What is a blockchain?

A blockchain is a shared digital ledger that multiple computers maintain under common rules. It groups transactions or other data into blocks and links each block to the one before it with a calculated fingerprint. This makes later changes easier to detect and often difficult to hide.

Blockchains differ in who can participate, how computers agree on updates, and who can see the records. A blockchain is one way to maintain a shared ledger; its tradeoffs depend on its design.

How blocks connect

A blockchain stores records in an ordered sequence. Each new block includes a cryptographic reference to the previous block, often called its hash. A hash is a kind of digital fingerprint calculated from data. Change the data, and the fingerprint changes.

Changing the data breaks the link to the next block: references in later blocks no longer match, making the change to the older record detectable. Network rules determine whether participants accept a proposed block and which ledger version they follow.

Many blockchains only allow participants to add new records, not edit old ones. If an earlier record needs correction, participants can add a correction later, but the original entry may remain. This preserves the history and makes errors harder to erase.

How blockchain consensus works

A participant submits a transaction or another record. The network checks whether it follows the rules, then groups valid records into a proposed block. The network uses a process called consensus to choose which proposed updates to accept. Once accepted, the block joins the ledger and is shared with participants.

The computers that take part in a blockchain network are called nodes. Their roles vary. Some check records, store ledger data, or publish blocks. The rules vary too. Bitcoin’s original design uses proof of work, a method in which computers compete to produce a valid block. Other networks use different methods, including proof of stake, which selects block publishers according to rules tied to assets committed to the network.

A network’s rules and operation determine how secure a record is and how settled it is. Some networks treat recent records as less settled than older ones because competing versions of the chain can arise. “Tamper-resistant” describes the design more accurately than “impossible to change.”

What the ledger can prove

A blockchain can help participants verify what the network recorded and the order in which it recorded it. It does not establish that the information was true when someone submitted it. If a participant enters a false claim and the network accepts it, the ledger can preserve that false claim just as it preserves an accurate one.

For example, a supply-chain ledger can record that a shipment came from a particular farm. The record alone does not prove the shipment’s physical origin. That requires reliable checks outside the ledger, such as accurate identification and inspection.

Public blockchains also do not guarantee anonymity. A person’s name may not appear in a transaction, but a public transaction history can still reveal activity linked to an address or identifier. Permissioned blockchains restrict participation or access to approved users, but the level of privacy depends on how the network is built and managed.

Blockchain and cryptocurrency

A distributed ledger is a shared record maintained across multiple computers or participants. A blockchain is one kind of distributed ledger, distinguished by its linked sequence of blocks. Some distributed ledgers use other structures.

Cryptocurrency is a digital asset that can use a blockchain to record transfers. Bitcoin made blockchain widely known, but cryptocurrency is only one use. Some blockchains also support smart contracts, which are programs stored on the network and run according to specified rules. A smart contract follows its code, but it can still rely on inaccurate inputs or contain flaws.

Blockchains also differ in how authority is distributed. A permissionless network allows anyone who meets its rules to participate in certain activities. A permissioned network limits those activities to authorized participants and may be run by a company or consortium. Multiple computers may hold records without giving every participant equal control.

When a blockchain makes sense

A blockchain is most relevant when several parties need to share and verify a record, yet no single recordkeeper is trusted or accepted by everyone. Participants can use shared rules to check the ledger’s history instead of relying entirely on one organization to maintain it.

A conventional database is generally simpler when one trusted organization controls the records or a small group agrees on who will keep the shared record. Blockchain designs involve tradeoffs. They affect cost and transaction speed, as well as privacy and storage. Energy use depends on the consensus method; proof-of-work networks have different energy demands from networks using other mechanisms. There is no single speed, cost, or energy figure that applies to all blockchains.

Before choosing one, ask who needs to write to the ledger, who needs to read it, and whether those participants can trust a central recordkeeper. Also ask how the system will correct errors, protect private data, and verify information from the physical world. If a regular database answers those needs, a blockchain adds complexity without necessarily adding value.