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Understanding How Blockchain Technology Actually Works in Practice

When you hear blockchain most people think about crypto believing them to be one and the same. However, blockchain technology was first proposed as a research project in 1991 predating crypto by several years. Today it’s trusted for a variety of data transfers from gaming to storing sensitive healthcare information. 

Our short guide will explain more about how blockchain networks work, and how it’s applied to crypto transactions. 

What is Blockchain Technology?

Blockchain is a type of distributed ledger technology, which enables a decentralized digital database to function. This technology is mostly known for its association with bitcoin. Which users can use to exchange digital currency securely, and without the worry of a data breach.

Blockchain is primarily made up of three very important concepts: blocks, nodes, and miners.

Blocks 

Blocks are made up of three major components:

  • The data in the block
  • A nonce; a 32-bit random number that gets created when it establishes the bloc (this creates a block header hash)
  • The hash is a 256-bit string of data used to encrypt the block and make it uneditable unless mined. 

Miners 

Every block has its own nonce and hash but references the previous block’s hash as well. Making it extremely hard to mine blocks, especially from a large chain. Miners use special computers, like Antminerra, and software to mine blocks.

Miners use these specialized computers and software to solve complex math problems to work through over 4 billion possible solutions to find the “Golden Nonce”. This is what makes blockchain technology a trusted secure way to transfer data. 

Once a block gets mined it’s time for the nodes to validate the data and update the chain. 

Nodes

Nodes are any kind of electronic device that maintains copies of the blockchain and keeps the network functioning. Every node has its own copy of the blockchain and every newly mined block must be validated by each of them to be added to the chain.

This may sound a bit complicated but gets a bit easier to understand once you know how it all works together. 

How It Works 

Suppose you are making a transaction using cryptocurrency, this is how that transaction would be recorded onto the blockchain network:

  • A transaction gets initiated and authenticated
  • A block gets established to represent that transaction
  • The block is then sent to every node (or user) in the network
  • Nodes validate the transaction (sometimes called a proof of work)
  • Nodes get rewarded for proof of work, typically in cryptocurrency
  • The block is then added to the existing blockchain
  • The update is then distributed across the network
  • Then the transaction is complete

Add Another Block to Your Knowledge Chain

All in all, blockchain technology is an excellent way to make purchases and transfer data in a secure, decentralized way. Helping you make purchases worldwide without worrying about your hackers getting your sensitive information. 

If you found this short guide on blockchain helpful, be sure to share it with your friends and family on social media. Don’t forget to check out the rest of our blog for answers to all things crypto. 

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