Blockchain for Everyone - Part 2: Discover the Technology Mechanism in Minutes!

How Does Blockchain Actually Work?

Before diving into the history, it’s important to understand what happens behind the scenes. Blockchain is a system where who approves transactions in the blockchain? It’s not a single central authority, but a distributed network of computers called nodes. These nodes work together like a collective panel of reviewers, which must approve each transaction before it is added to the ledger.

Imagine this situation: Roy wants to send 5 Bitcoins to John. Instead of asking a bank for permission, Roy sends an encrypted message with his private key to the entire network. Each computer in the network (node) receives this message and verifies whether Roy actually has 5 Bitcoins to send. After verification, all participants in the network acknowledge that the transaction is legitimate. This answers the question, who approves transactions in the blockchain – every node in the network!

When the majority of nodes agree that the transaction is valid, this information is added to a new “block". This block is then linked to previous blocks, creating an immutable chain of history. That’s where security lies: to alter an old transaction, a hacker would have to change all subsequent blocks on all computers simultaneously. This is practically impossible.

Where Did Blockchain Come From?

The history begins in 1991, when Stuart Haber and W. Scott Stornetta invented a cryptographic method to secure data – the first seed of the blockchain idea. However, the real revolution came when Satoshi Nakamoto realized this idea in 2008, introducing Bitcoin in 2009 as the first practical implementation of this technology.

Nakamoto solved one of the biggest problems of digital systems: how to allow strangers to conduct secure transactions without trusting a bank or government? The answer was: decentralize the system and let everyone collectively control it.

What Is Blockchain?

Blockchain is a decentralized electronic ledger. Instead of storing data in one place (like a bank), data spreads across thousands of computers worldwide. Each transaction record is grouped into “blocks,” and these blocks are linked together in a chain, hence the name: blockchain (blockchain).

Three main elements form the structure:

• Records: Any information, such as transaction details, seller and buyer data, and amounts.
• Blocks: Sets of related records with a unique identifier called a “hash” (a mathematically generated sequence of numbers and letters).
• Chain: Formed when all blocks are linked through references to the previous hash.

Each new block contains transaction data, its own unique hash, and the hash of the previous block. The only exception is the “Genesis Block” – the first block in the network, which has no predecessor to reference.

Why Has Blockchain Technology Become Popular?

Traditional banking has a problem: if you want to send money over the internet, you must trust an intermediary – the bank. The bank stores your data, charges fees, and… theoretically can always alter the transaction history. Blockchain solves this problem cleverly.

Instead of a single point of failure (główny serwer banku), you have thousands of independent verification points. Instead of one security protocol, you have thousands of identical copies of the ledger. Manipulating data becomes not only difficult but computationally impossible.

That’s why not only Bitcoins have gained fame. Blockchain has applications in supply chains (tracking goods from factory to store), online voting (transparent, tamper-proof), and even in healthcare (secure medical records).

Three Types of Blockchain Networks

Public Blockchains

In a public blockchain, anyone can join, send transactions, and become a verifying node. Bitcoin and Ethereum are public blockchains. The advantages are transparency and reliability – everyone can monitor every transaction. The drawback is that everyone sees everything.

Use cases: electronic voting (government and citizens can track results in real-time), organizational fundraising (everyone verifies where the money goes).

Private Blockchains

In a private blockchain, only selected individuals or organizations can participate. Commonwealth Bank, using blockchain, can maintain a network only for its employees and trusted partners. Your banking data remains private – only you and the bank have access.

Use cases: supply chain management for companies, asset ownership verification, internal organizational voting.

Consortium – joint blockchains

A group of banks or companies creates a shared network where each participant has a voice in the consensus process. Suppose you need to change your date of birth registered on the consortium blockchain. You cannot do this alone – you must prove your right to make the change, and then most nodes (each from a different bank) must approve the change.

Use cases: interbank payment systems, sharing scientific research results, tracking food origin in the food industry.

Step-by-step: How Does Blockchain Verify Transactions?

1. Transaction request: The user sends a transaction command to the network.
2. Transmission to nodes: The message reaches all computers (nodes) in the P2P (Peer-to-Peer) network.
3. Verification: Each node checks whether the transaction is legitimate – whether the sender actually has the funds, and whether they are trying to spend the same coin twice.
4. Consensus: Nodes reach an agreement using a consensus algorithm (most often Proof of Work for Bitcoin).
5. Creating a block: Approved transactions are grouped into a new block.
6. Adding to the chain: The new block is attached to the blockchain – and it can no longer be changed.
7. Announcement: All network participants are notified of the changes.

Main Features of Blockchain Technology

Increased efficiency: Many computers working together process data faster than a single centralized server.

Enhanced security: With no single point of failure, the system is resistant to attacks. Even if a hacker disables one node, the remaining thousands will maintain the network.

Decentralization: Data stored online is not controlled by any single person or organization.

Consensus algorithms: Rules that determine how nodes reach agreement – the core of every blockchain.

Distributed ledger: Every participant has an identical copy of the ledger, ensuring transparency.

How Is Blockchain Changing Reality?

Banking: International transactions that traditionally took days can now be completed in minutes without intermediaries.

Logistics: Courier companies can track shipments in real-time by gathering location data from multiple systems. Possible to track lost luggage or rented cars.

Real estate: Instead of waiting months for documents, sales transactions can be finalized faster with smart contracts verified by blockchain.

Philanthropy: Donors can track in real-time whether their money actually reaches the poor, instead of disappearing into the hands of dishonest intermediaries.

FAQ – Frequently Asked Questions

Is blockchain the future? Blockchain can fundamentally change the way we store and share data. It is already used in financial transactions, logistics, and public records.

Can blockchain replace banks? In theory, yes. Blockchain eliminates the need for intermediaries. In practice, banks are adapting by integrating blockchain into their operations.

How many blockchains are there? Over 10,000 cryptocurrency systems operate worldwide, each with its own blockchain or variant. But the main ones – Bitcoin, Ethereum, Solana – dominate the ecosystem.

What is the main purpose of blockchain? Enabling secure transactions between strangers without trusting a central authority.

Summary

Blockchain is not magic – it’s a smartly designed system where who approves transactions in the blockchain? Everyone together. This distributed responsibility is the key to security and transparency.

Companies are increasingly looking for ways to leverage this technology to create new revenue streams. If your organization isn’t exploring blockchain, it risks falling behind. Now is the perfect moment to dive into this technology and discover how it can adapt your industry.

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