How a blockchain works

A blockchain is a record of transactions grouped into blocks, where each block is locked to the one before it. That lock is what makes old records so hard to change. This lesson walks through the parts.

A ledger everyone can check

A ledger is a list of transactions: who paid whom, and how much. In Bitcoin, independent computers called full nodes each keep a copy of the ledger and check every transaction and block against the rules. Anyone with a suitable computer and connection can run one.

Blocks

New transactions are collected into a block. On Bitcoin, a new block is added about every ten minutes on average. The main things each block holds are:

• A batch of transactions
• A timestamp
• The fingerprint of the block before it

Hashes: the fingerprint

That fingerprint is called a hash. A hash is a short code of fixed length, calculated from any piece of data. It has three useful properties:

• The same data always gives the same hash.
• Changing one character gives a completely different hash.
• You cannot work backwards from the hash to the data.

Bitcoin uses a hash function called SHA-256, applied twice.

Why the chain is hard to change

Every block contains the hash of the block before it, so the blocks form a chain. Suppose someone alters a transaction in an old block. That block's hash changes, the next block now points to a hash that no longer exists, and every node sees the mismatch.

To make the change stick, an attacker would have to rebuild that block and every block after it. They would also have to do it faster than the rest of the network adds new blocks. Lesson 4 explains why that is so expensive.

Confirmations

When your transaction is included in a block, it has one confirmation. Each block added on top is one more. The more confirmations a payment has, the harder it is to reverse, so many services wait for several before treating a payment as final. Six is the usual benchmark.