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In this article we explain in an understandable way how blockchain works. The brand new technology is used for just about every cryptocurrency, but what is actually behind it?
How does blockchain work? Simply explained
The blockchain is the basis of every cryptocurrency and could also change the way banks work forever in the future. But how does it work exactly?
- Imagine you are transferring money to your friend Tom. This transaction has to be stored somewhere to make sure that you have really transferred money to your friend Tom.
- This information has to be stored. In banks, this happens centrally on a server. In the blockchain, on the other hand, your transaction is stored in a so-called block.
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This block contains a lot of information about many other transactions that happen all over the world. So the block is a log of all the transfers that are being made.
- As soon as a block is full, a new block is generated that is chained to the previous one. So at some point you have a chain of blocks that contains all the transactions that have ever existed. Hence the name “blockchain”.
- But the clever thing about the whole thing is that this blockchain is not just on one server, but is stored in a “decentralised” way on lots of computers around the world.
- When a new transaction is made in the network, it must first be confirmed by at least 6-7 of these computers. Only then is it valid. This prevents a computer from writing false transactions to the blockchain.
- For the confirmation, the computers are then rewarded with a transaction fee. This is known as “mining”. So the blockchain is kept running by crypto miners.
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In summary, the idea of the blockchain is a network that can process decentralised transactions securely and quickly. Incidentally, this is technically realised with procedures from cryptography.
