Ethereum: A Simple Explanation of How Blockchain Works
Imagine you’re at a party and you want to give your friends some cool stuff as a thank you for coming. You could just give them cash or physical gifts, but that’s not very efficient, right? What if everyone had a copy of the list of what everyone wants, so they could all agree on who gets what?
That’s what blockchain is: a digital ledger (list) that keeps track of transactions (what people want and what they give to each other). But instead of using cash or physical gifts, it uses special computer codes called a “blockchain” to record everything.
Here’s how it works:
1. A group of people agree on rules
A group of people, called miners, work together to create a new “block” (set of transactions). They use powerful computers to solve complex mathematical problems, which helps verify that the block is valid. This ensures that only one person can add new blocks to the ledger at a time.
2. The transaction is recorded in the blockchain
The miner collects a group of transactions from all the people who participated in the event (i.e. want to send or receive something). Then, they combine these transactions into a single block and add it to the ledger.
3. The block is verified by miners
The miner’s computers check the block for errors or duplicates, making sure that the new transaction is valid. If everything looks good, the miner broadcasts the new block to the network.
4. Everyone can see the blockchain
Once a new block is added to the ledger, it is visible to all participants. This allows everyone to trust that everyone has an exact copy of the list (the blockchain).
5. Miners receive rewards for their work
Miners are rewarded with newly minted Ethereum tokens (E Ether) for solving complex mathematical problems and verifying blocks. The more blocks they solve, the more E Ether they earn!
How it works in practice:
- When you send someone some Ethereum, it is added to a new block on the blockchain.
- The blockchain is then broadcast to the entire network of miners.
- Miners verify the transaction and add it to their copy of the ledger (the blockchain).
- Everyone can see the updated blockchain, ensuring that everyone has an accurate list.
Simply put, Ethereum uses blockchain technology to create a secure, transparent, and tamper-proof record of all transactions. The decentralized nature of the blockchain allows for peer-to-peer transactions without the need for intermediaries like banks or governments.
While this explanation may have taken some time to understand, I hope it helped you understand how Ethereum works!