Blockchain

A blockchain is a distributed, append-only ledger: a record of data, usually transactions, that is stored across a network of computers and grows only by adding new entries rather than editing old ones. Entries are bundled into blocks, each block is linked to the one before it, and the linked sequence forms the chain. FINRA describes the technology as append-only and seeking to be immutable, meaning that once information is recorded it cannot be deleted and can be changed only by agreement among the participants on the network.

The distinction that trips people up is that a blockchain is a technology, not an asset. A cryptocurrency is a digital asset that happens to be recorded on a blockchain, in the same way a bank balance is a number recorded in a bank's database. Bitcoin is one asset recorded on one particular blockchain; ether runs on another; and the ledger itself is not something you buy. Understanding what a blockchain does is separate from any decision about whether to own the assets built on one.

Three properties do the work in most descriptions of a blockchain, and each is a matter of degree rather than an absolute.

The first is that the record is distributed. Instead of one institution holding the authoritative copy, many participants each hold a copy, and the network follows a set of rules to keep those copies in agreement. This is why a blockchain is often called decentralized, but decentralization describes the protocol, not necessarily the ownership of the assets on it or the concentration of the parties who actually run the network. A blockchain can be technically distributed while most of its activity flows through a small number of large operators.

The second is that it is append-only and hard to alter after the fact. Each block contains a cryptographic fingerprint, called a hash, of the block before it. Changing an old block would change its hash, which would break the link to every block that came after, so tampering with a settled record would require redoing all the work that followed it and convincing the rest of the network to accept the altered version. This is what people mean when they call a blockchain immutable. It is more accurate to say that rewriting history is designed to be prohibitively expensive rather than impossible.

The third is consensus: the method by which the network agrees on which new block is valid. The two best-known methods are proof of work, where participants compete by expending computing power, and proof of stake, where participants are chosen to validate blocks in proportion to the assets they commit as collateral. Bitcoin uses proof of work; Ethereum moved to proof of stake. The consensus method determines who gets to add the next block, how the network is secured, and how much energy the whole system consumes.

A further split is public versus private. A public, or permissionless, blockchain lets anyone read the ledger and participate in validating it, which is the model behind bitcoin and most cryptocurrencies. A private, or permissioned, blockchain restricts who can join, and is closer to a shared database run by a defined group of organizations. The word "blockchain" alone does not tell you which of these you are looking at, and the security and transparency claims that hold for a large public chain do not automatically carry over to a small permissioned one.

A transaction is broadcast to the network, where participants check it against the ledger's rules, for example that the sender actually controls the assets being moved. Valid transactions are collected into a candidate block. Through the network's consensus process, one block is selected as the next official entry, and it is appended to the chain and propagated to every participant's copy.

Each block carries the hash of the previous block, so the blocks form an ordered, tamper-evident sequence. If someone tried to alter a transaction buried several blocks back, the hash of that block would no longer match what the next block recorded, and the discrepancy would be visible to the whole network. Reversing a settled transaction therefore means out-competing the rest of the network, which on a large public chain is deliberately impractical.

Ownership on most public blockchains rests on cryptographic keys rather than on an account at an institution. Control of the private key is control of the asset, which is why custody, meaning where and how the keys are kept, is the central practical question for anyone holding assets on a blockchain rather than a footnote to it.

What the technology offers

• A single shared record that multiple parties can trust without relying on one central administrator to keep it honest.
• Tamper-evidence: settled entries are, by design, expensive to rewrite, and any attempt is visible.
• Transfer of value or data directly between parties, which can work across borders and outside business hours.
• Programmability on some chains, allowing self-executing agreements to run on the ledger.

What the technology does not do

• It is not an investment. Owning "blockchain" is not a thing; the assets recorded on a chain are what carry the risk and the return.
• Immutability cuts both ways. A mistaken or fraudulent transfer is generally final, with no administrator to reverse it.
• Decentralization is uneven. A chain can be distributed in theory while concentrated in who actually operates and controls it.
• "Blockchain" as a marketing label attached to a company or product tells you nothing by itself about whether the underlying business is sound.