How does blockchain work?

by in Blockchain 101, Blockchain For Beginners

How does blockchain work?
What is blockchain?

The significant part of people living today has heard about blockchains. They may understand anything or know nothing about this concept, but this word follows us every day and in each corner of the world. The greatest part of the specialists says that this system will be the future of the Internet and the Internet will truly become decentralized as it was thought to be. This article is entirely dedicated to the blockchain technology, to its process of working. We’ll try to describe everything that is happening in the blockchain world today and how it will become something so important concerning technologies' future development.

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To truly understand how blockchain functions, you must completely get the concept of the blockchain. This is an unusual technology that helps us keep data in digital form. This data is written in the several blocks and these blocks are chained together. This chain makes our data constant. Once your data is registered on the network and once it’s chained, it can’t be modified. Also, you have to learn that the information that you added will be available to everyone, who is in the system and who wants to view it. The blockchain is a great way of storing permanent data.

The very first project which used this technology's features as Bitcoin.

Hashes and hash function.

A hash function creates a line with 32 letters and numbers from a variable number of characters. These 32 characters together are called a hash. Each modification made in the first string will create a whole new hash.

Private keys are also created by a hash function. This key is also known as a signature is a line with 64 characters that helps the network determine the one, who is trying to transfer something.

Nonces in hashing.

A nonce is an arbitrary number that can be applied just one time in connection. Nonces are often used in proof-of-work (PoW) systems to avoid service attacks. In the process of hashing, nonces are used to modify the hash value. This helps not allowing the linear increase of crypto coins being awarded to newly joined miners. Instead, the miner who notices nonce the first is being paid.

What is a node?

Once your PC is connected to the blockchain it stars to be named as a “node”. Nodes work with the leading blockchain system Bitcoin. Full nodes are the ones who follow all the regulations and laws of the blockchain.

All about public ledgers.

The public ledger is a document keeping system, which maintains participants’ identities in an anonymous form. Public ledgers work similar to bank records, but with some differences. Just like in banks, public ledger verifies each element of every transaction. The biggest difference is the absence of an authority that controls the process.

How are the blocks chained?

Let’s imagine three blocks. All of them are holding some data about transactions. Through the process of hashing, every block gets its hash.

Block Hash
First block a4535697FBfjr94739dnkei456fnt578
Second block u7965R653TgfW249fj5R25645J58GTyl
Third block eE8574tgUl36514T4U5gjdoe953IL123

So when these blocks are chained each of them keeps the information about its hash, all the transactions and the hash of the previous block. When the block starts to keep the information about the previous block's hash it means they are chained. Note that the very first block can’t store information about the previous block, just because it’s the first and it is named Genesis.

How are transactions being processed?

Everything starts from a simple user, which wants to send coins, for instance, using Bitcoin. He logs in to his wallet app and transmits a request.

His wallet broadcasts this request on the network. And now it’s miners turn to make this transmission happen. A miner must pick the transmission and put it into the system. Before miner picks it, transaction request remains in the so-called pool of unconfirmed transactions.

Nodes of the network pick transactions from this pool and put them into the blocks. Every node has its block which stores information about the transactions that they have picked from the pool. Miners also create a new block of transactions, so that everyone in the chain can detect that the transaction is being processed, but before this block needs the confirmation. And here is where a signature (hash) is needed. The node that finds an eligible signature for the block, broadcasts this block and confirmed signature to other nodes.

Other miners are using hashing to verify the authenticity of the signature. If everything is correct other miners are confirming the process and the block is being added to the chain.

Why the blockchain system is called immutable?

We have already learned that every block has its hash and stores data about the previous hash. And we also learned that even little changes can make a hash change. So now let’s look at our blocks again.

Block Hash
First block a4535697FBfjr94739dnkei456fnt578
Second block u7965R653TgfW249fj5R25645J58GTyl
Third block eE8574tgUl36514T4U5gjdoe953IL123

Our first block is Genesis. It has its hash and data about transactions. Our second block has its hash, stores information about transactions and the previous block’s hash and so on. So now let’s picture how each block in this chain looks.

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The Genesis - Transactions = 10 MB, Hash = a4535697FBfjr94739dnkei456fnt578. The second block - Transactions = 8 MB, Hash = u7965R653TgfW249fj5R25645J58GTyl, Previous hash = a4535697FBfjr94739dnkei456fnt578/ The third block - Transactions = 13 MB, Hash = eE8574tgUl36514T4U5gjdoe953IL123, Previous hash = u7965R653TgfW249fj5R25645J58GTyl.

Now if we try to make changes in the Genesis block, its hash will be changed and our blockchain will look like this.

The Genesis - Transactions = 10 MB of data, Hash = B5285997FOfjr94739dnkYi456fnt578. The second block - Transactions = 8 MB of data, Hash = u7965R653TgfW249fj5R25645J58GTyl, Previous hash = a4535697FBfjr94739dnkei456fnt578/ The third block - Transactions = 13 MB of data, Hash = eE8574tgUl36514T4U5gjdoe953IL123, Previous hash = u7965R653TgfW249fj5R25645J58GTyl.

Our second block stores the very first hash of the Genesis block and now the error occurs. As every little modification can cause the hash change, I guess it’s clear why blockchains are called immutable.

Blockchain system benefits.

Blockchain system has many advantages:

There isn’t any central authority, who controls all the processes. Everyone in the chain is taking part in every process.

Hashes make everything safer. You will rely on the system that doesn't let make any modifications in your money transfer process.

No fees are required for blockchain transactions. Yes, you have the opportunity of easily getting rid of that huge fee in banks just by exploiting blockchain technologies. Also, there are no queues here and everything is done quickly. Blockchains and changes in them are public, so it provides transparency to the network.

Every transaction is recorded on a single public ledger, so there aren’t problems like ones that occur with multiple ledger systems.