Bitcoin, Ethereum, and how blockchains work

Crypto markets never close, move faster than most traditional markets, and are driven by forces that don't exist in forex or stocks — block rewards, network activity, token supply schedules. You don't need to be a programmer to trade crypto well. But you do need to understand what a blockchain is, how the two largest networks work, and why their supply and design shape their prices.

What you'll learn

• What a blockchain is, in plain language
• How transactions are validated: proof of work vs proof of stake
• What Bitcoin is designed to do, and its fixed supply schedule
• What makes Ethereum different: smart contracts and a variable supply
• Why these design choices matter to traders

1. What a blockchain is

A blockchain is a shared record of transactions (a ledger) that is copied across thousands of computers (nodes) instead of being held by one company.

• Transactions are grouped into blocks.
• Each block contains a cryptographic fingerprint (hash) of the previous block, linking them into a chain.
• Changing an old transaction would change its block's fingerprint and break every block after it — which the rest of the network would reject.

The result is a record that is very hard to alter and doesn't depend on a single trusted operator.

2. How blocks are agreed: consensus

The network needs a way to agree on which new block is valid. The two main methods:

For traders, the consensus method affects supply (how new coins are issued) and network economics — not the day-to-day chart directly.

3. Bitcoin (BTC)

Launched in 2009 by the pseudonymous Satoshi Nakamoto, Bitcoin was designed as peer-to-peer digital money with a fixed maximum supply of 21 million coins.

How new bitcoins are issued: miners receive a block reward roughly every 10 minutes. That reward is cut in half about every 210,000 blocks — roughly every four years. This is the halving.

Each halving cuts the rate of new supply. Why that matters to traders — and why the historical pattern needs caution — is covered in On-chain data and halving cycles.

How the market often treats Bitcoin: as "digital gold" — a scarce, store-of-value asset. In practice, Bitcoin has at times traded more like a high-risk technology asset, rising and falling with global liquidity and risk appetite.

4. Ethereum (ETH)

Launched in 2015, Ethereum is a programmable blockchain. Beyond payments, it runs smart contracts — programs that execute automatically — which power decentralised exchanges, lending protocols, stablecoins, NFTs, and more.

Key differences from Bitcoin:

Because fees are partly burned, ETH's net supply can shrink when network activity is high and grow when it's low. That links Ethereum's supply to how much the network is actually used.

5. Why this matters to traders

• Supply schedules are public and predictable — unlike a central bank's future decisions. Halvings and token issuance are known in advance.
• Crypto trades 24/7, including weekends, when liquidity is thinner and sharp moves are common.
• Crypto is highly correlated internally. When Bitcoin falls sharply, most other coins usually fall too — often further.
• Macro still matters. Crypto has often reacted to interest-rate expectations and risk sentiment, like other risk assets.

Common beginner mistakes

• Assuming "blockchain" means "safe investment". The technology can be secure while the asset price is extremely volatile.
• Treating all coins as similar to Bitcoin, ignoring differences in supply and purpose.
• Ignoring macro drivers because crypto is "decentralised".
• Using forex-sized positions on assets that routinely move 5–10% in a day.
• Forgetting weekends — crypto doesn't stop when your forex platform does.

Key terms

Practice

1. Find Bitcoin's current circulating supply and how much remains until 21 million.
2. Find the date of the next expected Bitcoin halving (block-explorer and data sites estimate it).
3. Compare BTC's and ETH's average daily percentage move over the past month. How much more volatile is ETH?
4. Check your broker's crypto trading hours and weekend spreads.

Quick recap

• A blockchain is a shared, tamper-resistant ledger maintained by many computers.
• Proof of work (Bitcoin) and proof of stake (Ethereum) are the two main ways networks agree on blocks.
• Bitcoin has a 21 million cap and a halving roughly every four years.
• Ethereum runs smart contracts, has no fixed cap, and burns part of its fees.
• Crypto trades 24/7, is highly correlated internally, and still responds to macro conditions.