Blockchains and Cryptocurrency
A public ledger that everyone holds a copy of, where changing one page gets noticed instantly. That's a blockchain, and cryptocurrencies are recorded on it.
Risk warning: forex, CFDs, options, futures and crypto assets usually involve leverage or high volatility, and you can lose more than you put in. This lesson only teaches the concepts; all numbers are for illustration and are not investment advice.
Concept clip · How a blockchain resists tampering
About 25 s · Watch first, then try it
Key takeaways
- 1A blockchain bundles transactions into blocks, and each block contains the "fingerprint" (hash) of the block before it.
- 2The ledger is kept by nodes across the whole network. Tampering with one block makes every block after it stop matching.
- 3Once a transaction is in a block, the more blocks stacked on top (the more confirmations), the harder it is to reverse.
- 4A cryptocurrency is a digital asset recorded on a blockchain, with no bank keeping the books.
Check your understanding
Get every question right to complete this lesson
1.Someone tampers with a transaction in block 100. What happens?
2.Who keeps the blockchain ledger?
3.A chain has 5 blocks and someone changes a transaction in block 3. How many blocks' fingerprints change?
Text version · Crypto Basics, lesson 1: “Blockchains and Cryptocurrency”
A public ledger that everyone holds a copy of, where changing one page gets noticed instantly. That's a blockchain, and cryptocurrencies are recorded on it.
Blocks chained together by fingerprints
A blockchain packs transactions into blocks, and each block records the previous block's fingerprint. Change any block and its fingerprint changes, so nothing after it matches anymore.
Everyone has a copy
The ledger is kept jointly by many nodes across the network. If one copy is altered, the other nodes compare and reject it. cryptocurrency is recorded on this ledger.
The more blocks stack up, the harder it is to reverse
A transaction is first broadcast to the whole network, then packed into a new block. Each block stacked on top adds another confirmation; to change an old record, you'd have to recompute every block after it.
Key takeaways
- A blockchain bundles transactions into blocks, and each block contains the "fingerprint" (hash) of the block before it.
- The ledger is kept by nodes across the whole network. Tampering with one block makes every block after it stop matching.
- Once a transaction is in a block, the more blocks stacked on top (the more confirmations), the harder it is to reverse.
- A cryptocurrency is a digital asset recorded on a blockchain, with no bank keeping the books.
Try it yourself
You can do these exercises in this lesson's interactive simulation:
- Click "Example: tamper with block 2" and change the transaction to "Bob → Mallory 50": which blocks' fingerprints changed? How many links broke?
- After restoring, change only the amount in block 1 from 5 to 6: how many characters of the fingerprint change from a one-digit edit?
- Change the last block (#5): there are no blocks after it, so how do the nodes still notice?
- Look at the network vote below: how many votes does the tampered version get? Then click "Restore original ledger".
Quiz and explanations
- 1. Someone tampers with a transaction in block 100. What happens?
- Answer: That block's fingerprint changes, and every block after it stops matching.Chained fingerprints make tampering obvious, and other nodes reject that chain.
- 2. Who keeps the blockchain ledger?
- Answer: Many nodes across the network, together.It's decentralized: every node has a full copy.
- 3. A chain has 5 blocks and someone changes a transaction in block 3. How many blocks' fingerprints change?
- Answer: 3.Block 3's fingerprint changes, and blocks 4 and 5 are built from the previous block's fingerprint, so they change too: 3 in total.
Terms in this lesson
- confirmation (Confirmation): Each block added after the one containing your transaction is another confirmation; more confirmations make it harder to reverse, and exchanges often require a certain number before crediting you.
- blockchain (Blockchain): A public ledger made of blocks linked in time order, each recording the fingerprint of the block before it.
- cryptocurrency (Cryptocurrency): A digital asset recorded on a blockchain, such as Bitcoin (BTC) or Ethereum (ETH).
- hash (Hash): A fixed-length “fingerprint” of any data; change a single character and the fingerprint is completely different.
- node (Node): A computer that keeps and verifies a copy of the blockchain ledger; the more nodes, the harder it is to tamper with.