How Does Blockchain Work?

The Core of Blockchain is Blocks

Every chain consists of multiple blocks and has three basic elements in each block:

  • Data in the block.
  • A whole 32-bit number called a nonce. When a block is produced, the nonce is generated randomly, which then produces a hash of the block header.
  • The hash is a 256-bit integer wedded to the eighth. It must begin with a large number of zeroes (i.e., be extremely small).

A nonce produces the cryptographic hash when the first block of a chain is produced. Unless it is mined, the knowledge in the block is deemed signed and forever bound to the nonce and hash.

Bitcoin Miners

Via a process called mining, miners build new blocks on the chain.

Every block has its unique nonce and hash in a blockchain, but also refers to the hash of the previous block in the chain, so mining a block is not easy, especially on large chains.

To solve the unbelievably complex math problem of finding a nonce that produces an agreed hash, miners use special tools. Since the nonce is only 32 bits and the hash is 256, there are approximately four billion potential combinations of nonce-hash that must be mined before finding the correct one. When that happens, the “golden nonce” is said to have been found by miners and their block is added to the chain.

Making a change to any block earlier in the chain needs not just the block with the change to be re-mined, but all the blocks that follow. This is why exploiting blockchain technology is incredibly hard. Think of it as “safety in math” because it takes a massive amount of time and computational power to find golden nonces.

When a block is successfully mined, all of the nodes on the network support the shift and financially reward the miner.

Nodes

Decentralization is one of the most important principles of blockchain technology. The chain cannot be owned by any single machine or entity. Instead, through the nodes attached to the chain, it is a distributed ledger. Nodes can be any kind of electronic system that holds blockchain copies and keeps the network running.

Each node has its copy of the blockchain and every newly mined block for the chain to be modified, trusted, and validated must be accepted by the network algorithmically. Since blockchains are transparent, it is possible to easily verify and display any action in the ledger. A unique alphanumeric identification number that indicates their transactions is issued to each participant.

Combining public information with a checks-and-balances system helps preserve transparency in the blockchain and builds trust among users. Essentially, it is possible to consider blockchains as the scaleability of trust through technology.

Blockchain Technology Demystified

By using decentralization and cryptographic hashing, Blockchain, also referred to as Distributed Ledger Technology (DLT), renders the history of any digital asset unalterable and transparent.

A Google Doc is a basic analogy for understanding blockchain technology. The document is transmitted instead of copied or transferred when we create a document and share it with a group of individuals. This creates a decentralized chain of distribution that simultaneously allows everybody accesses to the text. No one is locked out waiting for updates from another party, while in real-time all changes to the doc are registered, making changes fully transparent.

Blockchain is, of course, more complex than Google Doc, but the comparison is fitting because it highlights three important technology ideas:

  1. Instead of being copied or transferred, digital assets are distributed.
  2. The asset is decentralized, enabling full access in real-time.
  3. A clear ledger of adjustments maintains the document’s credibility, and creates trust in the asset.

Blockchain is a technology that is highly exciting and innovative because it helps minimize risk, stamps out fraud, and offers accountability for various uses in a scalable way.

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