Blockchain is the system that makes bitcoin transactions work. Unlike fiat currency like dollars or euros that can be physically kept and spent, bitcoin exists as records on a distributed ledger called blockchain. Blockchain acts like a bank, it's a ledger that contains every transaction history of bitcoin ever processed and enables a user to verify the validity of each bitcoin transaction. This makes all bitcoin transactions safe and fraud-free.
How it works
1. Transaction Request - A person requests a transaction or, in other words, will have “a bitcoin transfer” from one wallet to another. This can represent buying a product, paying for services, or anything that pertains to the transfer of bitcoins.
2. Broadcasting Request - The transaction request which is “to send” bitcoin to another user will be broadcasted to the peer-to-peer (P2P) network consisting of computers known as “nodes”.
3. Validation - The network of nodes will verify the transaction using a mathematical algorithm.
4. 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 with the transaction requests of other users. The combined data is called “block”.
5. 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. This way, all the transactions are permanently recorded and therefore cannot be altered.
6. Transaction Complete - The transaction or a bitcoin transfer from one wallet to another will be considered successful.
Blockchain technology does not only cater to the transfer of “value” which in the case explained above, the transfer of bitcoin, but also can be used for the transfers 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.
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