How Blockchains Work
A blockchain is a shared record of transactions that thousands of computers keep in sync, with no bank in the middle. Here is how blocks are added, how the network agrees on the truth and why that matters for digital money.
A ledger everyone can check
A normal bank keeps its own private record of who owns what. A blockchain is a public ledger copied across thousands of computers around the world. New transactions are grouped into blocks, and each block is linked to the one before it with a digital fingerprint. Changing an old transaction would break every link after it, which the rest of the network would reject.
How the network agrees
| Proof of work | Proof of stake | |
|---|---|---|
| Who adds blocks | Miners solving computing puzzles | Validators who lock up coins |
| What secures it | Electricity and specialized hardware | Coins that can be lost for cheating |
| Energy use | Very high | Much lower |
| Example | Bitcoin | Ethereum (since 2022) |
The two main ways blockchains reach agreement.
Keys and wallets
You control crypto with a private key, a long secret number. Whoever holds the key controls the coins. A wallet is software or a device that stores keys and signs transactions. If you lose the key and have no backup, the coins are gone for good; there is no password reset.
What blockchains are good at, and not
- Good: moving value across borders without a bank, and records nobody can quietly change.
- Good: programmable money and assets that run on shared rules.
- Not so good: speed and cost at busy times on some networks.
- Not so good: mistakes cannot be reversed, and scams are common.
Key takeaways
- A blockchain is a shared ledger kept in sync by many computers.
- Blocks are chained so past records are very hard to change.
- Proof of work and proof of stake are the main ways to agree.
- Whoever holds the private key controls the coins.