What is a blockchain?
A blockchain is a decentralised database. Transaction records are stored in connected blocks and copies of the blockchain are held by many computers on the network.
What is inside a block?
- Data: e.g. sender, receiver and amount.
- Hash: a unique digital fingerprint for the block.
- Previous hash: the fingerprint of the block before it.
- Timestamp: records when the event happened.
Click the blocks to inspect the chain
Each block points backwards to the previous block. Block 1 is the genesis block.
Why use hashes?
Key idea: change the data → the hash changes → the next block's stored previous hash no longer matches → the chain is broken.
🕵️ Try to hack Block 4
Imagine a hacker changes the transaction in Block 4 from £20 to £20,000.
Watch what happens
Why does Block 4 become invalid?
Changing the transaction data changes Block 4's hash. But Block 5 still says that the previous hash is the old value.
What about Blocks 5, 6 and 7?
They also become invalid because the chain no longer connects correctly. The network can detect that something has been tampered with.
🌐 A decentralised network
There is no single central server controlling the blockchain. Network computers, often called nodes, keep copies of the transaction history.
What happens?
- A new transaction is made.
- A new block is created.
- The block is sent to network computers.
- Computers check the block.
- The valid block is added to the chain.
£50
Press the button to broadcast the transaction to the network.
💳 Digital currency vs ₿ cryptocurrency
All cryptocurrency is digital currency, but not all digital currency is cryptocurrency.
| Feature | Traditional digital currency | Cryptocurrency |
|---|---|---|
| Digital only? | ✓ Yes | ✓ Yes |
| Central control? | Usually controlled by banks / central authorities | Designed to be decentralised |
| Who sets the rules? | Banks and governments | The cryptocurrency's network/community and protocol |
| Transactions publicly recorded? | Not normally on a public blockchain | Blockchain records can be publicly visible |
| Uses blockchain? | ✗ Not necessarily | ✓ Yes, in the model described here |
| Examples | Money held electronically in bank/payment systems | Bitcoin and other cryptocurrencies |
🏦 Digital currency
Money represented as data in a computer system. Banks and other central authorities can manage accounts and transactions.
Memory clue: Digital = electronic money.
🔗 Cryptocurrency
A type of digital currency that uses cryptography and a decentralised blockchain system to record transactions.
Memory clue: Crypto = digital + cryptography + decentralised network.
🧠 Check Your Knowledge
Answer the questions. Read the explanation after each answer.