What Is a Blockchain? Bitcoin's Ledger Explained
A blockchain is a shared record of blocks, each linked to the one before it by a hash. See how Bitcoin's works, what it does well and where it falls short.
By Christopher Cannucciari · Published
Key takeaways
- A blockchain is a shared, append-only record. Transactions are grouped into blocks, and each block contains a fingerprint, called a hash, of the block before it.
- Changing an old block changes its hash and breaks every later link, so tampering shows. In Bitcoin, proof of work also makes rewriting history very costly.
- Blockchain is the data structure. Bitcoin is a network and a currency that uses one.
- Public chains let anyone take part, and permissioned chains limit who can. Which one fits depends on how much trust the participants already have.
- A blockchain makes records hard to alter, not true. It costs storage, speed and dispute handling, and many proposed uses would work as well on an ordinary database.
What is a blockchain?
A blockchain is a shared record of transactions stored as a series of blocks, where each block contains a fingerprint of the one before it. New blocks are added only at the end, and old ones are not edited. The result is a history that every participant can read and that is hard to rewrite quietly.
Picture a village ledger. Every household keeps an identical copy. New deals are written onto a fresh page, the households check each entry, and everyone adds the page to the back of their copy. Each page opens by quoting a fingerprint of the page before it. If one household secretly alters an old page, its fingerprints no longer match everyone else’s, and the neighbors notice.
The term covers both the data structure and the computers that maintain it. Bitcoin’s is the best known, and How Does Bitcoin Work? shows how it fits with keys, miners and nodes.
What is a hash, and why does it link the blocks?
A hash is a fixed-length fingerprint produced from any piece of data, and a block includes the hash of the block before it, which is what turns separate blocks into a chain. Bitcoin uses a hash function called SHA-256, which always produces 256 bits of output, usually written as 64 hexadecimal characters.
Three properties make hashes useful here. The same input always gives the same output. A tiny change in the input, even one character, gives an output that looks completely unrelated. And you cannot work backward from the output to the input.
A Bitcoin block holds a list of transactions and a header that includes a summary hash of those transactions and the previous block’s hash. The block’s own hash is computed from that header. So each fingerprint depends on the one before it, all the way back to the first block.
How does a blockchain resist tampering?
Altering an old block changes its hash, which no longer matches the copy stored in the next block, so the edit is visible to anyone who checks. Here is a simplified three-block example.
| Block | Transactions (simplified) | Previous block’s hash | This block’s hash |
|---|---|---|---|
| 1 | Ana pays Ben 2 | none, first block | 7f3a… |
| 2 | Ben pays Cy 1 | 7f3a… | c91d… |
| 3 | Cy pays Dee 0.5 | c91d… | 2be8… |
This is an illustration only. The hashes are shortened and made up, real ones are 64 characters long, and real blocks hold many transactions and refer to addresses, not names.
Now suppose someone edits block 2 so that Ben pays Cy 100. The block’s hash would become some entirely different string, not c91d…. Block 3 still records c91d… as the hash of its predecessor, so the two no longer match, and a node checking the chain would reject the altered version.
A hash chain alone only makes tampering visible, though. Computing hashes is cheap, so a forger could recompute every later block. Two things stop that in Bitcoin. Many independent copies exist, so a forged chain has to beat all of them. And each block’s hash must meet a demanding target, so recomputing a block means redoing the work of finding it.
Who keeps the copies and decides what gets added?
Thousands of computers called nodes each hold a copy of the chain, and each one checks every new block against the same rules. A node that receives an invalid block, for example one that spends a coin twice, rejects it and does not pass it on. What Is a Bitcoin Node? covers what running one involves.
Sometimes two miners find valid blocks at nearly the same moment, and for a short time different nodes see different latest blocks. The network settles on the chain carrying the most accumulated proof of work, and the other block is dropped. This is brief, and it is why a payment is safer after more blocks are added on top. Bitcoin Forks Explained covers disagreements about the rules themselves.
How does Bitcoin’s blockchain work specifically?
Bitcoin’s blockchain began with the genesis block on 3 January 2009, and a new block is added about every ten minutes. Each block carries the transactions that a miner chose from the pool of waiting payments. The chain records transfers of bitcoin, which is its main job, and it is public: anyone can read every transaction ever made.
What makes rewriting costly is proof of work. To publish a block, a miner must find a hash below a target, which takes enormous computation to find and an instant to check. To change an old block, an attacker would need to redo that work for it and every block after it, faster than the honest network adds new ones. Proof of Work vs Proof of Stake compares this method with another way chains reach agreement.
