⛓️1.2.1. How Blockchain Works

Blockchain is a decentralized, distributed digital record book that keeps track of every transaction across a network of computers.

To understand blockchain, start with the word itself: block and chain.

A block is like a digital container. It holds a bunch of information, usually about transactions, such as who sent what to whom, when it happened, and some technical data to keep everything organized.

Once a block is full, it gets sealed and connected to the block before it. Then a new block is created and added next in line.

Over time, this forms a growing chain of blocks, which is why it is called a blockchain.

What makes this system special is that it runs on a network of computers, not on one central server.

These computers are called nodes. Each one keeps a full copy of the chain and checks every new block to make sure it follows the rules.

When enough computers agree that a block is valid, it is added to the chain and every copy gets updated.

Because of this setup:

•No single person or company is in charge

• Everyone can see what is on the chain

• Once something is added, it is almost impossible to change

Let’s take a deeper look at the core elements that make blockchain work↓

a) Blocks

Each block contains:

• A timestamp to mark when the transactions were recorded.

• A list of transactions (e.g., cryptocurrency transfers or smart contract interactions).

• Each block includes a hash, which is a special code, from the block before it. This code is made from that block’s data. If anyone tries to change something, the code will not match anymore. This helps keep all the blocks connected safely and shows if something was changed.

• A nonce (a random number used in consensus mechanisms like Proof of Work).

These are the main pieces that make a block work.

There is more technical stuff inside, but you don’t need to worry about that unless you are getting deep into building or researching blockchains.

This structure ensures that any attempt to alter a block would require modifying all following blocks, making tampering computationally infeasible.

Analogy:

Think of a blockchain like a class notebook that records every student’s activity.

Each block is one full page in that notebook. It contains a list of entries like who turned in an assignment, who borrowed a pen, or who made a trade, and once the page is full, it's sealed and added to the notebook in order.

Just like a real notebook, you can't go back and erase what's already been written without leaving obvious marks.

...

b) Nodes

Blockchain networks are powered by a large group of computers called nodes.

These nodes are spread out across the world and work together to keep everything running smoothly.

They check that transactions are valid, store important data, and help keep the network secure.

There are two main types of nodes:

• Full nodes store the entire blockchain and check every transaction from the beginning.

• Light nodes only keep part of the blockchain and ask full nodes to help verify transactions.

Because nodes are spread out and not controlled by any single group, the network stays decentralized and secure.

No one person or company can shut it down or change the data without everyone else knowing. That is what makes blockchains so strong and reliable.

Continuation of analogy:

...

Now imagine that every student in the class keeps their own full copy of the notebook. These students are the nodes.

When a new page (block) is ready to be added, everyone checks that it’s accurate and matches the rules.

Once they all agree, they each add that exact same page to their copy.

This way, no one can sneak in a fake update or erase history without the whole class noticing.

...

c) Consensus Mechanisms

For a blockchain to work, everyone in the network needs to agree on what is true.

This agreement is called consensus. It makes sure that all the nodes stay in sync and agree on which transactions are valid.

Without consensus, people could cheat the system or create fake versions of the blockchain.

Since there is no central authority, blockchain networks use consensus algorithms to help the network reach agreement automatically.

These algorithms decide who gets to add the next block and how the rest of the network confirms it.

Common consensus mechanisms include:

Proof of Work (PoW):

Used by Bitcoin, and many more, this method works like a race.

Computers called miners compete to solve a difficult math puzzle.

The first one to solve it gets to add a new block of transactions to the blockchain and earns some Bitcoin as a reward.

This system is very secure because it takes a huge amount of computing power to cheat(51% Attack). It would be like trying to rewrite history while everyone else is watching and double-checking your work.

However, all that computing power uses a lot of energy.

Proof of Stake (PoS):

Used by Ethereum and other networks, Proof of Stake works differently.

Instead of competing to solve puzzles, participants (called validators) are selected to add the next block based on how much crypto they have locked up, or "staked" in the network.

The more coins someone stakes, the higher the chance they will be chosen. If they try to cheat, they can lose their staked coins.

