What is blockchain?

What is a blockchain?

A blockchain is a shared digital record that groups transactions into blocks and links each new block to the previous one. Computers called nodes keep copies of the record and check updates against the same rules. In an open network, these checks let participants maintain a transaction history without giving one organisation sole control of the database. The linked record is a form of distributed ledger.

The blockchain and the crypto-asset have different jobs. In Bitcoin, the blockchain records transfers of BTC, the asset people send. In Ethereum, the blockchain also records changes made by applications, while Ether (ETH) pays network fees. A lending application running on Ethereum is another layer again: software using the network.

That distinction helps explain what a crypto investment follows. A network can carry many different assets and applications; owning its native crypto-asset does not mean owning everything recorded on it. The cryptocurrency guide explains the assets, while the comparison of crypto-assets shows their different uses.

How a payment becomes part of the record

Suppose Alice sends BTC to Ben. Her wallet creates a transaction and signs it with a private key, which proves that she can authorise the spending. It then broadcasts the transaction to the Bitcoin network. The private key itself is not sent with the payment.

Nodes check the transaction, including whether the signature is valid and the same funds have already been spent. A miner collects transactions into a proposed block and performs the computation needed for Bitcoin's proof of work. Other nodes independently check that the block follows the rules before accepting it. Further blocks build on that history. These are the steps behind a Bitcoin transaction.

Blocks contain a cryptographic reference, called a hash, to the preceding block. Changing an earlier block changes its hash, so the later references no longer match. Replacing accepted history also requires meeting the network's consensus rules, rather than simply editing a database entry. Bitcoin's block structure connects those checks.

Who decides which history to accept?

An open network needs a way to agree when participants propose different blocks. A consensus mechanism supplies rules for choosing and confirming the history. Bitcoin uses proof of work, in which miners compete through computation. Ethereum uses proof of stake, in which validators commit ETH and help confirm blocks. Both work alongside checks that transactions follow the network's rules.

The comparison of proof of work and proof of stake explains what each method requires and how it makes interference costly. Neither method establishes whether the asset recorded on the chain will retain its market value.

What can a blockchain be used for?

Bitcoin's payment example uses the ledger to record who can spend BTC. Other networks also run smart contracts, programs that apply rules to digital assets. On Ethereum, for example, a program can transfer a token when a transaction meets its conditions. The network executes the program's instructions.

DeFi uses such programs for services including trading and lending. Tokenisation represents an asset or a right as a token, making the connection between the digital record and the holder's legal rights especially important. Web3 describes applications in which users connect wallets and interact with services built around blockchain records. These uses raise different questions even when they share the same underlying network.

What does the record establish?

A blockchain makes changes to recorded history detectable. The term tamper evident captures that property without suggesting that every blockchain is impossible to attack. A correctly recorded transaction can still be a payment to a fraudster, and a program can faithfully execute instructions containing a mistake.

Access and control also differ between networks. A permissionless network allows participation without an operator admitting each participant; a permissioned ledger restricts participation. A record being publicly visible does not, by itself, show how many independent parties control its operation.

Capacity has practical consequences. On Ethereum, users pay for the computation their transactions require, and demand for block space affects network fees. The ledger still depends on software, communications and the people or organisations running services around it.

Holding a crypto ETP

Virtune Bitcoin Prime ETP provides Bitcoin price exposure through a security held in a brokerage account. Holding this crypto ETP does not give the investor spendable BTC or a role in confirming Bitcoin transactions. The ETP guide explains the security, and the wallet comparison explains the difference in control.