How a blockchain works
Lesson 2 of 58 in the course “Crypto”. Free, with animations and a quiz.
Blocks and fingerprints
Transfers are packed into batches called blocks. Every block has a hash: a short digital fingerprint calculated from everything inside it. The next block stores the previous block’s fingerprint, so they are linked into a chain. Change even one digit in an old block and its fingerprint changes, so the whole chain after it stops matching. Bitcoin adds a new block about every 10 minutes, Ethereum every 12 seconds.
Nodes: thousands of copies
A node is a computer that keeps a full copy of the blockchain and checks every new transfer against the network’s rules. There are thousands of them, run by people and companies all over the world. That is why a blockchain has no single server to switch off or hack. To fake a record you would have to fool most of the nodes at once, which is close to impossible and very expensive.
PoW and PoS: who writes the block
Someone has to build new blocks, and the network has to trust them. In PoW (Proof of Work) they are miners: their computers race to solve a hard puzzle, and the winner writes the block and earns a reward. That is how Bitcoin works, and it uses a lot of electricity. In PoS (Proof of Stake) they are validators: they lock up their own coins as a deposit. Cheat, and part of that deposit is burned; this is called slashing. Ethereum switched to PoS on 15 September 2022 and, according to ethereum.org, now uses about 99.95% less energy.
What it means for you
A record on the blockchain is nearly impossible to change. That is good: nobody can freeze or rewrite your coins after the fact. And it is risky: a transfer cannot be cancelled, and there is no support line to call. Send to the wrong place and it is gone for good. That is why the course spends a lot of time on checking addresses and networks. On the bright side, every transfer shows up in a block explorer, so you can check yourself whether the money arrived.
Check yourself
- Why is an old record on a blockchain so hard to fake?
Correct answer: The block’s fingerprint changes and the chain after it stops matching. Each block stores the previous one’s fingerprint, and thousands of nodes hold copies. A fake stands out right away. - A validator on a PoS network tries to cheat. What happens?
Correct answer: Loses part of the deposit (slashing). The deposit is what protects PoS: honesty pays, cheating costs. - You sent coins to the wrong address. What can you really do?
Correct answer: Almost nothing: a blockchain transfer cannot be undone. Nobody owns the network, so nobody can reverse it. The only chance is when the address belongs to an exchange and its support agrees to help.