What is a blockchain? How a shared, chained ledger works

What is a blockchain, in plain words?#

Start with an ordinary ledger: a list of transactions, like the history in your banking app. A bank keeps that list on its own computers, and you trust the bank to keep it honest. A blockchain is a ledger that works without that single keeper. The US standards agency NIST describes blockchains as tamper-evident and tamper-resistant digital ledgers, run in a distributed way and usually without a central authority such as a bank, company or government ^[1].

The name describes the structure. Transactions are collected into blocks. Each block points back to the block before it, forming a chain that runs all the way to the very first block, called the genesis block ^[3]. In NIST’s informal definition, blockchains are distributed digital ledgers of cryptographically signed transactions grouped into blocks; each block is linked to the previous one after validation and a consensus decision, and as new blocks are added, older blocks become harder to modify ^[1].

What is inside a block?#

Every block has two parts. The block header is a short summary; the block data holds the list of transactions ^[1]. In Bitcoin the header is 80 bytes long, and it is the part that miners hash over and over to produce proof of work ^[3]. Two fields in it do the chaining: the hash of the previous block’s header, and the merkle root, a single hash that summarises every transaction in the block ^[2].

Field list simplified for beginners. The header also carries a version, a timestamp and the difficulty target.

The first transaction in every Bitcoin block is special. It is the coinbase transaction, which pays the miner the block reward: newly created coins plus the fees of the other transactions in the block ^[2]. Every other entry is an ordinary transfer that someone signed with their private key.

Why is it hard to change old records?#

The answer is the hash. A cryptographic hash function takes any amount of data and returns a fixed-length fingerprint; change a single bit of the input and the fingerprint changes completely ^[4]. Because each block header contains the hash of the previous header, editing an old transaction changes that block’s merkle root, which changes its header hash, which no longer matches what the next block recorded. The developer guide puts it simply: a transaction cannot be modified without modifying the block that records it and all following blocks ^[2].

There is no pattern linking similar inputs to similar outputs. That is why a hash works as a seal: you cannot tweak the data and keep the old fingerprint.

Hash links alone would only make tampering visible. Bitcoin also makes it expensive. To add a block, a miner must find a header whose hash falls below a target value, which takes an enormous number of attempts on average; this is proof of work ^[3]. The whitepaper explains that once the work is done the block cannot be changed without redoing it, and that changing a past block also means redoing every block after it and then overtaking the honest network ^[5].

How blocks are chained

Who keeps the copies, and how do they agree?#

The computers that keep and check the ledger are called nodes. In Bitcoin, each full node independently stores a chain containing only blocks it has validated itself; when nodes hold the same blocks they are said to be in consensus, and the validation rules they share are called consensus rules ^[2]. Read more in our node glossary entry.

Because new blocks can come from anywhere, the network needs a way to pick one history. The whitepaper lists the basic loop: new transactions are broadcast to all nodes, each node collects them into a block, a node that finds a valid proof of work broadcasts its block, and other nodes accept it only if all its transactions are valid and not already spent ^[5].

1. Broadcast

   A wallet sends a signed transaction to nodes, which pass it on to their peers.

2. Collect

   Transactions wait in each node’s mempool until a block producer picks them.

3. Produce

   A miner (Bitcoin) or a selected validator (Ethereum) builds a candidate block.

4. Check

   Every node re-checks the block against the consensus rules and rejects it if anything is invalid.

5. Extend

   Accepted blocks become the base for the next one, adding a confirmation to every transaction below.

Different blockchains use different ways to reach that agreement. NIST calls this “reaching consensus” and notes there are many models, each with positives and negatives ^[1]. Bitcoin uses proof of work and targets one block every ten minutes ^[6]. Ethereum now uses proof of stake: time is divided into twelve-second slots, and in each slot a randomly selected validator proposes a block ^[7].

Bitcoin timing from Bitcoin Core’s chain parameters; Ethereum timing from ethereum.org. The UTXO and account models are compared in our on-chain analysis section.

The last row hides a real design difference. Bitcoin does not store “accounts” at the protocol level; it stores a list of unspent outputs that your wallet adds up to show a balance ^[8]. Ethereum keeps an account for each address. Our guide to how Bitcoin transactions work walks through the UTXO model step by step.

How much data does a blockchain add up to?#

Because every full node keeps a copy, size matters. The whitepaper made a back-of-the-envelope estimate for headers alone, assuming one block every ten minutes ^[5]. We re-ran the arithmetic:

That covers headers only. Full blocks also carry the transactions, so a node that stores everything needs far more space; Bitcoin caps each block at 4 million weight units to keep growth bounded ^[9].

Can anyone use a blockchain, or only approved members?#

Both kinds exist. NIST separates permissionless blockchains, where anyone can read and write without authorisation, from permissioned ones, where participation is limited to specific people or organisations ^[1]. Bitcoin and Ethereum are permissionless: you do not need an account with anyone to run a node or send a transaction. A permissioned ledger run by a group of companies works differently, because its members are known and can be held to agreements.

What can a blockchain not do?#

NIST is blunt that the technology is not magical and will not solve all problems; it calls a blockchain “just one part of a solution” and warns against forcing problems to fit it ^[1]. A few limits matter to beginners:

• It cannot judge truth outside the chain. It records that a signed transaction happened, not whether the seller delivered the goods.
• It cannot undo your mistakes. Bitcoin payments are irreversible and can only be refunded by the person who received them ^[10].
• It is not automatically cheap or fast. bitcoin.org warns that as adoption grows you might encounter increased fees or slower confirmations ^[10]. See transaction fees explained.
• It does not make you anonymous. Bitcoin transactions are public and permanent, so anyone can see the balance and history of any address ^[10].

What mistakes do beginners make here?#

• Thinking “blockchain” means Bitcoin

  Bitcoin was the first well-known blockchain, but the idea is broader. NIST notes the technology is being investigated for many sectors beyond cryptocurrency.

• Believing records can never change

  Recent blocks can be replaced when two miners find blocks at the same time and the network follows the other branch. Old blocks become harder to change as more blocks pile on top; that is why people wait for confirmations.

• Treating a blockchain as a bank that can help you

  There is no help desk that can reverse a payment or reset a lost key. Anyone offering to “recover” funds on the blockchain for a fee is a red flag.

• Assuming on-chain means private

  Public blockchains publish every transaction. Names are not attached, but addresses and amounts are visible to anyone, forever.

Frequently asked questions#

The bottom line#

A blockchain is a ledger with three ingredients: transactions signed with private keys, blocks sealed together with hashes, and many independent nodes that agree on one history. Together they make past records very hard to change without anyone noticing.

That is a narrow but useful property. It says nothing about whether an asset is a good idea, and it makes mistakes permanent. Next, see how the keys behind those signatures work in public keys, private keys and addresses, then follow a payment through blocks and confirmations.

Sources#