Frequently asked questions

A blockchain is a distributed, append-only ledger that records transactions in chronological blocks. Each block contains a cryptographic hash of the previous block, creating a chain. This structure makes it extremely difficult to alter past records without changing every subsequent block. The concept was first described in a 2008 whitepaper attributed to Satoshi Nakamoto, and has since been adopted and adapted by hundreds of distinct networks.

No. Blockchain is the underlying technology, a type of distributed ledger. Cryptocurrency is one application of blockchain technology. Blockchains can be used for many purposes beyond digital currencies, including supply chain management, identity verification, healthcare records, and academic credentialing. While cryptocurrency brought blockchain to public attention, the technology itself has a much broader range of studied applications.

A distributed ledger is a database that is shared, replicated, and synchronised across multiple locations, institutions, or geographies. Unlike a traditional centralised database, there is no single administrator. Each participant (node) maintains a copy of the records, and changes are agreed upon through a consensus mechanism. A blockchain is one specific type of distributed ledger, but not all distributed ledgers use a chain-of-blocks structure.

Decentralisation refers to the distribution of control across multiple participants rather than concentrating it in a single entity. In blockchain, decentralisation is achieved by having many independent nodes validate transactions, reducing the risk of a single point of failure or censorship. The degree of decentralisation varies significantly between networks: some have thousands of independent validators, while others rely on a smaller set of permissioned nodes.

A public blockchain is open to anyone: any person can read transactions, submit new ones, and participate in the validation process. Bitcoin and Ethereum are well-known examples. A private (or permissioned) blockchain restricts access. Only authorised participants can join the network, read data, or validate transactions. Private blockchains are commonly used by enterprises where data confidentiality is a priority, such as in internal supply chain tracking or inter-bank settlement trials.

A cryptographic hash function takes an input of any size and produces a fixed-length output (the "hash"). Even a tiny change to the input produces a completely different hash. In blockchain, hash functions (such as SHA-256) are used to link blocks together: each block contains the hash of the previous block's data. This creates a tamper-evident chain, because altering any block would change its hash and break the link to every subsequent block.

A digital asset is any asset that exists in a digital format and includes a right to use. In the blockchain context, this may include cryptocurrencies, utility tokens, NFTs, stablecoins, and security tokens. Each type has different characteristics, technical standards, and regulatory treatment depending on the jurisdiction. The UK Financial Conduct Authority uses the term "cryptoasset" to describe digital assets that use cryptographic technology.

A coin typically operates on its own native blockchain. Bitcoin (BTC) runs on the Bitcoin network, and Ether (ETH) runs on Ethereum. A token, by contrast, is created on an existing blockchain using a standard such as ERC-20 on Ethereum. Tokens do not have their own independent network; they rely on the infrastructure of the host blockchain. This distinction is primarily technical and relates to the asset's underlying architecture.

A non-fungible token (NFT) is a unique digital identifier recorded on a blockchain that certifies ownership of a specific digital item. Unlike cryptocurrencies, where each unit is interchangeable (fungible), each NFT is distinct and cannot be exchanged one-for-one with another. NFTs follow token standards such as ERC-721 and ERC-1155 on Ethereum. They have been used for digital art, gaming items, event tickets, and proof of attendance. The NFT itself typically contains a reference (such as a URL or IPFS hash) pointing to the associated content rather than the content itself.

A stablecoin is a type of digital asset designed to maintain a relatively stable value, typically by pegging to a fiat currency (like the US dollar or British pound), a basket of assets, or through algorithmic mechanisms. Fiat-backed stablecoins hold reserves in bank accounts or treasuries. Crypto-collateralised stablecoins use other digital assets as collateral. Algorithmic stablecoins attempt to maintain their peg through automated supply adjustments. Each design carries different levels of risk; algorithmic models in particular have experienced significant de-pegging events.

Token standards are sets of rules (technical specifications) that define how tokens behave on a given blockchain. ERC-20 is the most widely used standard for fungible tokens on Ethereum. It defines functions such as transferring tokens, checking balances, and approving third-party spending. ERC-721 is the standard for non-fungible tokens. These standards enable interoperability: any wallet or application that supports ERC-20, for example, can interact with any ERC-20-compatible token without custom integration.

A smart contract is a programme stored on a blockchain that executes automatically when predefined conditions are met. The term was coined by computer scientist Nick Szabo in the 1990s, but smart contracts were popularised by the Ethereum network from 2015 onwards. They are used in decentralised applications (dApps) for various functions including token transfers, governance votes, escrow services, and automated market making. While "smart contract" implies legal standing, these programmes are not contracts in the traditional legal sense. They also carry risks: bugs or vulnerabilities in the code can lead to unintended outcomes.

Web3 is a broad term used to describe a vision of the internet built on decentralised technologies, including blockchain, peer-to-peer networks, and token-based economics. Proponents argue that Web3 shifts power from centralised platforms to individual users by enabling data ownership and permissionless participation. Critics question its scalability, governance models, and whether decentralisation goals are achieved in practice. The concept remains actively debated among technologists, regulators, and researchers. Web1 (roughly 1990s) was the read-only web; Web2 (2000s onwards) introduced user-generated content and social platforms; Web3 proposes user-owned digital infrastructure.

DeFi (Decentralised Finance) refers to financial services built on blockchain networks using smart contracts, operating without traditional intermediaries like banks. Examples include lending and borrowing protocols, decentralised exchanges (DEXs), and stablecoin platforms. DeFi protocols carry significant risks including smart contract vulnerabilities, liquidity risks, oracle manipulation, and regulatory uncertainty. The total value locked (TVL) in DeFi protocols has fluctuated substantially since the sector emerged in 2020, reflecting both growing interest and the inherent volatility of the space.

A hard fork is a permanent divergence in a blockchain's protocol that makes previously invalid transactions valid (or vice versa). It requires all nodes to upgrade to the new version of the software. If some nodes do not upgrade, the chain splits into two separate networks, each following different rules. Notable examples include the split between Ethereum and Ethereum Classic in 2016, which occurred following a disagreement about how to handle a major smart contract exploit. Hard forks can also be planned upgrades where the entire community agrees to adopt the new rules.

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