Blockchain Basics

Blockchain provides a way for people around the world to collectively maintain a database without relying on a central authority. It's a new model for sharing and reconciling information, one designed for our interconnected, global future.


Where it All Started

For centuries, people have tracked information using a ledger: a simple chronological list of data. Bushels of wheat. Hogsheads of wine. Deaths from plagues and curses. Days since all those locusts. Ledgers!

As the scope of human activity has expanded, so have ways to track and synchronize data. Last century, information became (primarily) digital and our collective ledgers moved from paper to computers. This opened up many new possibilities, and databases—systems of enhanced, interrelated, electronic ledgers—were invented to harness the power of this new paradigm. Information was suddenly searchable, sortable, shareable, and transportable.

Today, databases underpin nearly every digital service. But the database’s origins in the pre-internet, pre-global era have begun to limit its usefulness, or at least call into question its ubiquity. Databases need a central authority to maintain them, and that authority has absolute power over what the database contains. For example, if Facebook wanted to change your Instagram to be just pictures of awesome swords, they could do that, unilaterally. You would just have to accept the swords. Or if a bank wanted to deduct 100 dollars from your checking account, they could do it. There, you’d surely notice and complain. But what if they only took a penny a day?

As the world has become more connected and our interactions more digital, we’ve needed something more resilient and more collaborative, something that will work at scale but not be subject to any single political ideology, personal motive, or corporate incentive, to manage our data.

Invented in 2009, blockchain is an answer to that need.

Blockchain is a method for keeping data synchronized across multiple, independent stakeholders. Where a traditional database is perfect for tracking records for a single entity, blockchain allows a group of entities, who might be unrelated and who might all have an incentive to alter their shared data, to agree on and maintain a single dataset.

Since the incentive to edit data in your own favor is very strong in financial systems, blockchain has so far been most useful for tracking money. Here’s the generic idea of how it works.


The Basic Idea Behind Blockchain

First, computers that want to share data join together on a network by running the same blockchain software. As data comes into the network — for example, as people spend and send money — the data is grouped together into “blocks” for verification. Then, on a regular schedule, usually every few minutes or even every few seconds, the connected computers vote on the current block of data, saying, in effect, “yes all this looks good to me” (or not). If the current block is rejected, then the network will vote on it again when the next block is submitted. If the current block is accepted, meaning the network agrees the data it holds is valid, it’s appended to the system’s entire past history of validated data blocks. So the data is “chained” together. Eventually, a long, connected chain of blocks forms.

This chain is stored on each computer on the network, and the appending happens using cryptographic functions that make it easy to tell if any past transaction has been altered in even the slightest way. So each time a block of data is added, the integrity of all previous data is, in effect, confirmed by the whole network.

If you wanted to cheat and, say, alter any past transaction (for example, to pretend you have more money than you are supposed to), you’d have to somehow alter the histories across all the independent computers on the system. Or join the network with enough new computers to vote your cheats into “fact.” This is called a 51% attack. In large systems like Bitcoin, such an attack would be impossibly expensive — you’d have to run too many computers. On the Stellar network, such attacks are impossible, by design, thanks to the Stellar network’s Proof-of-Agreement consensus mechanism. Submitting bad data in real-time also doesn’t work because eventually your selfish intention will be voted down and the network will agree on the right data.

There’s quite a bit of technical detail that goes into all this. The initial paper describing the first blockchain system is ingenious, and we highly recommend reading it.

Important Blockchain Products

At SDF, we don’t look at blockchain as a competition. There’s a lot of good software out there! Here are some resources to start if you’re looking to get a broad understanding of the blockchain space. Keep in mind, a lot of these are created and maintained by other communities and companies, so we can’t vouch for their up-to-the-minute accuracy.


Created a decade ago by the still-anonymous “Satoshi Nakamoto”, Bitcoin is the source and inspiration for basically all blockchain systems. Many popular platforms like Litecoin and Dogecoin are straightforward derivatives of BTC. The Stellar blockchain doesn't use the same technology, but takes inspiration from the basic blockchain principles Bitcoin set forth.

  • This is a good basic technical/conceptual Bitcoin primer.


Ethereum is one of the largest blockchain platforms. It’s similar in some ways to Bitcoin, but it was imagined as something more versatile than Bitcoin, which was designed to be just a currency. Ethereum was built to become another internet-style network or “world computer”—it has its own programming language (Solidity) that theoretically allows you to create any kind of program inside the Ethereum network. Such programs, called decentralized applications or “dApps”, would be (theoretically) resistant to government control and oversight.

Ethereum is known for “smart contracts” (contracts that execute automatically), and the many Ethereum-derived tokens issued on the network via Solidity. So far, Ethereum’s ambition exceeds its capabilities — the network is slow and clogged and the complexity of Solidity makes Ethereum programs buggy and exploitable. Despite some of these problems, however, many devs find Ethereum to be an inspiring example of a new programming paradigm.

Ethereum initially used Proof-of-Work to achieve consensus, but has recently switched over to Proof-of-Stake. This event is referred to as "the Merge."

  • The DAO–the “Digital Autonomous Organization”—was an early, idealistic Ethereum project that famously went sideways.


The Stellar blockchain network was created in 2014 and uses an environmentally-friendly syncing mechanism (Proof-of-Agreement) designed specifically for payments. Transactions clear in a few seconds, with fees costing substantially less than a penny. On the Stellar network, you can issue digital assets and trade them easily within and on/off the network.

What makes the Stellar network unique compared to other blockchains is its ability to connect to real-world endpoints, enabling people to convert their digital assets into something they can actually spend. Growing that ecosystem of real-world partners is a big focus for the Stellar Development Foundation.

  • These videos, made by Coinbase, a popular U.S.-based exchange, provide more context and information about the Stellar network.
  • Lumenauts is a Stellar network community site with a lot of great Stellar network-explainers. They’re bundled into a course that provides a very thorough overview of the platform.


This site may link to third party websites, as well as products and services offered by third parties. Such products and services are not offered by Stellar Development Foundation ("SDF"), and SDF has no right, title or interest in or to any of these products or services. SDF has no control over, input on, access to, or participation in the offerings of third parties or the decision by a third party to extend a product or service to any person. SDF does not independently review, validate, or verify any information received from or submitted by third parties. SDF assumes no liability or responsibility for any errors, mistakes, omissions, or inaccuracies of such information and makes no warranties or representations as to (i) the accuracy or completeness of this site’s content, (ii) the content of any third party website linked to this site, or (iii) the products, services or offerings of any third party operating on the Stellar network.

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