# Blockchain Basics

> A blockchain is a shared ledger secured by cryptography and consensus. Learn blocks, hashes, keys, wallets, proof of work and proof of stake, and finality.

Source: https://learn.tradelabsai.com/crypto/blockchain-basics/  
Track: Crypto · Level: Beginner · Updated: 2026-10-03  
Publisher: TradeLabs AI (https://tradelabsai.com). Education, not financial advice.  
Cite as: TradeLabs Learn, "Blockchain Basics", https://learn.tradelabsai.com/crypto/blockchain-basics/

A blockchain is a shared database, a ledger, that many computers keep in sync without a central owner. Transactions are grouped into blocks, each block is linked to the previous one through cryptography, and the network agrees on which blocks are valid through a consensus mechanism. Once enough blocks are built on top of a transaction, changing it becomes practically impossible. Blockchains are the technology behind Bitcoin, Ethereum and the rest of crypto, and understanding them helps traders read on chain data and assess risks.

## The building blocks

| Concept | Meaning |
|---|---|
| Transaction | A signed instruction, such as sending coins from one address to another |
| Block | A batch of transactions with a header linking it to the previous block |
| Hash | A fixed length fingerprint of data; any change produces a completely different hash |
| Chain | Each block contains the previous block's hash, linking them in order |
| Node | A computer that stores the blockchain and checks the rules |
| Consensus | The process by which nodes agree on the valid chain |

Because each block includes the hash of the previous block, altering an old transaction would change every later block's hash, which the network would reject.

## Keys and wallets

| Item | Role |
|---|---|
| Private key | A secret number that proves ownership and signs transactions |
| Public key and address | Derived from the private key; shared to receive funds |
| Seed phrase | A list of 12 or 24 words that can regenerate private keys |
| Wallet | Software or hardware that manages keys |

Whoever controls the private key controls the coins. If a key is lost, the coins are usually lost forever; if it is stolen, the thief can move them. "Not your keys, not your coins" is a common saying for this reason.

**Watch out: Protect your seed phrase**
Never type your seed phrase into a website or share it with anyone, including people claiming to be support staff. Legitimate services never ask for it. See [Identifying Trading Scams](https://learn.tradelabsai.com/start-here/identifying-trading-scams/).

## Consensus mechanisms

| Mechanism | How it works | Examples |
|---|---|---|
| Proof of work | Miners spend computing power to solve puzzles; the longest valid chain wins | Bitcoin |
| Proof of stake | Validators lock tokens as collateral; misbehaviour is punished by slashing | Ethereum, Solana, Cardano |

Proof of work's security comes from the cost of electricity and hardware; proof of stake's from the value of staked tokens at risk. See [Staking and Restaking](https://learn.tradelabsai.com/crypto/staking-and-restaking/).

## Confirmations and finality

**Example: Waiting for confirmations**
You send Bitcoin to an exchange. The transaction is broadcast, waits in the mempool, and is included in a block after about 10 minutes on average. Many exchanges credit the deposit after a few confirmations (blocks built on top), often taking 30 to 60 minutes, because each extra block makes reversing the transaction harder. On Ethereum, blocks come every 12 seconds and economic finality arrives after about 13 minutes. See [Mempools and Gas](https://learn.tradelabsai.com/crypto/mempools-and-gas/).

## Public vs private blockchains

- **Public (permissionless):** anyone can read, transact and run a node. Bitcoin and Ethereum.
- **Private or permissioned:** only approved participants. Used by some companies and banks.

## Layers

- **Layer 1:** the base blockchain (Bitcoin, Ethereum, Solana).
- **Layer 2:** networks built on top that process transactions more cheaply and settle back to layer 1, such as the Lightning Network for Bitcoin and rollups for Ethereum. See [Ethereum](https://learn.tradelabsai.com/crypto/ethereum/).

## What blockchains cannot do alone

Blockchains cannot see real world data such as prices or sports results on their own. They rely on oracles to bring in outside information, which adds a point of trust and risk. See [Oracles](https://learn.tradelabsai.com/crypto/oracles/).

## Why traders should care

- **On chain data** reveals flows, holdings and activity. See [On-Chain Analytics](https://learn.tradelabsai.com/crypto/on-chain-analytics/).
- **Fees and congestion** affect trading costs on decentralised exchanges.
- **Settlement times** affect deposits, withdrawals and arbitrage.
- **Security model** affects the risk of each chain.

## Frequently asked questions

### What is a blockchain?

A shared ledger maintained by many computers, where transactions are grouped into cryptographically linked blocks and agreed on through consensus.

### What is the difference between proof of work and proof of stake?

Proof of work secures the chain through computing power and energy; proof of stake secures it through tokens locked as collateral by validators.

### What happens if I lose my private key?

You usually lose access to your coins permanently, since no central authority can recover them.

Next, learn about dollar tokens in [Stablecoins](https://learn.tradelabsai.com/crypto/stablecoins/).

## Continue learning

- Next lesson: [Stablecoins](https://learn.tradelabsai.com/crypto/stablecoins/)
- Previous lesson: [Altcoins](https://learn.tradelabsai.com/crypto/altcoins/)
- Related: [Altcoins](https://learn.tradelabsai.com/crypto/altcoins/): Altcoins are cryptocurrencies other than Bitcoin, from smart contract platforms to memecoins. Learn the main types, how to evaluate them and the risks.
- Related: [Bitcoin](https://learn.tradelabsai.com/crypto/bitcoin/): Bitcoin is the first and largest cryptocurrency, with a fixed supply of 21 million coins. Learn how it works, halvings, what moves its price and how to trade it.
- Related: [Ethereum](https://learn.tradelabsai.com/crypto/ethereum/): Ethereum is a programmable blockchain that runs smart contracts, with ether (ETH) as its native asset. Learn how it works, proof of stake, gas and price drivers.
- Related: [Mempools and Gas](https://learn.tradelabsai.com/crypto/mempools-and-gas/): Pending crypto transactions wait in the mempool and pay fees to be included. Learn how Bitcoin fees and Ethereum gas work, EIP 1559 and how to avoid overpaying.
- Related: [Staking and Restaking](https://learn.tradelabsai.com/crypto/staking-and-restaking/): Staking locks proof of stake tokens to secure a network and earn rewards; restaking reuses staked tokens for more yield. Learn how both work and the risks.
- Related: [Oracles](https://learn.tradelabsai.com/crypto/oracles/): Oracles bring outside data like prices and event results onto blockchains. Learn how Chainlink feeds and UMA's optimistic oracle work, and how attacks happen.