How Blockchain Technology Works

Blockchain is the foundational technology behind cryptocurrencies. It is a **decentralized, distributed ledger** that records all transactions across a network of computers, ensuring **transparency, security, and immutability** of data.

How Does Blockchain Work?

• Transactions Occur - A user initiates a transaction (e.g., sending Bitcoin to another user).
• Transaction is Verified - The network verifies the transaction using a consensus mechanism (e.g., Proof of Work or Proof of Stake).
• Transaction is Added to a Block - Once verified, the transaction is grouped with others into a block.
• Block is Added to the Blockchain - The new block is linked to the previous block, forming a chain.
• Transaction is Finalized - The transaction becomes immutable, meaning it cannot be altered or removed.

Key Features of Blockchain:

• Decentralized: No single entity controls the network.
• Immutable: Once recorded, data cannot be changed or deleted.
• Transparent: All transactions are publicly accessible.
• Secure: Uses cryptographic encryption for protection.

Types of Blockchains:

• Public Blockchains: Open to anyone (e.g., Bitcoin, Ethereum).
• Private Blockchains: Restricted access for specific users (e.g., enterprise blockchains).
• Hybrid Blockchains: Combine features of both public and private blockchains.

Blockchain technology enables cryptocurrencies to function without intermediaries like banks. It also powers decentralized applications, smart contracts, and many other innovations in the crypto space.

In the next section, we'll explore how to securely store and manage your cryptocurrency assets.