A blockchain is a way of keeping a shared database whose copies are stored by many computers at once, and where changing what has already been recorded is practically impossible. Its best-known use is cryptocurrencies, but the technology is also used to verify diplomas or the origin of goods. Below: what a blockchain consists of, how the network reaches agreement, how an open blockchain differs from a closed one and where it is really needed. For bitcoin itself, mining and halving, see What Is Bitcoin and How It Works. Data checked on 21 October 2026.
Important. This material explains the technology and is not investment advice. The legal status of cryptocurrencies in Ukraine has still not been settled: as of 21 October 2026, the Law of Ukraine on Virtual Assets No. 2074-IX has the status “Not yet in force” (law card).
Blocks and the Chain
The ethereum.org documentation explains the name literally. A “block” is a group of records, such as transfers, added to the database one after another. A “chain” because each block cryptographically refers to the previous one. The data in a block cannot be changed without changing all the blocks that follow, and that requires the consent of the whole network.
The reference to the previous block is made with a hash, a short digital “fingerprint” of the data. If even one character in an old block is changed, its fingerprint changes too, and the following blocks no longer match it. That is why a forgery is visible immediately.
| Term | What it means |
|---|---|
| Block | A batch of records added to the chain |
| Hash | A digital fingerprint of data that changes with any change to the data |
| Node | A computer that stores a copy of the blockchain and checks new blocks |
| Consensus | The rules and incentives by which nodes agree on which state of the data is correct |
| Validator | A participant who proposes and checks blocks in a proof-of-stake network |
| Smart contract | A program on the blockchain that runs when set conditions are met |
Nodes: Who Stores the Copies
Every computer in the network has to agree with each new block and with the chain as a whole. Such computers are called nodes, and thanks to them all participants have the same data. In Ethereum, according to ethereum.org, a node runs two programs: an execution client and a consensus client. There are three types of nodes:
- full nodes check every block and keep a recent part of the data, usually the last 128 blocks;
- archive nodes check everything from the first block and delete nothing, so they store the entire history of states;
- light nodes download only block headers, request the rest from full nodes and check the data they receive themselves. They cannot be validators.
Consensus: How the Network Agrees
For thousands of independent computers to agree on a single state of the data, a consensus mechanism is needed. According to ethereum.org, it is the whole set of protocols, incentives and ideas that allow a network of nodes to agree. The most common approaches are:
- Proof of work. A block is added by whoever is first to complete complex calculations. This is how bitcoin works.
- Proof of stake. Validators put up collateral in the network’s cryptocurrency, and the system randomly chooses who will propose a block and who will check it. In Ethereum a validator deposits 32 ETH, and time is divided into 12-second slots and epochs of 32 slots. If a validator tries to cheat the network, part or all of their collateral is destroyed (ethereum.org).
- Proof of authority. Blocks are created by pre-approved participants who are trusted for their reputation. According to ethereum.org, it is mostly used by private networks, testnets and development networks.
Energy consumption also depends on the mechanism. Ethereum ran on proof of work but switched to proof of stake on 15 September 2022: this upgrade was called The Merge. According to an ethereum.org estimate, it cut the network’s energy consumption by about 99.95%.
Smart Contracts
Ethereum describes itself as a blockchain with a built-in computer whose state is maintained by all nodes. Developers upload programs, smart contracts, to the network, and users run them for a fee in ETH. Ethereum.org compares a smart contract to a vending machine: if the set conditions are met, the program performs the action itself, for example transferring the right to a digital asset after payment. Marketplaces, financial instruments and games are built on smart contracts.
Open and Closed Blockchains
An open blockchain, such as Ethereum, is available to everyone: anyone can join the network and check the data. A closed blockchain is run by known participants, and access to the records is restricted. Which one fits depends on the task, and the National Bank’s experience is telling here.
In 2018 the NBU ran a closed pilot project, “Electronic Hryvnia”: it issued a limited amount of e-hryvnia (equivalent to UAH 5,443) and tested transactions on a blockchain platform built on a private version of the Stellar protocol. In its analytical note on the results, the NBU found distributed ledger technology entirely suitable but not essential: for a model with only one issuer, the National Bank, it offers no fundamental advantages. Decentralized verification of transactions contradicts the role of a single issuer, and public transactions are not needed for such a currency, and sometimes even undesirable.
Where Blockchain Is Used Outside Crypto
The European Commission’s page about the European Blockchain Services Infrastructure (EBSI) redirects to the network’s website, where it is described as a European trust infrastructure overseen by EU member states. As of 21 October 2026, it lists 10 states in governance and 20 nodes in operation. Among the uses EBSI cites:
- diplomas and professional qualifications that an employer or institution in another country can verify without contacting the institution that issued them;
- digital product passports: data on a product’s origin, materials and compliance with requirements that any participant in the supply chain can check;
- official statistics: Eurostat is exploring how to confirm the authenticity of published datasets through EBSI.
These examples have one thing in common: here blockchain is not money but a way to prove who issued a record and that no one has changed it. Where data is kept by a single institution that everyone already trusts, an ordinary database often works just as well. The NBU reached a similar conclusion about the e-hryvnia.
Limitations and Risks
- A mistake cannot be deleted. What is written to a block is practically impossible to change, so an incorrect record can be corrected only with a new record.
- Publicity. In open networks everyone can see the data, so privacy has to be taken care of separately.
- Transaction fees. In Ethereum every request to the network is paid for in ETH: the network burns part of the fee, and the rest goes to whoever checked and executed the transaction.
- Code vulnerabilities. The code of a smart contract on a public network usually cannot be changed to fix a hole, and stolen assets are almost impossible to recover. According to an ethereum.org estimate, more than 1 billion dollars has already been stolen or lost because of security flaws in smart contracts.
Risk. The word “blockchain” in a project’s advertising guarantees nothing: the technology does not check the honesty of those who use it. For typical “crypto investment” schemes, see Cryptocurrency Fraud: 10 Schemes and How to Protect Yourself.
Frequently Asked Questions
Are blockchain and bitcoin the same thing?
No. Blockchain is a technology for keeping a shared ledger, and bitcoin is one of the networks and cryptocurrencies that use it. Other networks, such as Ethereum, also run on blockchain, as do non-cryptocurrency projects such as the European EBSI.
Can data on a blockchain be changed?
Practically no. To change an old block, you would have to change all the following ones, and that requires the network’s consent. So errors are corrected with new records rather than by editing old ones.
Can I run my own node?
In open networks, yes. For Ethereum you need two programs, an execution client and a consensus client. A light node does not need powerful equipment, but it cannot be a validator either.
How much energy does a blockchain use?
It depends on the consensus mechanism. Proof of work requires a lot of computation, while proof of stake does not: according to an ethereum.org estimate, Ethereum’s switch to it cut the network’s energy consumption by about 99.95%.
Does an ordinary business need a blockchain?
Not always. It is useful when several parties that are not subordinate to one another need to keep shared records and verify entries without an intermediary, as in the EBSI examples. If the data is kept by a single organization, an ordinary database is often enough.
