How does a blockchain work?
Imagine a heavy chain like the one used for a ship's anchor, but instead of metal links, each segment represents a block of data containing transaction records. At the top of this chain, you can see today's transactions, and as you trace the links downward, you pass through older and older records. If you follow the chain all the way to the bottom, you'll have a complete view of every transaction that has ever occurred for a particular cryptocurrency. This structure gives blockchain technology its security and transparency—every transaction is publicly recorded. If someone attempts to alter a transaction, it would disrupt the integrity of the chain, and the entire network would immediately detect the issue.
- Another way to think of blockchain is as a digital ledger. You might hear terms like "distributed ledger" or "immutable ledger." In the same way a bank tracks the flow of money in and out of accounts, the blockchain records the movement of cryptocurrency within its network. However, unlike a traditional bank ledger, this ledger isn’t controlled by a single entity such as a bank, corporation, or government. Instead, it operates in a decentralized manner, maintained by a global network of computers running open-source software. These computers continuously verify the accuracy of the blockchain.
- Periodically—about every ten minutes in the case of Bitcoin—a new block of transaction data is added to the existing chain. The participants who lend their computing power to this process are rewarded with a small amount of digital currency for their efforts, helping to maintain and secure the network.
- The decentralized nature of blockchain means it is distributed across an entire network of participants. No single company, government, or third party controls it, and anyone with the right resources can participate. This structure is one of the core principles of cryptocurrencies and a key factor in their growing appeal.
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