Definition
A blockchain is a shared digital ledger in which transactions are grouped into blocks and each block is linked to the one before it, making the record very hard to change once it is added.
How it works
Each block contains a batch of transactions and the hash of the previous block. A hash is a short fingerprint produced by a cryptographic function: changing even one character of the input produces a completely different hash. Because every block includes the hash of the one before it, altering an old transaction would change that block's hash and break the link to every block that follows.
Many computers, called nodes, keep copies of the ledger and check each new block against the network's rules. A consensus mechanism decides who may add the next block. In proof of work, miners compete using computing power; in proof of stake, validators lock up coins as collateral. Public blockchains let anyone read the ledger and take part, while permissioned blockchains limit participation to approved members.
This design makes history very hard to rewrite, but not impossible: an attacker who controlled most of a network's mining power or stake could, in theory, reorganise recent blocks. Smart contracts, wallets and exchanges built around a blockchain can also have their own flaws. The fact that a token runs on a blockchain says nothing about whether it is valuable, well run or safe to hold.
Example (hypothetical numbers)
Suppose Chain X adds a new block every 15 seconds, and a recipient waits until 20 more blocks have been added on top of the block holding a payment.
Waiting time = 20 × 15 seconds = 300 seconds, or 5 minutes.
To reverse the payment, an attacker would need to rebuild that block plus the 20 after it, 21 blocks in total, and get the network to accept the rewritten chain.
Each new block adds another layer to undo, which is why waiting for several blocks makes a record much harder, though not impossible, to change.
Common mistakes
- Believing a blockchain makes any token built on it valuable or safe.
- Assuming records can never be changed under any circumstances.
- Treating a payment as final before the recipient's required number of blocks has been added.
- Confusing a flaw in an exchange or smart contract with a failure of the blockchain itself.
This glossary is for education only and is not investment advice. Examples use hypothetical numbers.