How Transactions Work on a Blockchain
Blockchain transactions follow a specific process to ensure security and transparency. Unlike traditional financial transactions that rely on banks or payment processors, blockchain transactions occur directly between users in a peer-to-peer network, eliminating the need for intermediaries.
The transaction process involves several key steps:
Initiation – A user initiates a transaction by signing it with their private key, a cryptographic code that verifies their identity and ensures the transaction's authenticity.
Broadcasting to the Network – The transaction is sent to the blockchain network, where it is validated by participating nodes.
Verification by Consensus – Transactions are verified using a consensus mechanism, such as Proof of Work (PoW) or Proof of Stake (PoS), ensuring that only legitimate transactions are added to the blockchain.
Inclusion in a Block – Once verified, the transaction is grouped with others into a block. Each block contains a unique hash and the hash of the previous block, ensuring a secure connection between all blocks in the chain.
Block Addition to the Blockchain – The new block is added to the blockchain, making the transaction permanent and unchangeable.
Transaction Completion – The updated blockchain is distributed across the network, and the recipient can now access the funds or asset associated with the transaction.
The use of cryptographic techniques ensures that transactions are secure, irreversible, and verifiable. Because each transaction is recorded on multiple nodes rather than a single database, the system is resistant to hacking, fraud, and data manipulation.
Blockchain's decentralized nature removes the need for intermediaries, reducing transaction costs and increasing efficiency. This is why blockchain technology is widely used in financial services, supply chain management, and digital identity verification.