To function, blockchains require participation by a set of users (the parties who agree to exchange assets on the network), and a distributed network of nodes (the parties who agree to maintain copies of the ledger and actively verify user transactions).

In the Bitcoin blockchain, for example, anyone can become a user by buying bitcoin and sending it to a willing recipient, and anyone can become a node by downloading the Bitcoin blockchain software stack. In permissioned blockchain networks, only approved participants can become nodes and append transactions to the network.

When users exchange digital assets on a blockchain, this exchange generates a unique transaction which requires verification. Every transaction that takes place on a blockchain network is gathered into a pool and can be viewed by all participating nodes. Network nodes are tasked with validating the transactions according to a consensus mechanism (the specific set of verification rules that define individual blockchain protocols). Nodes verify that new transactions are legitimate and that no one using the network is trying to double spend (send the same asset to two different parties simultaneously).

Once the pool of recent transactions is validated by a node, it forms the newest block, one which is time stamped and cryptographically linked to both the preceding block, and the next block to be formed.