A blockchain is a record of transactions that is kept by many computers at once, rather than by one company or one database. The records are grouped into blocks, and each block is linked to the one before it, so the whole chain forms a history that is easy to check and hard to change. The idea underlies cryptocurrencies such as bitcoin, but it is also used for other records where many parties need to agree on one version of events.
This guide explains how a blockchain works step by step: how transactions are added, how the network agrees on the record, why changing the past is so hard, and what it costs to keep the system running. It avoids the technical detail that is not needed for understanding, while being accurate about what the system does.
The basic problem
Suppose you want to send money to someone without a bank. A bank keeps a record of who owns what, and you trust the bank to update it correctly. Without a bank, you need another way for everyone to agree on the record, and to stop anyone from spending the same money twice.
A blockchain solves this by letting many computers hold the same record, and by setting rules for how new entries are accepted. If enough computers follow the rules, the record can be trusted without any single one being in charge.
Blocks and chains
A block is a bundle of transactions, plus a few pieces of metadata. Each block includes a fingerprint of the block before it, called a hash. A hash is a short code produced from the contents of a block, and changing even one character in the block changes its hash completely.
Because each block contains the hash of the one before, the blocks form a chain. If someone changes an old transaction, its block's hash changes, which breaks the link in the next block, and so on up to the present. Anyone with a copy of the chain can check that the links still match.
How new blocks are added
New transactions are sent to the network and wait in a pool. Participants then compete or take turns to bundle some of those transactions into a new block and add it to the chain. The rules for choosing who adds the next block are called the consensus mechanism.
Bitcoin uses proof of work. Miners compete to find a number that makes a block's hash meet a difficulty target. This takes a large amount of computing power, and the winner adds the block and is rewarded with new coins and fees. Many other networks use proof of stake, where participants lock up coins as a deposit and are chosen to add blocks in proportion to their stake, with penalties for cheating. The guide on bitcoin halving explains how the reward works on bitcoin.
Why the record is hard to change
Changing an old transaction would mean changing its block, which changes the hashes of every later block. The network would then have to accept the altered chain over the original one. To do that, someone would need to control more than half of the computing power or stake, and to redo the work for every block since the change. On a large network this is extremely expensive, and the attack would be visible to everyone.
The protection is economic as well as technical. A network with many honest participants is costly to attack, and an attack would damage the value of the coin the attacker holds. Smaller networks have been attacked successfully, so the size and security of the network matter.
Everyone keeps a copy
Each full node on the network keeps its own copy of the chain and checks every new block against the rules. A node rejects a block that breaks a rule, even if the majority accepts it. This is why many independent copies make the record reliable: no single node can impose its version on the others.
Not every participant runs a full node. Many people use wallets and services that rely on others to check the chain. This is a trade-off between convenience and independent verification.
Ledgers, transactions and balances
A blockchain does not store a balance for each person in a bank-style table. Instead, it records transactions, each one moving coins from one address to another, with a signature proving the owner allowed it. A balance is the sum of the transactions that paid coins to an address and those that spent them. The guide on how cryptocurrencies work covers the basics of ownership.
Keys matter here. The owner of an address proves ownership with a private key, which is a secret number. Anyone who has the private key can spend the coins at that address, and nobody can reverse a transaction once it is confirmed. The guide on crypto wallets explains how this affects safekeeping.
What it costs to run
A blockchain costs money to operate. In proof-of-work networks, miners spend on electricity and equipment, and the reward pays for that. In proof-of-stake networks, the cost is the value locked as stake and the risk of penalties. Users pay fees to get their transactions included, and the fee often rises when the network is busy.
These costs shape the system. A network with few users may struggle to pay for its security, and a network with very high fees can be too expensive for small payments. Look at how a network earns and pays for its security before you judge it.
Speed and finality
Transactions are not final the moment they are sent. They wait until a block includes them, and they become more secure as more blocks are added on top. The number of blocks needed for confidence depends on the network and the value of the transaction. Many services wait for several confirmations before treating a payment as settled.
Speed varies widely between blockchains, and some networks trade speed against decentralisation or security. A fast network is not automatically better, and a slow one is not automatically worse.
A worked example: a payment
Suppose Ana sends a payment to Ben. Her wallet signs the transaction with her private key, proving she owns the coins. The transaction goes to the network and waits in the pool. A miner or validator includes it in a new block, and the block is added to the chain. Each full node checks the transaction against the rules, including that the coins were not already spent.
Ben's wallet sees the transaction in the block. He may wait for several more blocks to be added, so that reversing the payment would be impractical. The record of the payment is now part of the chain, and everyone who keeps a copy has the same history.
| Step | Who does it | What it proves |
|---|---|---|
| Sign | Ana's wallet | Ana owns the coins |
| Broadcast | Network | The payment is public |
| Include in a block | Miner or validator | The payment is ordered |
| Check | Full nodes | The rules were followed |
| Confirm | Later blocks | The record is hard to reverse |
Limits and risks
A blockchain protects the record, not the value of what it records. A coin can lose almost all its market value even if its chain works perfectly. A blockchain also cannot correct a mistake made by the person sending a payment, or recover coins sent to the wrong address.
Software can have bugs, and smart contracts on some blockchains have been exploited for large losses. Networks can also be controlled by a small group if participation is concentrated. Check who runs the network, how upgrades are decided and how the community handles problems.
Finally, the law around blockchain technology and the assets on it differs by country and changes over time. Check the rules where you live.
Key takeaways
A blockchain is a shared record kept in linked blocks. Each block contains the fingerprint of the one before, so changing the past means redoing a lot of work. New blocks are added under consensus rules, such as proof of work or proof of stake. Many full nodes check every block, which makes the record reliable without a central authority. Running the network costs money, and the fees and rewards pay for it. The technology protects the record, but it does not protect the value of what is recorded.
This guide is for general information, not financial advice. See the disclaimer.