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Blockchain Technology Explained: How Does Blockchain Work?

by CryptoWordTalk
blockchain technology explained

There are three main technologies that unite to form a blockchain, as mentioned in our tutorial “What is Blockchain Technology?” They aren’t all brand new. Rather, it’s the way they’re orchestrated and used that’s innovative.

They are:

1) cryptography using private keys,

2) A shared ledger distributed network,

3) service to the network’s security, transactions, and record-keeping.

The next part provides an explanation of how various technologies interact to ensure the security of digital interactions.

Cryptographic keys

Two individuals want to do business via the internet.

source: coindesk

They each have their own private and public key.

The primary goal of this blockchain technology component is to establish a secure digital identification reference. The possession of a mix of public and private cryptographic keys is used to establish identity.

This combination of these keys may be thought of as a deft kind of permission, resulting in a very valuable digital signature.

As a result, this digital signature offers a high level of ownership control.

However, strong ownership control isn’t adequate to protect digital connections. While the problem of authentication has been addressed, it still has to be coupled with a method of authorizing transactions and permissions (authorization).

This starts with a dispersed network in the case of blockchains.

A Distributed Network

The thought experiment “if a tree falls in the forest” demonstrates the value and need of a dispersed network.

With cameras recording a tree’s fall in a forest, we can be quite confident that the tree fell. Even if the specifics (why or how) are unknown, we have visual proof.

The bitcoin blockchain’s value comes from the fact that it’s a vast network of validators who, like the cameras in the example, agree that they saw the same thing at the same time. They utilize mathematical verification instead of cameras.

In a nutshell, the network’s scale is critical for its security.

One of the most appealing features of the bitcoin blockchain is how big it is and how much computer power it has gathered. At the time of writing, bitcoin is protected by 3,500,000 TH/s, which is more than the combined security of the world’s 10,000 biggest institutions. Ethereum, which is still in its infancy, has approximately 12.5 TH/s of security, which is greater than Google, and it is just two years old and still in beta mode.

System of record

When cryptographic keys and this network are joined, a new kind of digital interaction develops. The procedure starts with A taking their private key and attaching it to B’s public key after making some kind of statement – in the instance of bitcoin, that you are transferring an amount of the cryptocurrency.


The block, which contains a digital signature, a timestamp, and other important information, is subsequently broadcast to all nodes in the network to complete the transaction.

Experimenting with the following question, a realist may dispute the tree falling in the forest: Why would a million computers with cameras be waiting to see whether a tree had fallen? To put it another way, how do you attract computer power to protect the network?

Mining is required for open, public blockchains. Mining is based on a novel solution to an age-old economic problem known as the tragedy of the commons.

By donating your computer’s processing power to the blockchain network, you may earn a reward for one of the machines. The self-interest of a person is being utilized to assist meet a public need.

The aim of the bitcoin protocol is to prevent the possibility of using the same bitcoin in many transactions at the same time in a manner that is difficult to detect.

This is how bitcoin aspires to behave like gold, or as property. To be held and valued, bitcoins and their basic units (satoshis) must be one-of-a-kind. To do this, the network’s nodes labor to solve proof-of-work mathematical challenges in order to build and preserve a history of transactions for each bitcoin.

They essentially vote with their CPU power, indicating their approval or rejection of new blocks. When a majority of the miners reach the same conclusion, a new block is added to the chain. This time stamped block may also include data or communications.

Here you can see a chain of Blocks:

(source: Coindesk.com)

The amount, verification and type can differ for each of the blockchain. It all comes down to the blockchain protocol — the set of rules that govern what constitutes a legal transaction and what does not, as well as what constitutes a successful block generation. Each blockchain may have its own verification method, which can be customized. When enough nodes agree on how transactions should be validated, any necessary rules and incentives may be established.

It’s a taster’s choice scenario, and folks are just getting started.

Many similar experiments are presently being conducted as part of the blockchain development process. For now, the only things we can say for certain are that we still have much to learn about blockchain technologies.

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