How Blockchain Works

Blocks
Structure: Each block contains a list of transactions, a timestamp, and a cryptographic hash of the previous block.

Data: The data stored in a block can vary depending on the blockchain. For example, Bitcoin blocks contain transaction data, while Ethereum blocks can also contain smart contract code.

Chains
Linking Blocks: Blocks are linked together in a linear, chronological order, forming a chain. Each block contains a hash of the previous block, creating a secure and immutable chain.

Genesis Block: The first block in a blockchain is called the genesis block. It is unique because it does not reference a previous block.

Nodes
Definition: Nodes are individual computers that participate in the blockchain network. Each node maintains a copy of the entire blockchain and validates new transactions and blocks.

Types: There are different types of nodes, including full nodes (which store the entire blockchain) and lightweight nodes (which store only a subset of the blockchain).

Miners
Role: Miners are nodes that validate and add new transactions to the blockchain by solving complex cryptographic puzzles.

Proof of Work (PoW): In PoW systems like Bitcoin, miners compete to solve a puzzle, and the first to solve it gets to add the new block to the blockchain and is rewarded with cryptocurrency.

Proof of Stake (PoS): In PoS systems like Ethereum 2.0, validators are chosen to create new blocks based on the number of coins they hold and are willing to “stake” as collateral.

Transaction Initiation
Creation: A user initiates a transaction by creating a digital message that includes the transaction details (e.g., sender, receiver, amount).

Signing: The transaction is signed with the user’s private key, ensuring authenticity and integrity.

Broadcasting
Network Propagation: The signed transaction is broadcast to the blockchain network, where it is received by nodes.

Validation
Verification: Nodes verify the transaction to ensure it is valid (e.g., the sender has sufficient funds, the signature is correct).

Inclusion in Block: Valid transactions are grouped into a block by miners or validators.

Consensus Mechanism
Proof of Work (PoW): Miners compete to solve a cryptographic puzzle. The first to solve it adds the new block to the blockchain and broadcasts it to the network.

Proof of Stake (PoS): Validators are selected to create new blocks based on their stake. They validate transactions and add the block to the blockchain.

Block Addition
Appending: Once a block is validated, it is added to the blockchain. Each block contains a hash of the previous block, linking them together.

Confirmation: The new block is propagated across the network, and nodes update their copies of the blockchain.

Immutability
Hashing: Each block’s hash is unique and depends on the block’s data. Changing any data in a block would change its hash, breaking the chain.

Security: To alter a block, an attacker would need to change the hash of that block and all subsequent blocks, which requires immense computational power and consensus from the network.

Cryptocurrencies
Bitcoin: The first and most well-known application of blockchain, used for peer-to-peer digital currency transactions.

Ethereum: Extends blockchain functionality to include smart contracts and decentralized applications (dApps).

Supply Chain Management
Tracking: Blockchain can track the movement of goods through the supply chain, providing transparency and reducing fraud.

Verification: Ensures the authenticity of products by recording their origin and journey on the blockchain.

Voting Systems
Security: Blockchain can provide secure and transparent voting systems, reducing the risk of fraud and ensuring the integrity of election results.

Anonymity: Voters’ identities can be protected while ensuring that each vote is counted accurately.

Healthcare
Patient Records: Blockchain can securely store and share patient records, ensuring privacy and improving the efficiency of healthcare services.

Drug Traceability: Tracks the production and distribution of pharmaceuticals to prevent counterfeit drugs.