Blockchain: how records stay intact without a registrar

A blockchain is a way of keeping a shared ledger of records that is held not by a single organisation but by many independent network participants, none of whom can quietly rewrite the past. Records are grouped into blocks, each block is cryptographically linked to the one before it, and the rule by which the network settles on a single accepted version of the ledger is called consensus. Everything else (cryptocurrencies, tokens, smart contracts) is built on top of this mechanism; none of it is the mechanism itself.

What holds the chain together

A block is a bundle of records plus a header. The header contains a hash: a short string that an algorithm computes from the block's contents. A hash is designed so that the original data cannot be reconstructed from it, yet any change to the data, even a single character, produces a completely different hash.

The key trick is that every new block records the hash of the previous one. This creates a chain of links. If someone retroactively edits a record in an old block, that block's hash changes, so the reference stored in the next block no longer matches, and everything further down the chain falls apart. Forgery cannot stop at a single edit: the attacker has to rebuild the entire tail of the ledger and persuade the network to accept that version. Immutability rests on this arithmetic, not on the operator's word of honour.

Consensus: who decides which version is valid

The network's nodes are spread across the globe and do not trust one another. They need a way to agree on the order of records without an arbiter. Two common approaches have emerged.

Proof of work. To propose a block, a node has to find a header value that makes the block's hash satisfy a given condition. The search takes computing power and electricity. This makes any attempt to rewrite history expensive: an attacker needs to control the majority of the network's computing power and hold on to it while rebuilding the tail. This is how Bitcoin works; it was launched in 2009.

Proof of stake. The right to produce a block goes to a participant who has locked up their own coins as collateral. Break the rules and the stake is slashed. Here the cost lies not in electricity but in the risk of losing what has been put up. Ethereum has moved to this model.

Both models solve the same problem: preventing funds that have already been spent from being spent again, in the absence of a central bank to reconcile balances.

Keys and addresses: ownership without an intermediary

Access to records on a blockchain is granted by public-key cryptography. The owner holds a private key, a secret value used to sign transactions, and a public key derived from it, which in turn produces the address visible to the network. The network verifies the signature without knowing the secret.

This leads to a consequence that people usually discover too late: the private key is the ownership. There is no support desk that will restore access on presentation of a passport, and no mechanism for reversing a transfer sent to the wrong place. It is the exact opposite of how a brokerage account works, where records are kept by a licensed depository and a mistake in the payment details can be sorted out with real people.

What a blockchain does not do

It does not provide anonymity. Public networks are transparent by default: addresses are not tied to names, but the full transaction history is visible to anyone, and flow analysis helps link an address to a person.

It does not improve data quality. The algorithm guarantees that a record will not be altered after it is entered, but it does not check whether the record was true at the moment it was entered.

It does not replace a database where a trusted operator exists. Distributed consensus is the price paid for having no centre; if a centre is acceptable, an ordinary database is faster and cheaper.

The Russian framework

In Russia, digital rights and the procedure for issuing them are governed by Federal Law No. 259-FZ of 31 July 2020. It introduced the concept of digital financial assets and required them to be issued on information systems included in the Bank of Russia's register. This is a separate legal regime: digital financial assets issued under Russian law and cryptocurrencies from public networks are regulated differently, and the two should not be confused.

A candid caveat: TradeAlmanac's data sections cover the Russian market (equities, OFZ, the payment calendar), and the site has no directive-fed quotes for crypto assets. That is why this piece contains no prices and no market capitalisations: there is nowhere to source them from, and making them up is not an option.

What readers should take from this

First, distinguish the technology from the instrument. Blockchain as a record-keeping method may underpin tokenised debt that, in economic terms, is closer to bonds than to "digital gold". Second, understand what you are paying for: on a public network you pay a fee to have your transaction included in a block, and you take on responsibility for safeguarding the key. Third, get to grips with the terminology before a trade, not after it: the basic definitions are collected in the glossary.