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How Blockchains Work

How blockchains actually work: shared ledgers, keys and consensus, mining and staking, and the networks that matter most, Bitcoin, Ethereum and Tether.

Intermediate3 units · 17 lessons~48 min
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Syllabus

  1. Unit 1

    The Technology Behind It

    Intermediate7 lessons~26 min
    1. Overview, CurrentCurrent1 min
    2. Blockchains: a shared ledger nobody owns, Not started5 min
    3. Keys and signatures, Not started3 min
    4. Consensus, Not started3 min
    5. Transactions, and the two ways to keep the books, Not started5 min
    6. OP_RETURN: writing data into the ledger, Not started5 min
    7. Smart contracts, tokens and the scaling problem, Not started4 min
    8. Unit check, Not passed5 questions

  2. Unit 2

    Mining & Consensus

    Intermediate5 lessons~11 min
    1. Overview, Not started1 min
    2. The family of consensus proofs, Not started1 min
    3. How proof-of-work mining works, and the arms race, Not started2 min
    4. Energy economics and industrial mining, Not started4 min
    5. Staking, and the mining economics rabbit hole, Not started3 min
    6. Unit check, Not passed5 questions

  3. Unit 3

    Major Networks & Assets

    Intermediate5 lessons~11 min
    1. Overview, Not started1 min
    2. Bitcoin and Ethereum, Not started3 min
    3. Tether: one coin, many chains, Not started1 min
    4. Gas is paid in the chain's own token, Not started4 min
    5. The big three side by side, Not started2 min
    6. Unit check, Not passed5 questions

Cheat sheet

The Technology Behind It

  • A blockchain is an append-only ledger of blocks, each linking to the previous block’s hash — making it tamper-evident (immutable).
  • Keys: private key (secret, signs), public key (verifies), address (shareable, derived from public key).
  • Consensus: PoW (miners compete on computation) vs PoS (validators stake collateral).
  • Transactions wait in the mempool, get included in a block for 1 confirmation, and gain finality with each subsequent block.
  • Bitcoin uses UTXO; Ethereum uses the account model; fees are paid in the chain’s native token (BTC / ETH).
  • OP_RETURN is Bitcoin’s sanctioned data carrier: a provably unspendable output holding up to ~80 bytes of data — used for proofs-of-existence, token overlays like the original Omni-based USDT, and anchoring; Ordinals inscriptions use Taproot witness data instead.
  • Layer 2s scale throughput by settling to L1: optimistic rollups (fraud-proof challenge window) vs ZK rollups (validity proofs), plus Bitcoin’s Lightning.

Mining & Consensus

  • Consensus proofs come in a spectrum: PoW (Bitcoin), PoS (Ethereum), plus PoA, PoH (Solana), and DPoS (Tron/EOS) — each optimizing for different tradeoffs.
  • PoW mining = racing to find a hash below a target by changing a nonce; difficulty retargets to keep block spacing constant (Bitcoin ~10 min).
  • Hardware evolved CPU → GPU → FPGA → ASIC; ASICs dominate Bitcoin (SHA-256), while GPUs still mine ASIC-resistant algorithms.
  • Energy economics drive location: miners follow cheap/stranded energy (excess hydro, flare gas, remote geothermal) — not the cheapest retail electricity.
  • Industrial mining today: large farms, publicly-traded miners, colocation/hosting, and mining pools (solo mining is now impractical for Bitcoin).
  • PoS “mining” is really running a validator: solo staking, liquid staking (Lido, Coinbase), and staking-as-a-service; the attack deterrent is slashing, not electricity cost.

Major Networks & Assets

  • Bitcoin: UTXO + PoW, capped at 21M, halvings; Lightning is its L2; optimized for scarcity/security, not programmability.
  • Ethereum: account model + PoS (post-Merge), ETH is the fee asset, smart contracts are the differentiator; rollups are its L2 family.
  • Tether (USDT) is issued across many chains as separate deployments — redeemable 1:1 with the issuer but not directly fungible across chains.
  • Natively issued vs bridged: bridged variants carry bridge risk on top of the underlying asset risk.
  • THE KEY RULE: you pay gas in the chain’s native token, not the asset you’re moving — holding USDT on Arbitrum doesn’t let you send it; you need ETH too.
  • Wrong-network sends (e.g. ERC-20 USDT to a Tron address) usually cause permanent loss — always confirm chain + asset match.

Related

Educational only, not financial or legal advice.