How Does Blockchain Work?

Great job on grasping the concept of blockchain! Now that you know what a blockchain is, let’s
dive into the inner workings of this fascinating technology. In this lesson, we’ll explore how a
blockchain functions and the processes involved in adding new blocks to the chain.
The Building Blocks
As we’ve learned, a blockchain is made up of a series of blocks, each containing a list of
transactions. These blocks are connected to one another in a linear, chronological order,
forming a chain. Let’s break down the components of a block to better understand how it all
comes together:
1. Transactions: Each block contains a list of transactions. A transaction can represent
various types of data, such as the transfer of cryptocurrencies, voting records, or even
medical records.
2. Block Header: The block header contains important information about the block, such
as the block’s unique identifier (hash), the previous block’s hash, and a timestamp.
3. Nonce: The nonce is a random number that plays a crucial role in the process of
adding a new block to the chain, as we’ll see in the next section.
The Process of Adding a New Block
Adding a new block to the chain involves a process called mining. Mining is essentially a
competition among nodes (computers) in the network to solve a complex mathematical puzzle.
The first node to solve the puzzle gets to add the new block to the chain and is rewarded with
some cryptocurrency (e.g., Bitcoin). Here’s a step-by-step overview of the mining process:
1. Gathering Transactions: Nodes in the network collect and validate new transactions.
Once a node has enough transactions, it creates a new block candidate.
2. Solving the Puzzle: The node then starts the mining process by trying to find a nonce
that, when combined with the block header and hashed, produces a hash that meets
specific criteria (e.g., starts with a certain number of zeros). This process is
computationally intensive and requires a lot of trial and error.
3. Reaching Consensus: Once a node finds a valid nonce, it broadcasts the new block to
the network. Other nodes verify the block’s validity by checking the hash and ensuring
it meets the required criteria. If the majority of nodes agree that the block is valid, it’s
added to the chain.
4. Reward: The node that successfully mined the block receives a reward in the form of
cryptocurrency. This incentivizes nodes to participate in the mining process and helps
maintain the security of the network.
Consensus Mechanisms
As mentioned earlier, a consensus mechanism is the process by which nodes in the network
agree on the validity of a new block. There are several consensus mechanisms used in different
blockchains, but the two most common are:
1. Proof of Work (PoW): This is the consensus mechanism used by Bitcoin and many
other cryptocurrencies. In PoW, nodes compete to solve a complex mathematical
puzzle, as described in the mining process above. The first node to solve the puzzle
gets to add the new block to the chain.
2. Proof of Stake (PoS): In PoS, nodes are chosen to validate and add new blocks based
on their stake in the network (i.e., the amount of cryptocurrency they hold). The more
cryptocurrency a node holds, the higher its chances of being selected to validate and
add new blocks. PoS is considered more energy-efficient than PoW, as it doesn’t require
the massive computational power needed for mining.
And that’s a wrap on how blockchain works! You now have a solid understanding of the
processes involved in maintaining and adding new blocks to a blockchain. In the next lesson,
we’ll dive into the key components of a blockchain and explore the different types of
blockchains out there. Keep up the great work!