How does Blockchain work?
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How does Blockchain work?

In the simplest terms, a blockchain is a distributed ledger that is open to anyone. It is called ‘blockchain’ because data is entered into ‘blocks’, which are linked using cryptography, thereby making a chain of blocks. Once data has been recorded inside a blockchain, it becomes very difficult to change it. This property is called ‘immutability.’

What exactly is inside a block?

Data: Typically, the data that is entered into a block is transactional data, but this varies from blockchain to blockchain. In the case of the most popular cryptocurrency in the world, Bitcoin, the data recorded on the block would be the sender, receiver, and the number of coins.

Cryptographic Hash or Hash: A hash is a cryptographic function that converts an input of data into an encrypted output of fixed length. A hash is comparable to a fingerprint and is used to identify a block and its contents. Once a block is created on the blockchain, its hash is also created. Changing anything inside the block, even as little as adding a period, will also cause the hash to change completely.

Hash of the previous block: The hash of the previous block is also included in the succeeding block, effectively creating a ‘chain of blocks.’ This is the technique that makes blockchain so secure. If a previous block has been tampered with, the hash of the block changes, so changing one block makes all following blocks invalid.

Is Blockchain cryptocurrency?

A common misconception made by those unfamiliar with crypto or blockchain technology is that blockchain and cryptocurrency are the same thing. The same people will also typically use the terms interchangeably.

Blockchain is the technology that cryptocurrency runs on. It is blockchain technology that allows for the existence of cryptocurrency. Although blockchain technology can be used for purposes other than a distributed digital currency (cryptocurrency), that remains its most popular use.

Some uses of blockchain technology beyond cryptocurrencies include smart contracts, the monitoring of supply chains, digital voting, immutable data storage, and proof of ownership.

Why is blockchain capable of working automatically?

One of the most unique and valuable aspects of blockchain technology is how the network operates, executes, and confirms transactions without the need for a central authority or intermediaries. In essence, blockchain is a peer-to-peer (P2P) network.

The reason blockchain technology is able to operate in this manner is because the network is secured and executed by a consensus algorithm. This is a mechanism that allows nodes within the network to communicate and coordinate in a distributed manner. In the case of Bitcoin, Ethereum 1.0, and Jax.Network, the consensus algorithm is called Proof of Work.

With regard to blockchain, Proof of Work is a mechanism that requires nodes on a network to process a time-consuming and costly piece of data that is then easy for other members of the network to verify in order to add a block to the blockchain. Typically the first node to accomplish this costly task will be rewarded with cryptocurrency, it is through this process that is called ‘mining’ that new coins are minted in a blockchain network.

Proof of Work is a safeguard that mitigates tampering with the network by slowing down the creation of new blocks, so that computers can’t keep re-calculating the hash once a previous block has been tampered with.