What Is Blockchain? A Plain-English Guide to How It Works

A blockchain is a shared record of transactions, kept by many computers at once, in which new entries are added in batches called blocks and each block is linked to the one before it. Nobody can quietly edit an old entry, because every later block depends on it and every participant can check the history. That combination, a shared ledger that is very hard to rewrite, is what makes crypto-assets possible without a central bank or payment company keeping the books.

This guide explains what blockchain is, how it works step by step, how the main networks agree on what is true, and what it means in practice when you use crypto.

Key takeaways

• A blockchain is a type of distributed ledger: a record of transactions copied across a network and kept in sync by an agreed set of rules.
• Blocks are chained with cryptographic hashes, so changing an old record means redoing everything after it.
• Networks agree on the next block through a consensus mechanism, most commonly proof of work (Bitcoin) or proof of stake (Ethereum).
• Blockchain transfers generally cannot be reversed, and the same token can exist on several networks.
• Blockchains are pseudonymous, not anonymous: addresses are public and transactions are visible.

What is blockchain?

EU law uses the broader term distributed ledger technology. MiCA defines a distributed ledger as "an information repository that keeps records of transactions" which is shared across a network of nodes and kept in step through a consensus mechanism. The European supervisory authorities add that "the best-known type of distributed ledger is a blockchain," so named because it stores transactions in groups, or blocks, attached to each other in chronological order to form a chain.

The idea was first put into practice by Bitcoin. The 2008 white paper by Satoshi Nakamoto, "Bitcoin: A Peer-to-Peer Electronic Cash System", set out a way for "online payments to be sent directly from one party to another without going through a financial institution." Its answer to the hard problem, stopping the same coin being spent twice without a trusted middleman, was a public, time-ordered chain of transactions that everyone can verify.

How does a blockchain work?

The Bitcoin white paper describes the cycle in six steps. Here it is, generalised slightly so it fits other networks too:

1. New transactions are broadcast to all nodes.
2. Each node collects new transactions into a block.
3. Nodes compete or take turns to produce the next valid block, according to the network's rules.
4. The block is broadcast to the network.
5. Nodes accept the block only if all its transactions are valid and the coins in them have not already been spent.
6. Nodes build the next block on top of it, using the accepted block's hash as the "previous hash".

A hash is a short digital fingerprint of data. Change one character in a block and its hash changes completely. Because each block contains the hash of the one before, the blocks form a chain: altering an old transaction would change its block's hash, break the link to the next block, and force the attacker to redo every block after it, faster than the rest of the network.

Transactions themselves are authorised with digital signatures. Whoever controls the private key for an address can sign a transfer from it, and anyone can check the signature with the matching public key. That is why keys, not the blockchain, are the thing you have to protect. Our guide to how a crypto wallet works covers keys in more detail.

Proof of work vs proof of stake

A blockchain needs a way for thousands of independent computers to agree on the next block. This is the consensus mechanism.

Proof of work. Bitcoin uses it. Miners repeatedly hash a block with different values until they find one that meets a difficulty target, which takes enormous computing effort but is easy for everyone else to check. The white paper calls this "essentially one-CPU-one-vote": the chain with the most work behind it wins. Bitcoin adjusts the difficulty so that blocks keep coming at a steady pace; the white paper's own example assumes a block every 10 minutes.

Proof of stake. Validators lock up the network's own coin as a stake and are chosen to propose and confirm blocks. The EBA and ESMA describe staking as immobilising crypto-assets to support proof-of-stake networks "in exchange for the granting of validator privileges that can generate block rewards." Ethereum switched from proof of work to proof of stake in the Merge on 15 September 2022, which ethereum.org says cut its energy use by about 99.95%.

Either way, the goal is the same: make it far more costly to cheat than to follow the rules.

Public and permissioned blockchains

Bitcoin and Ethereum are public: anyone can read the ledger, send transactions or run a node. Permissioned ledgers restrict who can take part, and are often used by companies and financial institutions for internal settlement or for tokenised assets. The underlying idea is the same; who gets to write to the ledger is what differs. Our practical guide to tokenisation looks at how real-world assets are being put on such ledgers.

What is blockchain used for?

• Crypto-assets such as bitcoin and ether, where the blockchain is the record of who holds what.
• Stablecoins, tokens that aim to track a currency like the euro or the dollar. See what is a stablecoin.
• Smart contracts, programs on networks like Ethereum that run automatically when conditions are met. They underpin decentralised finance.
• Tokenised assets, digital representations of things like bonds or funds.

What blockchain does not do

A few common misunderstandings are worth clearing up.

Your coins are not "in" your wallet. The blockchain records balances against addresses. A wallet holds, or gives access to, the keys that control those addresses. We explain this in where bitcoin is stored.

It is not anonymous. Addresses are not names, but every transaction on a public chain is visible to anyone, and regulated providers collect identity information about their customers. Pseudonymous is the more accurate word.

It cannot undo mistakes. There is no chargeback. A transfer sent to the wrong address is usually gone.

It does not guarantee the asset's value. A blockchain is a reliable record. It says nothing about whether the token on it is a good investment.

Why the network matters when you use crypto

Many tokens run on more than one blockchain. USDC, for example, was natively issued on 38 blockchains as of September 2026, according to Circle. The token on Ethereum and the token on Solana are the same asset on different rails, and they are not interchangeable at the address level.

That has a practical consequence: when you send or receive crypto, the network on both sides must match. Sending an asset on the wrong or an unsupported network can mean it is never credited and cannot be recovered.

Blockchain in Quppy

Quppy Crypto is a custodial wallet: the applicable provider holds and administers supported crypto-assets, you do not manage a self-custody private key, and you use the Quppy app to hold, send, receive and exchange supported assets. In the EEA, that provider is Payhound Limited, a crypto-asset service provider authorised under MiCA by the Malta Financial Services Authority.

The networks matter here as everywhere. Quppy currently supports BTC on the Bitcoin network, ETH and USDC on Ethereum, and TRX on TRON, subject to country, provider and account eligibility. USDT on Ethereum and TRON is available only outside the EEA, and Solana support is listed as coming soon. Before any transfer, choose exactly the same asset and network on both sides, as explained in what happens if you use the wrong blockchain network.