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Table of Contents

[Transaction Initiation 1](#_Toc191276768)

[Who Operates the Blockchain? 1](#who-operates-the-blockchain)

[Transaction Verification 2](#transaction-verification)

[What is Transaction Verification? 2](#what-is-transaction-verification)

[Grouping Transactions into a Block 2](#grouping-transactions-into-a-block)

[What is a Hash? 2](#what-is-a-hash)

[Block Validation 3](#block-validation)

[Adding the Block to the Chain 3](#adding-the-block-to-the-chain)

[Transaction Completion 3](#transaction-completion)

Transaction Initiation

A transaction on a blockchain begins when a user initiates an action, such as sending cryptocurrency, executing a smart contract, or recording an energy trade. This transaction contains essential details about the sender, including their address, the amount, and any additional contract terms, as well as the address of the recipient.

For more information on smart contracts, please refer to our Smart Contracts article.

For more information on cryptocurrency, please refer to our Cryptocurrency article.

Who Operates the Blockchain?​

Blockchains are operated by no one and everyone at the same time. No one, because their decentralized nature means they are not controlled by a single central authority. And everyone because every user – called a node – possesses all the data and plays a role in maintaining and validating the ledger.

Each node stores all blockchain data, but only in encrypted form. This ensures that a node can only access the data it has permission to view. Provided there is at least one active node in the network, all previous data saved on the blockchain can be retrieved.

For more information on blockchain technology, please refer to our Blockchain article.

Transaction Verification

Once the transaction is initiated, it is broadcast to a network of nodes that participate in maintaining the blockchain. These nodes work together to verify the transaction’s legitimacy. They check whether the sender – in the case of cryptocurrency or token transactions – has sufficient funds and confirm that the transaction complies with the network's rules. This validation process eliminates the need for intermediaries, such as banks or payment processors, making transactions more transparent and reducing costs.

For more information on tokens, please refer to our Token article.

What is Transaction Verification?​

Transaction verification is the process of ensuring that a cryptocurrency transaction is valid before it is added to the blockchain. Since there is no central authority, blockchain networks use consensus mechanisms – rules that help users agree on which transactions are legitimate. These mechanisms help prevent fraud and ensure that only valid transactions are recorded on the blockchain.

For more information about consensus mechanisms, refer to our Consensus Mechanisms article.

Grouping Transactions into a Block

After verification, valid transactions are grouped into a block. Each block contains a list of transactions, a timestamp, and a unique identifier called a hash. This hash is a cryptographic representation of the block’s data, ensuring that any changes to the block would alter the hash, making tampering easily detectable. Additionally, each block contains the hash of the previous block, linking them together in a chronological sequence. This structure ensures that blockchain records remain permanent and secure.

What is a Hash?​

A hash is a unique string of letters and numbers that represents data, like a digital fingerprint. It is created using a mathematical function that takes any input – a word, a file, or a transaction – and converts it into a fixed-length code.

For example, a Bitcoin hash might look like this:

0000000000000000005b8b9b43e9f8a1d3c8e7a0a8c3b7d6e5f2a1b4c6d8e9f0

Even a tiny change in the input will completely change the hash, but the original input cannot be traced back from the hash itself. This makes hashing useful for security and data integrity. Hashes are essential in blockchain technology because they link blocks together, ensuring that past transactions cannot be altered.

Block Validation

Before a block is added to the blockchain, the network must reach consensus to validate it. Different blockchains use different consensus mechanisms to achieve this. These mechanisms ensure that the blockchain remains secure and resistant to malicious actors attempting to alter transaction records.

Adding the Block to the Chain

Once consensus is reached, the new block is permanently added to the blockchain, linking it to the previous block through its hash. This chain of blocks creates an immutable ledger – meaning once a transaction is recorded, it cannot be changed or deleted without altering all subsequent blocks. Due to the decentralized nature of the network, modifying past transactions is nearly impossible, as it would require altering thousands of copies of the blockchain stored across different nodes simultaneously.

Transaction Completion

After the block is added, the transaction is considered complete and permanently recorded. Depending on the blockchain network, it may take some time for the transaction to be fully confirmed, as additional blocks are added after it. Once confirmed, the transaction is visible on the blockchain, providing transparency and security without the need for third-party verification.