How Does Blockchain Work?

Blockchains function similarly to databases or spreadsheets, allowing the entry and storage of data in a digital ledger. However, the structure and access methods for data in a blockchain differ significantly from those in traditional databases.

When you perform an action on the blockchain, such as transferring cryptocurrency, scripts automatically log the transaction data into a block. The block's size and the processes for verifying and recording data depend on the specific blockchain network in use, although all blockchains share fundamental operational principles.

The entire blockchain is distributed across all computers in the network, requiring that each copy be identical for it to be considered valid. This decentralization ensures that transaction records are accurate without relying on any single company or service to manage the network.

On D1CE, certain cryptocurrencies can be transferred across multiple blockchain networks, so it's essential to verify whether the network you choose supports the cryptocurrency you wish to send.

Bitcoin Network

When you send or receive Bitcoin, your transaction details are transmitted to the memory pool, which is a network of peer-to-peer computers distributed globally. Mining computers then work to solve cryptographic equations to verify the transaction and log the details in a block. Once the transaction is confirmed, it is finalized, and the data becomes accessible across all network copies.

Each Bitcoin block holds 4MB of data, and when a block reaches its capacity, the data is processed through a cryptographic hash function to generate a block header. This header from the previous block is then used to form a chain of blocks. The mining computers participating in this process earn rewards in the form of newly mined Bitcoin. This mechanism is referred to as Proof of Work (PoW).

Ethereum Network

While the Ethereum network has similarities to other cryptocurrency blockchains like Bitcoin, it also features significant differences. The primary distinction is that it employs Proof of Stake (PoS) instead of Proof of Work.

In the Ethereum network, computers can stake ETH to become validators. When a transaction requires verification, one validator is selected at random. This approach allows for quick transaction processing without the heavy reliance on computing power and energy consumption associated with mining.