What Is a Blockchain? A Simple Guide to the Tech Behind Crypto

At its simplest, a blockchain is a way of recording information so that it is extremely difficult to change, hack, or cheat the system. You can think of it as a digital ledger of transactions that is copied and shared across an entire network of computers.

The name “blockchain” describes how it stores data. As transactions occur, they are grouped into a block. Once that block is full, it is linked to the previous block, forming a chain of blocks in strict time order. Each new block strengthens the link to the one before it, which makes the whole history harder to change.

How it works: The shared spreadsheet analogy

To understand blockchain without technical language, imagine a simple spreadsheet or a Google Sheet.

In a traditional system, like a bank ledger, there is one master file that only the bank can access and edit. You rely on the bank to keep that file accurate, secure, and up to date.

A blockchain works differently. Imagine that same spreadsheet is shared with thousands of people around the world. Everyone can view it, and everyone stores an identical copy on their own computer.

• The network: These thousands of computers are called nodes.
• The process: When someone makes a transaction, they broadcast it to the network. Every node checks it, and when it is approved, each node updates its copy of the spreadsheet.
• The security: If one person tries to cheat and change their own copy to say they have more money than they do, the other nodes will see that their version does not match and will ignore the fake change.

This setup is often called “trustless”. You do not need to trust a bank or any single operator. Instead, you rely on the open rules of the system and the code that enforces them.

Core characteristics of a blockchain

Public blockchains like Bitcoin and Ethereum share several traits that set them apart from traditional databases.

Decentralisation

There is no single point of failure. Data is stored across thousands of computers around the world. No single government, company, or individual controls the network. If one node goes offline, the others keep running, so the system stays available.

Immutability

Once a transaction is confirmed and added to a block, it is considered immutable, which means it cannot be edited or deleted. This creates a permanent and tamper-resistant record. A normal document can be edited at any time. A blockchain record is more like engraving into stone. Once it is added, it stays there.

Transparency

On a public blockchain, transaction data is visible to everyone. You can watch activity almost in real time using a block explorer. User identities are usually pseudonymous. That means you see wallet addresses shown as long strings of letters and numbers, not personal names. Even so, the movement of funds is fully trackable, so anyone can check that a transaction actually took place.

The mechanics of verification

The obvious question is how thousands of strangers can agree on which transactions are valid. The answer is a “consensus mechanism”. This is the set of rules the network follows to decide which version of the ledger is correct.

Two of the most common consensus mechanisms are:

1. Proof of Work (PoW)
   Used by Bitcoin. Specialised computers, called miners, compete to solve difficult mathematical puzzles. Solving the puzzle lets them add a new block to the chain, and they receive new coins as a reward. This process uses energy, which makes attacking the network expensive.

2. Proof of Stake (PoS)
   Used by Ethereum and Solana, among others. Participants, called validators, lock up or “stake” their tokens as a bond. They are chosen to approve new blocks based partly on how many tokens they have staked. If they cheat, they risk losing part of their stake. This encourages honest behaviour without heavy energy use.

Both systems aim to achieve the same thing. They help the network agree on a single, shared version of history, even when no one is in charge.

How blockchain evolves: Forks and layers

Blockchains are software networks, so they need upgrades from time to time. That is where forks and layers come in.

Forks

When developers or the community want to change the rules of a blockchain, they suggest an update. If everyone is happy with it, the network upgrades without drama. If there is serious disagreement, the chain can split into two versions. This split is called a fork.

• Soft fork: A backwards-compatible upgrade. Old and new versions can still talk to each other, similar to updating an app on your phone.
• Hard fork: A major change where the network divides into two separate chains that follow different rules. This often creates a new cryptocurrency, such as the split between Bitcoin (BTC) and Bitcoin Cash (BCH).

Layer 2 scaling

As popular blockchains grow, they can become crowded, slow, and expensive to use. To help with this, developers build “Layer 2” networks.

You can imagine the main blockchain, called Layer 1, as a busy freeway. A Layer 2 is like an express lane built above it. Most of the traffic happens on the express lane, which is faster and cheaper. The final results are then sent back down to the main chain for settlement and security.

This approach lets users enjoy low fees and quick transactions, while still relying on the strong security of the underlying Layer 1.

Real-life examples

Blockchains provide the base infrastructure for a growing range of digital assets and applications.

Bitcoin (BTC)

Bitcoin is the first and most well-known public blockchain. Its main purpose is to act as a decentralised store of value and a peer-to-peer payment system. It focuses on doing one thing, moving value from A to B securely, and doing that reliably.

Ethereum (ETH)

Ethereum introduced the idea of a programmable blockchain. Developers can write code, known as smart contracts, that runs directly on the network. This allows for decentralised applications, or dApps, across finance (DeFi), gaming, NFTs, and more. Instead of trusting a company to run a server, users interact with code that everyone can inspect.

Solana (SOL)

Solana is a high-performance blockchain that focuses on very fast and low-cost transactions. It is designed for high-volume activity, such as payments, trading, and gaming. While it trades off some aspects of decentralisation compared with older chains, it aims to support mass adoption at internet scale.

Security risks and red flags

While blockchain technology itself can be highly secure, using it safely still depends on your own habits and tools.

Irreversible transactions

Because blockchains are immutable, confirmed transactions cannot be reversed. If you send cryptocurrency to the wrong address or fall for a scam, there is usually no way to get it back. There is no central support line or chargeback system like you might have with a bank or card provider. Always triple-check wallet addresses and amounts before you send.

Wallet security

Your access to your crypto is controlled by a private key or a recovery phrase. This works like a master password. If you lose it, you lose access to your funds. No one can restore it for you. If someone else gets hold of it, they can move your funds without your permission.

Keep your private key and recovery phrase offline where possible. Never share them with anyone, and be very careful with any app or website that asks you to type them in.

Smart contract bugs

On programmable blockchains like Ethereum, attackers often target the applications built on top of the chain rather than the base layer itself. If a smart contract has a bug, a hacker may be able to drain funds or change how the app behaves.

Before you use a new DeFi platform, NFT marketplace, or other dApp, do some basic checks. Look for audits, a clear team, and a track record of use. Be wary of projects promising extremely high returns.

A word on scale and security

While this guide uses simplified analogies like shared spreadsheets to explain blockchain concepts, the underlying technology is considerably more complex.

The description of blockchains as extremely difficult to change or cheat holds true for large, established networks like Bitcoin and Ethereum, where enormous computational power or significant capital is staked across thousands of nodes worldwide. However, smaller or newer blockchains with fewer participants, less computational power, or smaller validator pools can be more vulnerable to attacks.

When evaluating a blockchain project, consider not just the technology itself but also the size and maturity of the network securing it. A blockchain's real-world security depends heavily on how many independent participants are actively maintaining and protecting the chain.

Why blockchain matters

Blockchain technology shifts trust away from central bodies such as banks, payment processors, and large tech companies, and towards open networks and transparent code. It lets strangers exchange value and data online without needing an intermediary to sit in the middle.

This can reduce costs, increase access, and give people more direct control over their digital assets. As scaling tools improve and different blockchains start to work together more smoothly, blockchain is quietly moving from a niche idea into a core part of the internet’s infrastructure.

For Australians, that might mean faster and cheaper cross-border payments, 24/7 markets, and new ways to save, invest, and verify ownership, all from a smartphone.