This system is more energy-efficient and can handle more activity than Proof of Work.

To wrap up a), b) and c), lets finish the analogy:

...

But how does the class decide which version of a new page is the correct one?

That is where consensus algorithms come in. They are the rules the class follows to agree on what gets added next.

Some classrooms might hold a math race. The first student to solve a hard equation gets to write the next page. That is like Proof of Work.

Others might say whoever has done the most homework gets to write the page. That is like Proof of Stake.

Different classrooms (blockchains) use different systems, but the goal is the same: to make sure everyone stays on the same page, literally.

d) Forks and Network Splits

Sometimes, a blockchain can split into two, creating what’s called a fork. This happens when people running the network disagree on rules, like how fast transactions should be or how to handle a problem.

There are two kinds: soft forks tweak the rules but keep everyone on the same chain, while hard forks make a brand-new blockchain.

Take Bitcoin, for example. Back in 2017, some users wanted faster transactions and bigger blocks to hold more data, but not everyone agreed.

As a result, Bitcoin Cash broke off as a hard fork, becoming its own coin with different rules while Bitcoin stayed the same. It’s still Bitcoin’s little cousin, but with an important difference: quicker payments at lower costs.

Ethereum’s had its share of forks too. In 2016, after a big hack called "The DAO" stole a bunch of ETH, most users voted to undo it with a hard fork, creating today’s Ethereum.

But some stuck to the old chain, calling it Ethereum Classic because they believed a blockchain shouldn’t change its past.

e) Why so many blockchains?

You’ve seen how a blockchain keeps things working with blocks, nodes, and consensus. But why isn’t there just one big blockchain for everything?

Well, it’s because people have different ideas about what a blockchain should do and how it should run.

Some want faster transactions, others care more about security, and some want lower fees. These differences lead to the creation of new blockchains that match specific goals or values.

We just talked about forks splitting coins like Bitcoin Cash off from Bitcoin over disagreements, that’s another reason new blockchains pop up.

These blockchains can exist side by side because they’re not tied to one central system, they’re independent.

Each one uses the same basic idea (a chain of blocks), but tweaks it for different jobs. Ethereum, powers apps with smart contracts, while Solana focuses on super-fast transactions.

It is not chaos, it is variety.

Just like different tools for different jobs, blockchains give users and developers more choices.

And in some cases, these networks can even talk to each other, sharing data or swapping tokens across chains.

You can think of blockchains like phone systems. Android and iOS are both separate operating systems with different features, but they serve the same purpose. You might prefer one over the other, but you can still call or message someone on a different system.

Different chains, same idea. All helping the crypto ecosystem grow and connect.

f) Network Vs Coin

A network and its coin serve different purposes within the same blockchain system.

Take Bitcoin for example. The Bitcoin network is made up of computers working together to process and record transactions. It is the infrastructure that keeps the whole system running.

Bitcoin, the coin, is the digital money you use on that network. It is what people send, receive, or hold as a store of value.

In simple terms, the Bitcoin network is the system, and Bitcoin is the currency that moves through it.

This setup also helps explain how some blockchains, like Ethereum, do more than just support one coin.

Ethereum has its own currency, called Ether, which is used to pay for transactions and run programs on the network.

But Ethereum also allows people to create other tokens that live on top of its system. These tokens can be anything such as in-game currencies, NFTs for digital art, tokens used in DeFi platforms, memecoins, etc.

Instead of building an entirely new blockchain, these tokens use Ethereum’s network, following its rules and relying on its security.

That is why Ethereum hosts thousands of tokens alongside Ether. They all run on the same foundation, just with different purposes.

At its core, blockchain is a system for keeping records that everyone can trust.

Blocks store the data, nodes keep the system running, and consensus makes sure everyone agrees on what is true.

It is not just about crypto, it is about how information can be shared, verified, and secured without a central authority.

Now that you understand how the pieces fit together, you are ready to go deeper into how blockchain is used and why it matters.

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This article is for absolute beginners, so judge the content based on how well you think your parents would understand it.