and a cryptographic hash — a unique digital fingerprint of that block.
• Every block is linked to the block before it, creating a continuous chain — hence the name blockchain.

2. Transaction Creation

Suppose Alice wants to send cryptocurrency to Bob.

• Alice creates a transaction using her digital wallet, which uses cryptographic keys (public and private keys).
• This transaction includes details such as:
  • Sender’s address (Alice’s public key)
  • Receiver’s address (Bob’s public key)
  • Amount being transferred
  • Digital signature (to prove authenticity)

3. Broadcasting to the Network

• Once the transaction is created, it is broadcast to the entire blockchain network.
• Multiple computers (nodes) in the network receive this transaction and start verifying its validity.

4. Verification (Consensus Mechanism)

Blockchain networks need to agree on whether a transaction is valid. This agreement is achieved through consensus mechanisms such as:

• Proof of Work (PoW): Miners solve complex mathematical puzzles to validate transactions (used by Bitcoin).
• Proof of Stake (PoS): Validators are chosen based on the number of tokens they “stake” in the network (used by Ethereum 2.0).

These mechanisms ensure that only legitimate transactions are added to the blockchain.

5. Block Formation

• Verified transactions are grouped together into a block.
• Before the block is added, it must reference the hash of the previous block, ensuring that all blocks are chained securely in chronological order.
• Once formed, the new block is proposed to the network.

6. Adding to the Blockchain

• Once consensus is reached, the new block is added to the blockchain.
• Every node in the network updates its copy of the blockchain, ensuring a synchronized and decentralized ledger.
• At this stage, Alice’s transaction to Bob becomes permanent and cannot be altered.

7. Immutability and Security

• Each block is mathematically linked to the previous one through cryptographic hashing.
• If someone tries to alter a past transaction, it would change the block’s hash — breaking the chain.
• Since the blockchain is distributed across thousands of computers, tampering is nearly impossible without controlling the majority of the network (extremely difficult and expensive).

8. Transparency and Trust

• Anyone with access to the blockchain can view transactions (in the case of public blockchains).
• This transparency builds trust among participants, as no single entity controls the system.

Example: Sending Money Without a Bank

• Traditionally, if Alice wants to send $100 to Bob, a bank verifies the transaction.
• In blockchain, the network itself acts as the bank — verifying, recording, and securing the transaction without intermediaries.
• This makes transactions faster, cheaper, and more secure.

Summary: Blockchain works by recording data in secure blocks, linking them using cryptography, and verifying them through decentralized consensus. Once a block is added, it becomes a permanent, tamper-proof part of the digital ledger.