What Is Blockchain? A Simple Explanation of How It Works
Blockchain is the technology that bitcoin and other cryptocurrencies run on. Here's a formula-free look at how a chain of blocks works and why its records are almost impossible to change.
What it is
A blockchain is a shared database of records stored by thousands of computers around the world. Records (transactions) are grouped into blocks, and each block contains a "fingerprint" of the previous one. The result is a chain in which an old record can't be changed unnoticed: all the following blocks would break.
How it differs from a regular database
| Bank | Blockchain | |
|---|---|---|
| Who stores the data | The bank itself | Thousands of independent nodes |
| Who confirms | The bank | Miners or validators |
| Can a transfer be reversed? | Sometimes | No |
| Who can see the records | The bank | Everyone |
Who confirms transactions
- Proof of Work: miners spend computing power. This is how bitcoin works.
- Proof of Stake: validators lock up coins as collateral. This is how Ethereum works; see staking.
Each record requires paying a network fee.
What beginners need to know
A blockchain transfer can't be reversed: one mistake in the address or network, and the coins are gone. Always check the address and network before sending; how to do it, using a stablecoin as an example, is in the article what is USDT. The basics are in the lesson crypto: what it is and how to invest in it.
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- A blockchain is a shared chain of records stored by thousands of nodes.
- Old records are almost impossible to change.
- Transfers are irreversible, so check the address and network.
Frequently Asked Questions
Are blockchain and bitcoin the same thing?
No. Bitcoin is a cryptocurrency that runs on its own blockchain. There are many blockchains, and each has its own rules.
Can a blockchain be hacked?
Major blockchains are practically impossible to hack. What usually gets hacked are exchanges, wallets, and smart contracts, not the blockchain itself.
Is blockchain anonymous?
It's more pseudonymous: names aren't visible, but all transfers between addresses are public and can be traced.
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