How Does a Blockchain Actually Work? (Explained Step-by-Step)

Transaction Initiation and Verification

1. A user initiates a transaction by signing it with their private key, creating a unique digital signature that proves ownership and intent.

2. The signed transaction is broadcast to the peer-to-peer network, where nodes receive and temporarily store it in a memory pool known as the mempool.

3. Nodes independently verify the transaction’s validity—checking for correct signatures, sufficient balance, absence of double-spending, and adherence to protocol rules.

4. Invalid transactions are discarded immediately; only those passing all validation checks remain eligible for inclusion in the next block.

5. This decentralized verification ensures no single entity controls approval—every node enforces consensus rules autonomously.

Block Formation and Consensus Mechanism

1. Miners or validators collect verified transactions from the mempool and assemble them into a candidate block.

2. Each block contains a cryptographic hash of the previous block, a timestamp, a nonce (in Proof-of-Work), and the Merkle root of all transactions.

3. In Proof-of-Work systems, miners compete to solve a computationally intensive puzzle—finding a nonce that produces a hash below a target threshold.

4. In Proof-of-Stake systems, validators are selected pseudorandomly based on staked token amount and other parameters to propose and attest to blocks.

5. Once consensus is reached—whether through longest-chain rule, finality gadgets, or voting protocols—the new block is appended to the chain across all honest nodes.

Data Immutability and Cryptographic Linking

1. Each block’s header includes the SHA-256 hash of the previous block’s header, forming an unbroken cryptographic chain.

2. Altering any data within a past block changes its hash, which invalidates every subsequent block’s reference—requiring recomputation of all following hashes.

3. Reconstructing the chain demands control over >50% of network resources in PoW or >⅔ of stake in many PoS variants—making tampering economically and technically prohibitive.

4. Merkle trees compress transaction sets into a single root hash, enabling lightweight clients to verify inclusion of specific transactions without downloading full blocks.

5. This structural design guarantees that once confirmed, transactions become increasingly resistant to reversal with each additional block.

Node Participation and Network Synchronization

1. Full nodes download and validate every block and transaction, maintaining a complete copy of the ledger and enforcing protocol rules.

2. Light nodes rely on full nodes for headers and proofs, trading storage efficiency for reduced trust assumptions via Simplified Payment Verification.

3. Mining nodes participate in block production while also performing validation duties—though some networks separate these roles explicitly.

4. Nodes continuously exchange inventory messages, request missing blocks, and reject forks that violate consensus rules or lack sufficient proof.

5. Network-wide synchronization occurs organically through gossip propagation—no central coordinator dictates state transitions.

Common Questions and Direct Answers

Q: Can a transaction be removed after it enters the mempool?A: Yes—if it remains unconfirmed for too long, nodes may evict it due to memory constraints or replace it using Replace-by-Fee mechanisms where supported.

Q: Why do some blockchains require six confirmations before considering a transaction final?A: Six blocks represent a statistical threshold where the probability of a successful reorganization drops below 0.1% under standard PoW assumptions.

Q: Do all blockchains use mining?A: No—many modern chains use alternatives like Proof-of-Stake, Delegated Proof-of-Stake, or Byzantine Fault Tolerant consensus without energy-intensive computation.

Q: Is the blockchain truly anonymous?A: It is pseudonymous—addresses have no inherent identity linkage, but on-chain analysis tools can often trace flows and associate addresses with real-world entities.