What Is a Blockchain and How Does It Work?

TL;DR

• A blockchain is a shared digital ledger. Records are grouped into blocks, and each block is cryptographically linked to the one before it. [1][2]
• Copies are held by many participants, and new blocks are added only when the network agrees they are valid, which makes past records very hard to change quietly. [1][3]
• Blockchains power many cryptocurrencies but can also be used for tracking and record keeping. [1][2]
• This page explains the technology only. It is not investment advice.

Blocks and hashes #

A blockchain is a list of records that only grows. Transactions or entries are collected into a block, and the block is added to the end of the chain [1].

Each block stores a hash of the block before it. A hash function turns any amount of data into a short, fixed-length fingerprint. Change even one character of the data and the fingerprint changes completely. Because each block contains the previous block's fingerprint, the blocks form a chain [1][3].

This is what makes tampering visible. If someone edits an old block, its fingerprint changes, so the next block's stored fingerprint no longer matches. To hide the edit they would have to rewrite every later block as well [1][3].

How computers agree #

Ordinary databases usually have one owner who decides what is correct. On a blockchain, many computers (nodes) each hold a copy, and there is no master copy. Instead, they follow a consensus rule for deciding which new block to accept [1][3].

Two well-known approaches:

• Proof of work. Participants compete to solve a computing puzzle, and the chain with the most accumulated work is trusted. Bitcoin uses this. It can use large amounts of electricity [1].
• Proof of stake. Validators lock up assets as a stake and are chosen to confirm blocks, which avoids the energy-heavy puzzle [1].

Blockchains also differ in who may take part. Public ones let anyone join. Permissioned ones limit participation to approved parties. Critics note that a permissioned chain can look a lot like a traditional shared database [1].

Uses beyond cryptocurrency #

Cryptocurrencies were the first big use, but the underlying idea is a tamper-evident shared record. NIST lists supply chains, data registries, digital identity and records management among the other applications [2]. Other examples in the literature include tracking the origin of goods, and smart contracts, which are programs that run automatically when set conditions are met [1].

Blockchain is not the right tool for every job. Known limits include:

• Energy use on proof-of-work networks [1].
• Slowdowns when a network gets busy [1].
• Control can concentrate in a few hands if running a node becomes too costly [1].
• Many real-world pilots in some sectors are still prototypes, not mature systems [1].

If a normal database run by a trusted party does the job, it is often simpler and faster.

FAQ #

Is blockchain the same as Bitcoin? #

No. Bitcoin is one cryptocurrency that uses a blockchain. The blockchain is the underlying record-keeping method, and it can be used for other things as well [1][2].

Can a blockchain be changed? #

Old records are very hard to alter because you would need to change every later block and win the network's agreement. They are described as tamper-evident and resistant to change, though not magically impossible to attack [1][3].

Is blockchain secure? #

The design makes silent tampering difficult, but mistakes in surrounding software, lost passwords or scams can still cause losses. Be cautious about unexpected offers involving crypto.

Do I need a blockchain to store data safely? #

Often not. A regular database with good backups and access controls is simpler for most uses. A blockchain helps mainly when several parties who do not fully trust each other need one shared record [1][3].

Sources #