What Is Blockchain? How Blocks, Hashes and Consensus Work

A blockchain is a shared digital ledger in which transactions are grouped into blocks, each block is linked to the previous one by a cryptographic hash, and many independent computers keep identical copies. Because no single party controls the record, participants can agree on who owns what without trusting a bank or company. Blockchains are the technology underneath cryptocurrencies such as Bitcoin and Ethereum.

Key takeaways

• A blockchain is an append-only ledger: new data is added, old data is not edited.
• Blocks are chained together by hashes, digital fingerprints of their contents.
• A consensus mechanism, usually proof of work or proof of stake, decides who adds the next block.
• Confirmations measure how deeply a transaction is buried; more means harder to reverse.
• Public blockchains are open to anyone; permissioned ones restrict who can take part.
• Block times and confirmation rules directly affect how fast you can move funds between exchanges.

Blocks and hashes

A block is a batch of transactions plus a header. The header includes a timestamp, a summary of the block's transactions and, most importantly, the hash of the previous block.

A hash is the output of a function that turns any data into a fixed-length string. Two properties matter:

1. The same input always gives the same output.
2. Changing even one character of the input produces a completely different output.

Because each block stores the previous block's hash, the blocks form a chain. If someone edited a transaction in an old block, that block's hash would change, and the next block's stored link would no longer match. Every later block would also be invalid. Honest nodes would reject the altered version.

Nodes and consensus

A node is a computer that stores a copy of the blockchain and checks new transactions against the network's rules. Since thousands of nodes keep copies, they need a way to agree on which new block comes next. That is the job of a consensus mechanism.

	Proof of work	Proof of stake
Who adds blocks	Miners	Validators
What they commit	Computing power and electricity	Coins locked as collateral
Penalty for cheating	Wasted energy costs	Stake can be destroyed ("slashed")
Well-known example	Bitcoin	Ethereum

In both systems, rewriting history would require an attacker to control a majority of the network's mining power or staked coins, which is expensive on large networks. Smaller networks with less mining power or stake are cheaper to attack.

Confirmations and finality

When your transaction is included in a block, it has one confirmation. Each additional block on top adds another. More confirmations make a reversal less likely, because an attacker would have to rebuild more blocks.

Some proof-of-stake chains also have finality: after a checkpoint, blocks are treated as irreversible by the protocol itself.

Exchanges set their own confirmation requirements for each network before they credit a deposit. Worked example: assume two exchanges ask for the following before crediting a deposit.

Network	Approx. block time	Confirmations required (assumed)	Wait time
Bitcoin	10 minutes	3	3 × 10 = about 30 minutes
Chain with 12-second blocks	12 seconds	64	64 × 12 = 768 seconds ≈ 13 minutes
Chain with 2-second blocks	2 seconds	30	30 × 2 = 60 seconds

Block times are averages, and real waits can be longer when networks are congested or exchanges pause deposits. For anyone moving coins to capture a price gap, this delay is a real cost: the price can change before the funds arrive.

Public, private and layer 2 chains

• Public blockchains such as Bitcoin and Ethereum let anyone run a node, send transactions and read the full history.
• Permissioned blockchains limit participation to approved members. They are used by some businesses but do not have the same open, censorship-resistant properties.
• Layer 2 networks process transactions off a main chain (the layer 1) and post compressed results back to it, trading some complexity for lower fees.

Many blockchains also run smart contracts, programs that execute on-chain. They make possible tokens, decentralized exchanges and the rest of DeFi.

What a blockchain does not guarantee

A blockchain guarantees that the record follows its rules, not that the data is true or that an application is safe. Common misunderstandings:

• "On-chain means safe." A smart contract can have bugs, and a token can be worthless even though its transactions are recorded perfectly.
• "Transactions are anonymous." On public chains, every transfer is visible. Addresses are pseudonymous, not private.
• "Mistakes can be fixed." Sending funds to the wrong address or the wrong network is usually permanent.
• "All blockchains are equally secure." Security depends on how much mining power or stake protects the chain and how decentralized its validators are.
• "Blockchain data is real-time." Every chain has a delay between sending a transaction and it being final.

Why blockchains matter for traders

For traders, the blockchain is the rail that moves money between venues. Network choice decides the withdrawal fee, the confirmation time and whether both exchanges even support that network. An arbitrage opportunity that closes in five minutes cannot be captured with a transfer that takes thirty. That is why many arbitrage traders pre-fund accounts on both sides instead of transferring during the trade.

The same token can also exist on several blockchains. A stablecoin, for example, may be withdrawable on more than one network, each with its own fee and speed. Before withdrawing, check three things: that the receiving exchange supports the exact network you pick, that deposits and withdrawals for that network are currently open on both sides, and what the withdrawal fee is compared with the size of the trade.

How ArbTide helps

ArbTide's live arbitrage scanner shows price gaps between exchanges net of taker fees. Withdrawal fees, network fees and transfer delays are not yet deducted, so check them yourself before moving coins; the methodology page lists exactly what the net spread includes.