How Does Blockchain Technology Work

We explain the concept of the blockchain by explaining how Bitcoin works since it is intrinsically linked to the Bitcoin. However, the blockchain technology is applicable to  any digital asset transaction exchanged online.



A Blockchain technology has mainly 3 parts: 


1.Data/Information Part:

- contains the information of transaction incurred.

2. Hash:

-Unique Id Of Block.

3.Previous hash: 

-Hash of previous block. 

Internet commerce is exclusively tied to the financial institutions serving as the trusted third party who process and mediate any electronic transaction. The role of trusted third party is to validate, safeguard and preserve transactions. A certain percentage of fraud is unavoidable in online transactions and that needs mediation by financial transactions. This results in high transaction costs.  Bitcoin uses cryptographic proof instead of the trust in the third party for two willing parties to execute an online transaction over the Internet.  Each transaction is protected through a digital signature. Each transaction is sent to the “public key” of the receiver digitally signed using the “private key” of the sender. In order to spend money, owner of the cryptocurrency needs to prove the ownership of the “private key”. The entity receiving the digital currency verifies the digital signature –thus ownership of corresponding “private key”--on the transaction using the “public key” of the sender.  Each transaction is broadcast to every node in the Bitcoin network and is then recorded in a public ledger after verification.  Every single transaction needs to be verified for validity

before it is recorded in the public ledger.  Verifying node needs to ensure two things before recording any transaction: 
1. Spender owns the cryptocurrency—digital signature verification on the transaction.

2. Spender has sufficient cryptocurrency in his/her account: checking every transaction against spender’s account (“public key”) in the ledger to make sure that he/she has sufficient balance in his/her account.