What is blockchain? How it works, explained simply

A blockchain is a shared digital ledger that many computers keep at the same time, where new records are added in batches called blocks and each block is locked to the one before it. Because everyone holds a copy and the links between blocks are mathematical, changing past entries without everyone noticing is extremely hard. That is what lets networks like Bitcoin move money without a bank keeping the books.

The simple version

Think of a notebook that thousands of strangers copy page by page. Each new page lists recent transactions and ends with a short fingerprint of the previous page. If someone quietly edits an old page, its fingerprint no longer matches, every later page breaks, and all the other copies show the forgery. Nobody needs to trust a single bookkeeper, because the group checks each page.

How a blockchain works, step by step

1. Transactions are broadcast. You sign a transfer with your private key (the secret behind your seed phrase) and send it to the network.
2. Nodes check it. Independent computers called nodes verify that the signature is valid and that the coins have not already been spent.
3. Transactions are grouped into a block. A block holds a batch of transactions, a timestamp and the hash of the previous block.
4. The network agrees on the block. A consensus method decides who may add the next block and makes cheating expensive.
5. The block is added and copied. Every node updates its copy. On Bitcoin a new block arrives about every 10 minutes; on Ethereum a new slot comes every 12 seconds.

What a hash does

A hash is a fixed-length fingerprint of data. Bitcoin uses the SHA-256 algorithm. Change even one character of the input and the output looks completely different. Since each block stores the previous block's hash, the blocks form a chain, which gives the technology its name.

Consensus: how strangers agree

The hard problem is getting thousands of computers that do not trust each other to accept the same history. The two main answers are:

• Proof of work (PoW). Miners compete to solve a costly puzzle using electricity and specialised hardware. Rewriting history would mean redoing that work faster than the rest of the network. Bitcoin uses PoW.
• Proof of stake (PoS). Validators lock up coins as collateral and are chosen to propose and confirm blocks. Cheating can cost them that stake. Ethereum moved to PoS in September 2022.

Our comparison of proof of work vs proof of stake goes deeper into the trade-offs.

Public vs private blockchains

The difference matters in the news. China is building a national blockchain network due by 2030 while still banning crypto trading: it wants permissioned ledgers for trade and data, not open networks. Many central banks look at similar technology for a CBDC, which is still state money.

What blockchains are used for

• Digital money and payments: bitcoin, ether and stablecoins such as USDT and USDC.
• Smart contracts: programs that run on the chain, the basis of DeFi lending and trading. Ethereum made this popular; see what is Ethereum.
• Tokenized assets: shares, bonds and funds issued or mirrored on-chain, such as tokenized stocks.
• Records and tracking: supply chains, trade documents and certificates, mostly on permissioned ledgers.

Limits and common myths

"Blockchain can't be hacked." The core ledger of a large, well-run network is very hard to rewrite, but the software around it is not magic. Smart-contract bugs, bridge flaws and leaked keys cause most crypto losses. In October 2026, for example, Initia halted its chain after a bug let an attacker mint tokens.

"Everything on a blockchain is true." A blockchain only proves what was written to it and when. If someone records false information about a real-world shipment, the chain stores the falsehood faithfully.

"It is anonymous." Public chains are pseudonymous. Addresses are not names, but every transfer is visible forever, and analytics firms routinely link addresses to people.

Speed and cost. Every node has to process every transaction, so base layers handle far fewer transactions than card networks. Layer 2 networks and other designs try to fix this.

Changing the rules is slow. Upgrades need broad agreement, and disagreements can split a chain; see hard fork vs soft fork.

Blockchain vs a normal database

A regular database is run by one organisation, which can edit or delete rows at will. That is faster and cheaper. A blockchain makes sense when several parties who do not fully trust each other need one shared record that none of them can quietly change. If one trusted party is in charge anyway, an ordinary database is usually the better tool.