How Blockchain Works

A blockchain is a record of transactions that nobody owns and everybody can check. It was first described in 2008 in the Bitcoin white paper by the pseudonymous Satoshi Nakamoto, as a way to send digital money without a bank in the middle. Here’s how it works, without the maths.

The building blocks

• A shared ledger. Instead of one bank keeping the books, thousands of computers, called nodes, each keep a full copy.
• Blocks. New transactions are grouped into blocks. Bitcoin adds a block roughly every ten minutes; Ethereum, every few seconds.
• Hashes. Each block contains a digital fingerprint, or hash, of the block before it. Change anything in an old block and its fingerprint changes, breaking the link to every block after it.
• Consensus. Rules that let strangers agree on which block comes next, without trusting each other.

That chain of linked fingerprints is what makes a blockchain tamper-evident: rewriting history would mean redoing every later block and convincing most of the network to accept it.

What happens when you send crypto

1. You sign a transaction in your wallet using your private key, which proves the coins are yours without revealing the key.
2. It’s broadcast to the network and waits in a queue called the mempool.
3. A miner or validator includes it in a new block, usually prioritising transactions with higher fees.
4. The block is added once the network accepts it under the consensus rules.
5. Confirmations build up as more blocks are added on top, making the transaction ever harder to reverse.

Your private key is the only thing that authorises step one, which is why protecting your seed phrase matters so much.

How consensus works

Bitcoin’s mining rewards are cut roughly every four years, an event explained in our guide to the bitcoin halving. Ethereum switched to proof of stake in 2022; see Ethereum explained.

Public and private blockchains

Public blockchains, like Bitcoin and Ethereum, let anyone read the records, run a node or send transactions. Private or permissioned blockchains are run by a company or group that controls who takes part. They’re used for things like supply-chain tracking, but give up much of the openness that makes public chains distinctive.

What blockchains are good and bad at

Good at: keeping a shared record without a central keeper, making tampering obvious, and moving digital assets around the clock. Less good at: speed and cost at huge scale, storing large amounts of data, fixing mistakes and knowing whether information entered from the real world is true.

Common myths

• “Blockchain means it’s safe.” The ledger may be secure, but tokens, apps and exchanges built around it can still fail or be scams.
• “Blockchain is anonymous.” Most public blockchains are pseudonymous: addresses aren’t names, but every transaction is public and can often be traced.
• “Transactions can be cancelled.” Once confirmed, they generally can’t. Double-check addresses before sending.

New to the vocabulary? Keep our crypto glossary handy.

Frequently asked questions

Who controls a blockchain?

On public blockchains, no single party. The software is open source, and changes need broad agreement among users, developers and node operators.

Can a blockchain be hacked?

Large public blockchains have proven very hard to attack directly. Most losses come from hacked exchanges, buggy smart contracts, bridges and stolen keys.

Is blockchain only used for crypto?

It’s mostly used for crypto and digital assets, though businesses have experimented with it for record-keeping and supply chains.