What Is a Blockchain?

A blockchain is a ledger, a long list of who sent what to whom and in what order, and the reason anyone cares is that nobody owns the list. Thousands of computers each hold a full copy, check every new entry against the same rules, and ignore any copy that disagrees, so there is no eraser and no owner to lean on.

Bitcoin the coin is the money, the Bitcoin blockchain is the book it is written in, and this guide walks through how the book works. It is education, not financial advice.

One ledger, thousands of copies

Your bank keeps one ledger on its own machines and you take its word for what is in it, and a blockchain hands that same job to every node, meaning any computer running the network's software, each of which stores the full history and checks every incoming entry for itself, so nobody has to take anyone's word for anything. Anyone who wants to run one just downloads the software and starts checking, and there is no application form to fill in and nobody whose permission you need.

Bitcoin's copy of history opens on 3 January 2009 with an entry carrying that day's headline from The Times, "Chancellor on brink of second bailout for banks". The network's creator stamped it in as proof the ledger had not been written in advance, and the choice of headline tells you what the project thought of the banks it was built to route around.

Blocks are batches of entries

New entries do not go in one at a time. They queue up, the network takes the queue and bundles it into a block, which is just a batch of transactions plus a header of housekeeping, and each entry in the batch is small, just the sender's address, the receiver's address, the amount, and a cryptographic signature proving the sender approved it. Bitcoin adds a new block roughly every ten minutes, and Ethereum runs the same idea at a different tempo with a block roughly every 12 seconds.

Every block's header also carries a fingerprint of the block before it, a hash computed from that block's exact contents, and this one detail is where the name comes from and where the security lives. Change one character in an old entry and that block's fingerprint changes, which breaks the next block, which breaks the one after that, all the way to the tip, because the blocks are chained by their fingerprints and the history only holds together as one piece.

Why you cannot quietly edit history

Say you wanted to erase an old payment. On a bank's ledger an insider with the right access could manage it, and outsiders would be none the wiser, but on a blockchain you would have to rewrite that block, recompute its fingerprint, rebuild every block after it, and outpace thousands of nodes extending the real chain while you do it, in full view of everyone else holding a copy. To win that race you would need more computing power than the rest of the network combined, the infamous 51% attack, and against a chain of Bitcoin's size the bill alone is ruinous. Honest nodes compare notes constantly, and a version of history that disagrees with the majority just gets dropped, with no committee meeting required.

And when something genuinely broken does slip in, the open ledger is the alarm. On 15 August 2010 a bug let someone mint 184 billion BTC out of thin air in block 74638, which was not subtle: anyone could read the ledger and see a number that should not exist, and people did. Developers shipped a fix and the network rejected the bad chain within about five hours. The lesson is not that bugs never happen, it is that errors in a book everyone can audit get caught fast.

Consensus, in plain terms

No head office decides which block comes next, so the network runs a contest for the right to add it. Bitcoin's contest is proof of work, where a miner is a machine making trillions of guesses at a number puzzle and the first to crack it gets to add the next block and collect some newly created coins for the trouble. All of that electricity is what locks the door, because anyone wanting to rewrite history would have to redo the work faster than everyone else combined, and in practice nobody can afford to.

Proof of stake gets the same protection out of a deposit, because validators lock up coins for the right to add blocks and any validator caught cheating has its deposit destroyed. Ethereum switched from proof of work to proof of stake on 15 September 2022, in an upgrade nicknamed the Merge, and by the Ethereum Foundation's estimate the switch cut its energy use by roughly 99.95%.

Which is better remains a live argument, with proof of work holding the longer track record and proof of stake running on a fraction of the power. Both aim at the same target: make honesty cheaper than cheating.

What blockchains are genuinely bad at

Plenty, though the brochures tend to skip this bit.

• Speed: a block roughly every ten minutes, with limited room inside, means queues at busy times, and you skip the queue by bidding for space. On Ethereum that bid is called gas fees, and gas climbs exactly when everyone wants in at once. A card network this slow would be laughed out of the building, but a chain accepts the delay as the price of tamper resistance.

• Privacy: the ledger is public, forever, and addresses are pseudonyms, not masks. Tie one address to your name once and anyone can read your payment history back to the first entry.

• Storing files is the wrong job for it, because every node keeps everything permanently, which makes a blockchain a spectacularly expensive hard drive, so photos, documents and apps live off-chain and the chain holds their fingerprints rather than the files themselves.

Where the users already trust each other, or trust one operator, a normal database beats a blockchain on speed, cost and privacy every single time, and no amount of conference-stage enthusiasm changes that arithmetic, so a blockchain only earns its overhead when strangers need to share one record and none of them will accept a referee.

The chain did not fail, the company did

In February 2014 the Mt. Gox exchange collapsed with about 850,000 BTC gone, and through the whole mess the Bitcoin blockchain just carried on adding a block roughly every ten minutes, the same as it always had, and it has never been successfully rewritten. What failed was one company and its internal records and controls, and most crypto disasters run along the same lines, because coins parked with a business stand or fall with that business whatever the chain underneath is doing.

Keep the layers straight when you buy, too. The chain settles the transfer between addresses, and everything around that moment is companies, the card payment, the identity checks, the conversion from pounds or euros into coins. One of those companies is Banxa, an on-ramp that has been running the fiat-to-crypto plumbing since 2014 and takes more than 100 payment methods across 100-plus countries, and it is not an exchange or a wallet, it is just the pipe between your money and the chain.

You can check the chain's side of any of this yourself, because its books are open to anyone with a laptop, and that is exactly what you cannot do with the books of the company holding your coins, as everyone who kept money at Mt. Gox found out.