Crypto Basics

What Is Blockchain and How Does It Work?

A blockchain is a shared, tamper-proof ledger maintained by thousands of computers. This guide traces a transaction from broadcast to confirmation, explaining every step.

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A blockchain is a shared, append-only ledger that's maintained by thousands of computers instead of a single company. Once data is written to it, it can't be changed or deleted. That one property — immutability — is what makes cryptocurrency, smart contracts, and decentralized applications possible.

The Simplest Explanation

Imagine a Google Spreadsheet that everyone in the world can view, but nobody can edit previous rows — you can only add new ones. Every time someone adds a row, thousands of computers independently verify it's valid before it becomes permanent. That's essentially what a blockchain does.

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The word "blockchain" literally means a chain of blocks. Each block contains a batch of transactions, and each block references the one before it — forming an unbreakable chain back to the very first block (the "genesis block").

How a Transaction Gets Confirmed

Let's trace what happens when you receive a crypto payment on RentAHuman — say an AI agent sends you 0.05 ETH for a completed delivery task:

  1. Transaction is signed — the sender's wallet uses their private key to create a digital signature proving they authorized the payment.
  2. Broadcast to the network — the signed transaction is sent to Ethereum nodes (computers running Ethereum software) worldwide.
  3. Validation — nodes check: does the sender have enough ETH? Is the signature valid? Is the nonce (transaction counter) correct?
  4. Block inclusion — a validator bundles your transaction with others into a new block.
  5. Consensus — the network agrees the block is valid. On Ethereum, this uses Proof of Stake (validators put up ETH as collateral).
  6. Finalization — after a few more blocks are added on top, the transaction is considered final. Your 0.05 ETH is confirmed.

On Ethereum, this whole process takes about 12 seconds for initial inclusion and ~15 minutes for strong finality. On Layer 2 networks like Base or Arbitrum, it feels nearly instant.

What's Inside a Block?

Anatomy of a block (simplified)
Block #19,432,107
├── Previous block hash: 0x8a3f...c201
├── Timestamp: 2026-02-05T14:23:18Z
├── Validator: 0x7b2e...9f44
├── Transactions (152):
│   ├── Tx 1: 0xAlice → 0xBob, 0.5 ETH
│   ├── Tx 2: 0xCarol → 0xDave, 1,200 USDC
│   ├── Tx 3: Smart contract call (Uniswap swap)
│   └── ... 149 more transactions
├── State root: 0xf1a2...bb90
└── Block hash: 0x3c7d...e812  ← next block will reference this

The key detail is the previous block hash. Each block includes a cryptographic fingerprint of the block before it. If you tried to alter even one digit of a past transaction, the hash would change, breaking every block that came after it. That's why blockchains are tamper-proof — altering history would require re-computing every subsequent block, which is computationally impossible on a large network.

Proof of Work vs Proof of Stake

These are the two main ways blockchains agree on which transactions are valid:

  • Proof of Work (PoW) — miners compete to solve computationally expensive puzzles. First to solve it gets to add the next block and earn a reward. Bitcoin still uses this. It's very secure but energy-intensive.
  • Proof of Stake (PoS) — validators lock up (stake) their own coins as collateral. They're randomly selected to propose blocks. If they cheat, their staked coins are "slashed" (destroyed). Ethereum switched to this in 2022, cutting energy use by ~99.95%.
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Curious about staking your own crypto? Our staking guide covers how it works, the risks, and realistic yield expectations.

Why Decentralization Matters

Decentralization isn't a feature — it's the whole point. A blockchain controlled by one entity is just a slow database.

Ethereum has thousands of validators spread across the globe. No single entity — not even Vitalik Buterin — can censor a transaction, reverse a payment, or shut the network down. That's why crypto payments on RentAHuman are final once confirmed: the escrow smart contract releases funds based on code, not someone's permission.

Blockchains Beyond Payments

The same technology that secures currency also enables:

  • Smart contracts — self-executing programs that run on the blockchain. (Learn more in our Web3 explainer.)
  • DeFi — lending, borrowing, and trading without banks.
  • NFTs — unique digital ownership certificates.
  • DAOs — organizations governed by code and community votes instead of executives.

Understanding blockchain gives you the mental model for all of it. Once you get that every blockchain is just a shared, tamper-proof ledger, the rest clicks into place.

Want to see blockchain in action? Check out Etherscan and browse real Ethereum blocks. Or continue learning with Bitcoin vs Ethereum to see how two blockchains can work very differently.

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