Blockchains: Function

Function

How does a blockchain work?

A blockchain has two major components – the block, and the chain. The block is a collection of digital information, and the chain is the public record where this information is stored.

There are other important elements to a blockchain making the system function, none more important than the peer-to-peer (P2P) network. This network is made up of thousands of computers (nodes NodesA single computer connected to a blockchain’s network.) and is accessible to everyone.

These nodes are used to receive, verify and confirm transactions using the blockchain network. They do this using a unique language to cryptocurrency, called cryptography. Cryptography allows nodes to communicate with one another with the ability to keep its contents private from an entire public network. This is vital when securing transactions and making sure their contents reach their destinations without being altered by potential hackers.

Blockchains work using a specific protocol, which dictates the characteristics or rules of how the system functions.
This is known as a consensus algorithm, and while they come in several different forms, they serve the same purpose in laying down the law when it comes to adding blocks to a blockchain.

For the original concept of cryptocurrency, Bitcoin’s algorithm dictated that for the information in a block to be added to the end of the chain, there is a clear process needing to happen.

Firstly, a transaction must occur, and be verified within a network of nodes by miners.

Then, the information attached to the transaction, including its date, time, dollar amount and participants must be stored in a block.

There are several other transactions making up this block, usually any requests to transfer Bitcoin cryptocurrency over a 10-minute period are bundled together in a block. Each block is filled with new transactions until it’s full, then added to the end of the chain. Any overflowing transactions are added to the next block, and the process continues. The value in a blockchain system grows with the rate of adoption, so the more nodes there are in a network the more relevant a blockchain becomes.

This is because the fundamental purpose of blockchain technology is to enable decentralised transactions. The more nodes in a network, the more decentralised a network becomes.

What types of blockchains are there?

There are many variations from this original cryptocurrency infused blockchain system removing elements of what makes the system function and adding something different for a different product. Private blockchains are an example of this, where a blockchain still functions like a regular blockchain, but with a different node structure.

These blockchains are privately run and accessed by a select few, removing any focus on decentralisation. Companies usually utilise private blockchains for the benefit of having the ability to specify who adds information to the network.

Consortium blockchains are a hybrid of public and private blockchains. They work like private blockchains in that companies usually make use of them relying on specifically chosen nodes to update the blockchain.

There is also a public element to consortium blockchains in that the network is shared among a larger group of entities specifically chosen by the blockchain’s creators. Though they are by no means public, verification of requests need a majority agreement amongst the network.

Blockchains: Function

FAQ

How do blockchains work?
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Firstly, a transaction must occur, and be verified within a network of nodes by miners. Then, the information attached to the transaction, including its date, time, dollar amount and participants must be stored in a block. There are several other transactions making up this block, usually any requests to transfer Bitcoin cryptocurrency over a 10-minute period are bundled together in a block. Each block is filled with new transactions until it’s full, then added to the end of the chain. Any overflowing transactions are added to the next block, and the process continues.

Do all blockchains work in the same way?
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There are many variations from this original cryptocurrency infused blockchain system removing elements of what makes the system function and adding something different for a different product.

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