How Does Blockchain Work? ╚╝ A Guide, & 0.2 cents.

╬ The life cycle of a transaction made on a blockchain includes:

√ The end-user requests a transaction.

√ The transaction is sent and waits in the mempool.

√ The transaction is included in a block, which is broadcasted between nodes.

√ More nodes confirm the valid transaction, which is reflected in the receiver's wallet.

■ As a reward, the miner that discovered the block receives a fixed reward plus transaction fees - the collected small payments from all people that sent funds on that platform. Other miners then update their nodes with the latest block of transactions across a peer-to-peer network.

A blockchain requires several key players to make it a functional network for transactions, communication, and smart contracts. As a guide, the players include:

1. Miners - solve hashes (equations) to produce a block header.
2. Node operators - broadcast and receive the latest transactions.
3. End-users - send out transactions and update their wallets.

■ A key element to block discovery is hashing, which is the testing of possible block headers against a predetermined number. Finding the right hash value is energy-intensive and requires specialized machines called ASICS or at minimum GPUS for efficient performance. For instance, the Bitcoin network relies on miners operating specialized rigs that expand hashing to 150 quintillion operations per second. 

Miners run nodes that are connected repositories that hold a copy of the blockchain. The number of nodes ranges from a minimum of seven to more than 10,000 in a large network, such as the Bitcoin network.

Node operators voluntarily support the network or are chosen for the task through voting. In the case of the Bitcoin network, the only requirements are hard drive space, connectivity, and computing power. However, for proof of stake networks (POS) like the Ethereum coin (ETH), running a node typically requires holding a significant number of coins. For instance to run a node on ETH you need 32 coins.

Blockchain does not have a fixed structure and can grow to thousands of nodes worldwide. For Bitcoin and other networks, address activity is a metric used to gauge the health of the network.

→ How Secure is Blockchain and Can You Trust It?

■ In its twelve-year history, Bitcoin has not been exploited in a significant way. So far, no coins have been double spent which is crazy if you think about it, meaning Bitcoin’s cryptographic protection of transactions is highly secure. However, smaller networks have fallen prey to malicious mining, where transactions were rolled back.

The Ethereum network, created by Vitalik Buterin, is highly secure for basic transactions, but the smart contracts created on top of it have faced significant errors and exploits.

A smart contract code adds more function to a blockchain. However, smart contracts are novel codes that often run untested and unaudited. Hackers can find logical loopholes that allow them to create a cryptocurrency, drain funds, or freeze assets.

■ Blockchain is also prone to user errors - sometimes due to poor user experience. The relatively new distributed ledger technology uses a public key and a private key along with lengthy alphanumeric addresses to send funds. Errors when sending funds usually center around using the wrong address, you need to be careful.

Mistaking a smart contract address for a wallet address is a common mistake, especially when sending Ethereum-based tokens. Coins lost in this way are irretrievable. Sending Bitcoin to other blockchain networks, such as Bitcoin Cash, is semi-reversible, though expensive, you need to be careful, double, triple check or know what you are doing.

■ Another danger comes from using compromised wallets OR DEVICES!! Cybersecurity is a must, and no it’s NOT enough having an antivirus - you don’t ride a motorcycle with knee pads and say you are protected... Oh the eternal problem of people working in security: “why am I paying you? nothing is happening” & “why am I paying you? we got hacked!”. Again because it matters: you ought to learn how to cyberprotect yourself, so keep an eye on our daily posts & articles, and feel free to reach out to ask questions!

Such wallets steal a user's private key and then their coins. Other risks include honey pots, faked sites, phishing addresses, and compromised exchanges that lose funds in hacks or exploits. However, if used correctly, the technology is extremely safe. Especially www.Libonomy.com

Now you know better!

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