Blockchain technology works by creating a ledger of transactions controlled by a network of computers (nodes). Here’s a simple explanation of how it works:
1. Each part of the network has a copy of the entire blockchain.
**Business Blocks**: Businesses are divided into blocks. Each block contains a list of changes, a timestamp, and reference data for the previous block (except for the first block, which is called the creation block).
**Encryption Hash**: Each block is assigned a cryptographic hash (a unique alphanumeric string) created from the contents of the block. This hash value is very important because a change in the block will result in a completely different value.
**Agreement Mechanism**: Blockchain uses consensus algorithms (proof-of-work, proof-of-stake, etc.) to confirm the validity of the transaction copy and order added to the blockchain. This prevents double spending and ensures that all nodes have the same view of the blockchain.
**Immutable and Transparent**: Once a block is added to the blockchain, it is difficult to change because changing it requires changing the block and all subsequent blocks, ensuring most of the network accepts the change. This makes the blockchain secure and tamper-proof. Additionally, since the list is distributed to all nodes, it is transparent and everyone can see the entire transaction history.
**Smart Contracts (optional)**: Some blockchains, such as Ethereum, support smart contracts. These are personal contracts with promises written directly into the rules. It is evaluated and implemented according to a predetermined process. It has applications beyond cryptocurrencies, such as chain management, voting, and financial management (DeFi), among others.
