How does a blockchain transaction work?

The process behind a transfer is more complex than it might appear

The request ➡️

A user in the blockchain requests a transaction to be made.

Mining machine ➡️

Some of the machines on the network might be ‘mining’ machines and can, therefore, work on the transaction to earn cryptocurrency.

The network ➡️

The request is sent out to a peer-to-peer network of computers. Each computer is known as a ‘node’.

Validation ➡️

When the network nodes have checked the user’s status they’ll validate the transaction.

Verification ➡️

A verified transaction can involve all kinds of data, from cryptocurrency like Bitcoin to contracts or other important information.

Transaction complete ➡️

All of this happens in a few seconds. Moments later, the original user is notified that the transaction is complete.

In the chain ➡️

The block is added to the rest of the chain in a permanent form that can’t be edited.

The header ➡️

The new block contains a ‘header’, which is a small piece of information from the previous block in the chain.

Create a block!

The information that is being transferred is combined with the verification information to create a new block of data.

Hey big sender!

Could blockchain make the world go round?

The pros of blockchain

👍Secure transfersIt’s a safe and confidential way to transfer data that can’t be edited.

👍Irreversible transactions: Transfers are safer because a buyer can’t take information then claim back the money.

👍The potentialBlockchain technology could make it easier for us to pay for things, access our medical records and even vote.

👍Cryptocurrencies can’t be frozen: If there’s a financial crisis, banks often freeze bank accounts. That can’t happen with cryptocurrencies.

The cons of blockchain

👎Hacks still happen: Some system hacks can still cause major problems, such as an attack that blocks a node from accessing the network.

👎Irreversible transactions!: When mistakes are made it can be more difficult to organise refunds or redistribution.

👎No regulators: Because Bitcoin is digital it has no official regulator. If the creator decided to split it, or change it, it could have major effects.

👎New tech can scare people: People don’t really understand blockchain or cryptocurrency, so making them mainstream will be

This article was originally published in How It Works issue 117, written by Stephen Ashby 

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