Networks and chains explained

"Crypto" is not one place. There are many separate blockchains — or networks — each maintained by its own computers and each with its own rules.

A blockchain is a database that many independent nodes keep identical copies of. Transactions are bundled into blocks, each cryptographically linked to the one before, forming a chain that can't be quietly rewritten. Because no single party controls it, participants need a way to agree on which transactions are valid and in what order. That's the consensus mechanism.

The two dominant designs

• Proof of Work (PoW), used by Bitcoin, has computers race to solve a hard puzzle. The winner adds the next block and earns new coins, and security comes from the enormous energy cost of cheating.
• Proof of Stake (PoS), used by Ethereum since its 2022 "Merge" and most newer chains, has participants lock up ("stake") the network's coin for the right to validate. On Ethereum, a validator deposits 32 ETH, and cheating can destroy that stake ("slashing"). Security comes from financial skin in the game rather than energy.

Layers, and the trilemma

Chains trade off along the blockchain trilemma: being decentralized, secure, and scalable all at once is hard, so speed and low fees usually cost some decentralization. This is why you hear about Layer 1s and Layer 2s.

A Layer 1 (L1) settles its own transactions (Bitcoin, Ethereum, Solana). A Layer 2 (L2) is built on top of an L1 to make it faster and cheaper: it executes transactions off the main chain and posts the data (or a validity proof) back to L1 for final security. On Ethereum these are rollups, in two kinds — optimistic rollups (assume validity, allow challenges via fraud proofs) and zero-knowledge rollups (submit a cryptographic validity proof).

Two practical points

• Every network charges a gas fee, paid in its native coin (ETH, SOL, etc.), and fees rise when the network is busy — so you can't transact without holding a little of that coin.
• Networks don't natively talk to each other. The "same" asset on two chains lives on separate ledgers, so sending funds on the wrong network can make them unrecoverable.

Why it matters. Every chain is a different answer to one political question: how should strangers who don't trust each other agree on the truth, without a central authority? PoW answers with physics, PoS with economics. When you choose a chain, you're choosing which set of rules and values you transact under.