Crypto Academy

How does blockchains work ?

How do blockchains work?

5 min reading

With the popularity of cryptocurrency, such a concept as blockchain became known. What is it and how does it work?

Blockchain work

How do blockchains work?

Distributed computing and decentralized information storage technologies were introduced back in the 1990s. However, the word “blockchain” became known only recently – when a certain Satoshi Nakamoto showed how these technologies could be used to organize a new financial system. Thus, in 2008, bitcoin appeared, and with it, the history of blockchain development began.

Blockchain is a technology that processes, stores information, and identifies the customer.

Blockchain technology is:

    • transparent, it stores all information about all operations in the system;
    • independent, all information is stored on many computers of the participants, not only on the central server;
    • stable, because it is impossible to delete or change the previous information, only to implement a new agreement.

Blockchain technology has gained popularity along with cryptocurrency. Today it has begun to be used in public administration, law, banking, and other areas.

The main disadvantage of the blockchain is considered to be certain requirements for the computer and the Internet speed of network members because the registration of transactions requires the processing of large amounts of data. This leads to high energy consumption to service operations in the system.

How do blockchains work?

If you want to buy bitcoin, for example, from another network member, then the blockchain forms this operation into a block with other similar transactions, and that block will include the number and hash of the previous block.

When the block is formed, it is sent to all participants in the blockchain system. Each participant records a block of information in their database if there are no errors. Next, the block is added to the chain of previous blocks and thus contains information about all previous transactions. After that, the bitcoin ownership passes to you.

All transactions are made between network members directly. And they are carried out due to the fact that their computers are connected to one network – a blockchain. In blockchain networks, at some point in time, several transactions must be registered at once, for example, transactions with bitcoins, which are formed by the system in one block. A sequence of several such blocks is called a chain, and such a chain is continuous and unbroken, as each block has a reference to the previous one. Transactions also cannot be deleted or modified – you can only add new ones. Therefore, you can always look at information about the transfer of ownership of an asset from the moment of its creation, for example, to find out who previously owned this asset.

In order to carry out operations in the blockchain network, it is necessary to have special wallets to store information. All information about wallets and transactions with them is protected by encryption. The buyer and seller of the asset confirm the transaction with cryptographic keys that are special unique digital codes. 

Blockchain technology uses cryptography as a means of protecting the identity of users, securing transactions, and protecting all information and its storage. Therefore, anyone who uses blockchain can be fully assured that once something is written to the blockchain, it is done legitimately and in a way that preserves security. Various cryptographic techniques guarantee the sustainability of the blockchain transaction log, solve the problem of authentication, and control access to the network and data in the blockchain as a whole. Blockchain uses encryption techniques such as hash functions, keys, and digital signatures.