The design was set out in a paper published on 31 October 2008, walked through in The Bitcoin Whitepaper Explained, Section by Section.
Is blockchain the same as Bitcoin?
No. A blockchain is a way of keeping a record, and Bitcoin is one network and one currency that uses it. Bitcoin’s rules, including the 21 million cap and the ten-minute block target, belong to Bitcoin and not to blockchains in general.
Other blockchains run under different rules and for different purposes. Ethereum, for example, was built to run programs as well as record payments, and Bitcoin vs Ethereum lays out the differences.
The label has also been attached to many products and companies, so “blockchain” in a pitch tells you little about what is on offer or how risky it is. New to the field? What Is Bitcoin? and the Start Here path are a clearer starting point. For any decision about investing in a blockchain-related product, ask a qualified financial professional.
What is the difference between public and permissioned blockchains?
On a public blockchain, anyone can read the record, run a node and send transactions, while on a permissioned one an organization or group decides who may take part. Bitcoin is public. The two designs answer different trust problems.
| Public (permissionless) | Permissioned (private) | |
|---|---|---|
| Who can join | Anyone | Approved participants |
| Who checks the data | Anyone running a node | Selected, known parties |
| What you must trust | The rules and the cost of cheating | The operators |
| Typical setting | Open networks such as Bitcoin | A group of companies sharing a record |
A permissioned chain can be faster and more private, because participants are known and fewer computers have to agree. The price is that someone is in charge, which raises a fair question: if you already trust the operators, do you need a blockchain at all?
What are the limits of a blockchain?
A blockchain trades efficiency for shared verification, so it is slower and bulkier than a normal database. That cost is worth paying only in certain situations.
- Storage and speed. Every node stores and checks everything, so capacity is limited by design. Bitcoin keeps blocks small and about ten minutes apart, which is why layers such as the Lightning Network exist.
- An ordinary database often does the job. If one trusted organization can keep the record, a database is simpler, cheaper and easier to correct. A blockchain earns its cost when many parties who do not trust each other need one shared record with no single owner.
- No bank-grade dispute handling. There is no way to reverse a mistaken transfer and no help desk. Lose your keys and the coins stay where they are, as What Happens to Lost Bitcoin? explains.
- Resource use. Proof-of-work chains use electricity as part of their security, a debate covered in Bitcoin’s Energy Use.
Does a blockchain make the data inside it true?
No. A blockchain makes a record hard to change after it is written, but it cannot tell whether the entry was accurate in the first place. If someone enters false information, the chain preserves it faithfully.
Suppose a supplier logs “organic” against a crate of produce on a blockchain. The record shows the entry was made at a certain time and has not been altered since. It does not show that the produce was organic. Someone still has to be trusted to enter the fact correctly.
Bitcoin is a special case. The facts it records, such as which coins are unspent and whether a signature is valid, can be checked by every node using the chain itself. Claims about the physical world have no such built-in check.
Where to go next
- How Does Bitcoin Work?: transactions, miners and keys around the chain.
- The Bitcoin Whitepaper Explained, Section by Section: the original design in plain words.
- What Is a Bitcoin Node? What Running One Means: who keeps and checks the copies.
- Proof of Work vs Proof of Stake: What’s the Difference?: two ways a chain reaches agreement.
Frequently asked questions
What is a blockchain in simple terms?
A blockchain is a shared record of transactions kept in blocks. Each block contains a fingerprint, called a hash, of the block before it, so the blocks form a chain. New blocks are added at the end, and many computers keep identical copies and check them against the same rules.
Is blockchain the same as Bitcoin?
No. A blockchain is a way of keeping a record. Bitcoin is a specific network and currency that uses a blockchain to record who owns which coins. Other blockchains exist with different rules and purposes, and a blockchain is not automatically a currency.
How does a blockchain stop tampering?
Changing an old block changes its hash, which no longer matches the copy stored in the next block, so the edit shows. Many computers hold copies and reject a chain that breaks the rules. In Bitcoin, proof of work also makes redoing the blocks very costly.
What is the difference between a public and a permissioned blockchain?
On a public blockchain, anyone can read the record, run software to check it and send transactions. On a permissioned blockchain, an organization or group decides who may take part. Public chains need no gatekeeper, and permissioned chains rely on trusting the operators.
Does a blockchain make the information on it true?
No. A blockchain makes a record hard to change after it is written, but it cannot check whether the information was accurate to begin with. False data entered on a blockchain stays false. Bitcoin is a special case because its own rules can verify its transactions.
