Blockchain is the system that makes bitcoin transaction work. Unlike fiat currency similar to dollars and euros that can be physically kept and spent, bitcoin exists as records on a distributed ledger called Blockchain. Blockchain acts like a bank, its a ledger contains every transaction history of bitcoin ever processed that enables a user to verify the validity of each bitcoin transaction. This makes all bitcoin transaction safe and fraud-free.
How it works
- Transaction Request - A person will request a transaction or in other words will have “a bitcoin transfer” from one wallet to another. This can represent buying a product, paying a service, or anything that pertains to the transfer of bitcoin.
- Broadcasting Request - The transaction request which is “to send” bitcoin to another user will be broadcasted to the Peer-to-peer (P2P) network consist of computers known as “nodes”
- Validation - The network of nodes will verify the transaction using a mathematical algorithm
- Block of Data - Once the transaction is verified meaning the bitcoin transfer is genuine and not a duplicate request, the transaction of a user which is “to send” bitcoin will be combined to the transaction request of other users. The combined data is called “block”.
- Block added to the Blockchain - The new block will be added to the Blockchain network. The blockchain literally represents the “chain” of blocks of data of verified transactions from bitcoin users. In this way, all the transaction is permanently recorded and therefore cannot be altered.
- Transaction Complete - The transaction or a bitcoin transfer from wallet to another will be considered successful
The Blockchain Technology doesn’t only cater to the transfer of “value” which in the case explained above, the transfer of bitcoin. Blockchain can also be used for the transfer of data, information, or contacts. With the use of this technology, participants of the transfers can confirm “transactions” without a need for a middleman or a central clearing authority