What is a Blockchain?

Blockchain Explained: Guide to How Blockchains Work

Updated March 6, 20205 min read

Cryptocurrencies like Bitcoin and Ethereum are powered by a technology called the blockchain. At its most basic, a blockchain is a list of transactions that anyone can view and verify. The Bitcoin blockchain, for example, contains a record of every time someone sent or received bitcoin. Cryptocurrencies and the blockchain technology that powers them make it possible to transfer value online without the need for a middleman like a bank or credit card company.

  • Almost all cryptocurrencies, including Bitcoin, Ethereum, Bitcoin Cash, and Litecoin, are secured via blockchain networks. Which means their accuracy is constantly being verified by a huge amount of computing power.
  • The list of transactions contained in the blockchain is fundamental for most cryptocurrenciesbecause it enables secure payments to be made between people who don’t know each other without having to go through a third-party verifier like a bank.
  • Due to the cryptographic nature of these networks, payments via blockchain can be more secure than standard debit/credit card transactions. When making a Bitcoin payment, for instance, you don’t need to provide any sensitive information. That means there is almost zero risk of your financial information being compromised, or your identity being stolen.
  • Blockchain technology is also exciting because it has many uses beyond cryptocurrency. Blockchains are being used to explore medical research, improve the accuracy of healthcare records, streamline supply chains, and so much more.
Due to the cryptographic nature of these networks, payments via blockchain can be more secure than standard debit/credit card transactions.

What are some advantages of blockchains?

  • They’re global, which means that cryptocurrencies can be sent across the planet quickly and cheaply.
  • They increase privacy: Cryptocurrency payments don’t require you to include your personal information, which protects you from being hacked or having your identity stolen.
  • They’re open: Because every single transaction on cryptocurrency networks is published publicly in the form of the blockchain, anyone can scrutinize them. That leaves no room for manipulation of transactions, changing the money supply, or adjusting the rules mid-game. The software that constitutes the core of these currencies is free and open-source so anyone can review the code.
Key questions

What’s the main advantage blockchains have over the old financial system?

Think about how much of your financial life takes place online, from shopping to investing – and how every single one of those transactions requires a bank or a credit card company or payment processor like Paypal in the middle of it. Blockchains allow for those transactions to happen without a middleman, and without the added costs and complexity that come with them.

Is Bitcoin a blockchain?

Bitcoin is a form of digital money. And the underlying technology that makes it possible is a blockchain.

How many kinds of blockchains are there?

Thousands, from the ones that power Bitcoin, Litecoin, Tezos, and countless other digital currencies to an increasing number that have nothing to do with digital money

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