What is a Blockchain?

Read this beginner’s guide to learn more about what a blockchains is, how the system behind it works, and find out how it’s shaping the future of how the world interacts digitally.

Written by

Last updated


Definition: A blockchain is a peer-to-peer (P2P) network of computers running free open-source software. Using blockchain technology, crypto transactions allow for transferring of value (secure data) online from one user to another.

High-level breakdown

A blockchain is a peer-to-peer (P2P) network of computers running free open-source software.

Using cryptography and blockchain technology, crypto transactions allow for transferring of value (secure data) online from one user to another. Transactions are recorded in code on an open, distributed ledger across participants of the digital currency’s entire P2P blockchain network.

Essentially, a blockchain is “blocks” of data that are then linked together on a “chain” of previous cryptocurrency transactions. Each currency has its own blockchain, which is an ongoing and constantly re-verified record of every single transaction ever made using that cryptocurrency.

Proof of Work vs Proof of Stake

Bitcoin’s whitepaper describes that cryptographic proof comes in the form of transactions that are verified and recorded on a blockchain using a consensus mechanism called proof of work.

Since the first ever cryptocurrency, Bitcoin, blockchain technology has developed another way of verifying transactions – that is known as proof of stake.

Let’s have a look at the two…

Consensus Mechanisms

Proof of work is a consensus mechanism used to verify crypto transactions on a blockchain – using an algorithm that provides a mathematical problem to computers that race to solve it. Each participating computer device, also known as a “miner,” solves a mathematical puzzle to help verify a group or block of transactions.

The first to solve the problem and add them to the blockchain ledger is rewarded with a small amount of cryptocurrency for its efforts. Bitcoin, for example, rewards a miner 6.25 BTC per block of verified transactions.

The computing devices typically require intense computer power and electricity resources, and the “miners” don’t necessarily make large profits mining on a small scale.

Proof of stake blockchains don’t require miners to spend electricity on duplicative processes (competing to solve the same puzzle). It is a verification that removes energy-intensive equation solving for crypto transactions.

Typically, proof of stake blockchains employs a network of “validators” who “stake” (contribute) their own crypto in exchange for a chance of getting to validate the new transactions. update the blockchain ledger, and earn a reward. 

The number of transactions each person can verify is limited by the amount of cryptocurrency they’re willing to “stake,” or temporarily lock up in a communal safe for the chance to participate in the process.

Reducing the amount of power necessary to check transactions makes it a more efficient consensus mechanism than proof-of-work. It allows for faster verification/confirmation times for transactions on the blockchain.

For example, the Bitcoin blockchain has an average transaction speed of 10 minutes using proof-of-work to verify transactions. Compared with the Solana blockchain which can verify up to 3,000 transactions per second using proof-of-stake.

Bitcoins biggest rival by market capitalisation, Ethereum, has already made the move to switch from a proof-of-work to a proof-of-stake mechanism; Ethereum is expected to reduce its energy consumption by 99.95% once this migration process is complete.

Here’s an example of how a crypto transaction is verified on the blockchain using Proof-of-Work (PoW).

Our thoughts

We believe that recognising the vast potential in blockchain technology beyond the financial sector is critical – So far disrupting traditional methods of business on the Internet (web3), Logistics (supply chains), and Art (NFTs) industries.

By spreading the word about cryptocurrency to ordinary people, we look for satisfaction in the financial freedom and decentralised ideologies that we hope positively impact communities across the globe.

Subscribe for more articles like this!

Join 9 other subscribers
  1. By publishing this guide, we are not recommending or suggesting in any way or form that Cryptocurrency is a suitable investment.
  2. We published and routinely update this guide to help people decide what’s best for them – Coinfall is conservative – Bitcoin has proven to be highly volatile in 2021 and 2022 and we strongly suggest reading this guide from the FMA before making any investment. Like the FMA, Coinfall is also cautious.
  3. We present this information in good faith and remain objective at all times. ​By including this guide, we are not advocating that cryptocurrency is an investment. We may earn a referral bonus for anyone that clicks on some of our links – see our disclaimer for more details.