How is a transaction handled in blockchain?

Blockchain is a distributed, decentralized ledger that has become the basis for various cryptocurrencies such as Bitcoin. It removes the need for having a central body (e.g., bank) to manage the flow of money.

Similar to banks, transactions are the essence of blockchain. Let’s take a look at how transactions are made in blockchain systems.

Making a transaction

The basic concept of a transaction is the transfer of wealth from one party to another. If two people, Alice and Bob, want to perform a transaction, a series of events will take place.

Verification

When Alice transfers money over to Bob (or the other way around), the transaction is displayed to all other participants or nodes in the network. The transaction is currently in an unconfirmed state.

Other nodes will have to verify the transaction. They are quick to jump at the opportunity of validating a transaction since it rewards them as well.

Adding the transaction to the blockchain

Once the transaction has been validated, its details are stored in a block that also contains other transactions. This block must then be validated by solving a complex mathematical problem. This process is known as mining and the nodes that attempt it are called miners.

If an answer for the block is computed, the miner receives a reward, and the block is added to the main public ledger, aka the blockchain. All the transactions in this block, including the one between Alice and Bob, are verified, and the transaction is complete.