So how do Blockchain-based applications like Bitcoin and Ethereum validate transactions without a central authority?
In the blockchain, there are many participants in the network that are constantly checking to ensure that each transaction is valid. Each participant is a computer that owns a copy of the blockchain. These participants cross-reference their copy of the blockchain each time a new block is being introduced. Because this validation depends on multiple participants, the digital record is “decentralized”.
In order for a new block to be added, 51% of all of the participants in the blockchain network must verify that the new block is not fraudulent. Once a block has been verified as a valid transaction, it is added to each participant’s copy of the blockchain.
By having the majority of participants validate a new transaction, the blockchain removes the need for a central authority and automates the completion of transactions, reducing transaction fees while ensuring a high level of security.
- Blockchain Network: The blockchain network and blockchain are terms used interchangeably. They represent the entire blockchain from the structure itself to the network that it is a part of.
- Decentralization: The concept in which participants work together to validate transactions without relying on a central authority.
- Participant: A client that owns a copy of the blockchain and verifies transactions across the network.