What is blockchain?

A blockchain is a shared digital ledger that is copied across many computers, where new records are added in linked batches called blocks and old records can’t be quietly changed. Because every participant holds the same copy, people who don’t know or trust each other can agree on who owns what without a bank or other central authority in the middle. Blockchain technology is what makes Bitcoin and other cryptocurrencies possible.

What is blockchain?

Blockchain is a type of distributed ledger technology: a database that is shared by a network of computers instead of being stored by one company. Each computer, called a node, keeps a full copy, and the copies stay in sync through rules that every participant follows.

What makes a blockchain different from a traditional database is how it handles changes. In a normal database, an administrator can edit or delete any entry. A blockchain is append-only: you can add new records, but entries already stored on the blockchain cannot be altered without redoing every block that came after them, on most computers in the network at once. That gives you an immutable record that anyone can check.

The idea of linking records with cryptography to prove when a document existed goes back to research on document timestamps in 1991. Bitcoin, launched in 2009 as a decentralized digital currency, was the first large blockchain system to work in practice.

How does blockchain work?

Blockchain works by grouping transactions into blocks, checking them across the network, and linking each new block to the previous one with a cryptographic hash. Here is what happens when you send crypto:

1. You sign a transaction. Your wallet uses your private key to sign it, which proves the funds are yours without revealing the key.
2. It’s shared with the network. The transaction goes out to the distributed network of nodes.
3. Nodes validate transactions. They check the signature and whether you have sufficient funds.
4. A new block is created. Valid blockchain transactions are bundled into a new block by a miner or validator, according to the blockchain protocol.
5. The block is linked. The block contains the hash of the block before it, so changing any old block would break every subsequent block.
6. Everyone updates their copy. All network participants add the block, and the transaction is now part of the shared transaction records.

A practical example: you send 100 euro stablecoins from your exchange account to a friend’s wallet. Within seconds to minutes, depending on the chain, the transfer is in a block and your friend can see it on a public block explorer. You pay a network fee that ranges from cents to several euros depending on the blockchain and how busy it is, and once the block is confirmed, nobody can reverse the payment.

Consensus: how the network agrees

A consensus mechanism decides who may add the next block and how everyone agrees on one version of the ledger. The Bitcoin blockchain uses proof of work, where miners spend computing power and electricity to win the right to add a block. The Ethereum blockchain uses proof of stake, where validators lock up coins as a deposit and lose part of it if they cheat. Read more about consensus mechanisms and what’s inside a block.

Types of blockchain networks

There are four main types of blockchain networks. They differ in who can read the data, who can add blocks, and how decentralized they are.

Public blockchains

Public blockchains such as the bitcoin network are open: anyone can read the ledger, send transactions and run a node. That openness is what makes blockchain decentralization real, but it also means every transaction is visible, and you pay transaction fees to use the network.

Private blockchains and consortium blockchain networks

Private blockchains limit access to approved participants, which makes them faster and more private, but they rely on trusting whoever runs them. A consortium blockchain is shared by several companies, for example financial institutions that want one business network for settling trades without a single owner of the entire database.

Blockchain applications beyond crypto

Blockchain applications go well beyond digital currency, though crypto is still the largest use by far. The main uses today are:

• Digital assets and payments. Bitcoin, stablecoins and other virtual currencies move value without a bank, a little like physical cash on the internet.
• Smart contracts. Programs on blockchain platforms like Ethereum that automate processes, such as releasing funds when conditions are met. They power decentralized finance.
• Tokenised securities. Shares and bonds recorded on a blockchain. The EU’s DLT Pilot Regime lets regulated firms test trading and settling them this way.
• Supply chain management. Companies track goods from factory to shop on a shared ledger.
• Healthcare and records. Projects have explored storing data such as medical records or proofs that a document existed, so healthcare providers can share it securely.

Many blockchain projects outside crypto have stayed small or been dropped, because a shared database often does the job just as well. Blockchain is most useful when several parties need one record but don’t want to trust a single keeper.

Why blockchain matters to you

For you as a crypto user, the blockchain explains three things: why transfers are final, why fees vary, and why your keys matter so much.

• Transfers are final. There’s no bank to call. Send crypto to the wrong address or the wrong network, and it’s usually gone.
• Your keys are your access. Your cryptographic keys, not your name, control your coins on the blockchain. Lose them and nobody can restore access; share them and anyone can take your funds.
• Everything is public. Public blockchain records are visible to anyone. Your name isn’t on them, but exchanges link your address to your identity through KYC.

What EU rules say about blockchain

EU rules don’t regulate blockchain technology itself; they regulate the companies built on top of it. Under MiCA, crypto exchanges need a licence, must keep your crypto separate from their own, and must disclose the climate impact of each coin’s consensus mechanism. The travel rule requires exchanges to send sender and receiver details with crypto transfers. Privacy law adds a twist: because data on a public blockchain can’t be deleted, EU privacy regulators advise against putting personal data on-chain.

Is blockchain secure?

A large public blockchain is very hard to tamper with, because an attacker would need to control most of the network’s computing power or staked coins. Smaller chains are more vulnerable to such “51% attacks”. Most losses, though, don’t come from the blockchain itself but from hacked exchanges, faulty smart contracts, phishing and lost keys. Our crypto security best practices cover how to protect yourself.

The bottom line

A blockchain is an immutable digital ledger that many computers share, so people can agree on ownership without a middleman. It makes secure transactions possible between strangers, but it also means no undo button and no help desk. To see it in action, read how Bitcoin uses it, or how nodes keep the network running.

Related terms

• Block
• Bitcoin
• Decentralization
• Consensus mechanism
• Node