For a clearer understanding of how blockchains work, let's compare them with traditional banking methods. Let's see how John sends money to Blake using the traditional method.

Traditional Method

Step 1: John wants to send Blake $10. Using his web browser, John logs into his online banking account.

Step 2: John enters Blake's account number and amount to transfer.

Step 3: John authorizes the transaction using a password, after which the transaction is sent to the Bank.

Step 4: The server verifies and validates the transaction and if the transaction is valid, the server updates its database according to the transaction.

Step 5: John's bank sends Blake's bank his verified transaction to Blake's Bank. Once Blake's bank's server database has been updated, Blake will then be able to see his updated balance.

Now that we have a clear understanding of traditional flow. Here's how Blockchain transactions work.

Blockchain Network

Step 1: John wants to send 1 bitcoin to Blake. Using his web browser, John logs into his online wallet.

Step 2: John enters Blake's address and amount to transfer and signs the transaction using his private key and generates a digital signature.

Step 3: The blockchain network receives this transaction.

Step 4: The receiving node then verifies and validates this transaction and if found valid, it is then broadcasted to the remaining nodes in the network to be verified and validated.

Step 5: Now that the transaction is verified, each node creates a block incorporating this transaction.

Step 6: A consensus algorithm is used to find the winning node which is then broadcasted and all the other nodes add it to their blockchain.

Step 7: Once this blockchain is updated Blake can check his new balance

Conclusion

You might find this complex but before blockchain, The power that was previously controlled by wealthy individuals became institutionalized in the form of banks and governments. The financial crisis of 2008 was caused by centralized control of financial institutions. This was the time when people needed a transparent, trustless, and decentralized network and that is when Bitcoin was born and the technology underneath was none other than Blockchain.