What a blockchain is, and what it isn’t

The metaphor that works — a spreadsheet?

The differences from an ordinary shared sheet are four, and they all sit in the rules. There isn’t one copy — everybody holds a whole one. Rows already written don’t get edited. Everybody sees everything. And adding a row means following a mathematical procedure, not asking permission from whoever made the file.

The name comes from here too. Rows don’t go in one at a time. They are gathered into groups — blocks — and each block carries the fingerprint of the one before it stamped into it. Blocks in a chain, blockchain. Keeping in mind that there is a table underneath is what stops you being impressed. What is remarkable isn’t the technology. It’s the rules they built around it.

Who decides a row is true?

If the majority says it is fine, the row goes into the block and becomes final. If somebody tries to write that they sent money they don’t have, the others have the whole history in front of them and reject it. Nobody has to investigate. The numbers not adding up is enough.

This is why the number of copies matters more than the power of any one of them. A network with few copies in few hands is faster and more fragile. One with many copies spread around is slow and hard to bend. The two don’t go together, and that is why blockchains differ so widely from one another.

How do you earn the right to write?

In the second — proof of stake, Ethereum’s since 2022 — whoever wants to take part puts up tokens as security instead, like a bond. Validate honestly and you are paid; cheat and the bond is taken away. It burns a fraction of the energy the first one does.

Both serve the same purpose — making dishonest behavior expensive, without anyone having to be trusted. And both have a price, energy on one side and concentration of capital on the other, which is the subject of the guide devoted to it, where the comparison is made point by point.

The four properties, and what they cost?

Immutable means nobody rewrites the history, and neither do your mistakes get rewritten. Transparent means everything is checkable by anyone, including what you do. Distributed means the network doesn’t go down, not that power is spread out. Always open means no opening hours, and it also means the risk doesn’t sleep.

It is immutable. What is written stays, and nobody can rework the history — which goes for your mistakes too. Send the money to the wrong address and it has arrived, for ever, with no appeal. It is transparent. Anyone can download the whole history and check it, from day one — which goes for yours too. Addresses carry no names, but everything you do is visible to anyone who cares to look, and whoever puts two clues together gets to the person.

It is distributed. If a piece goes down the network carries on, and switching it off would mean switching off the internet — which doesn’t stop power concentrating, as we’ll see two lines from here. And it is always open. No opening hours, no weekend, no holidays, which is convenient, and also means a position can be liquidated at three in the morning while you sleep.

How distributed is it, in practice?

In bitcoin the copies of the ledger number in the thousands, but the computing power is concentrated in a few mining pools. In Ethereum anyone can validate, but it takes thirty-two ether to do it alone and about 25% of the stake goes through a single operator. On the fast networks the validators are few by construction.

Ethereum has the mirror-image problem. Anyone can take part, in theory. In practice it takes thirty-two ether to do it alone, so almost everyone goes through somebody who does it for them — and one operator, Lido, currently carries about 25% of the total stake. The faster networks, from Solana down, have few validators by construction. That is the price they pay for speed.

The useful conclusion isn’t that it is all a fiction. It’s that “distributed” describes resistance to being switched off, not the distribution of power. Those are two different things, and they are worth looking at separately — not least because the first is nearly always true and the second nearly never.

What is it actually good for, and what not?

These hold up: transfers of value between countries, agreements carried out by a contract, ownership of digital goods. These don’t: supply-chain tracking, because a false entry at the start becomes permanent; voting, because a stolen key votes in your place irreversibly; medical records, which don’t improve by being public and impossible to correct.

It is no good where the problem is a different one. Tracking tomatoes from the field to the supermarket doesn’t become reliable because the ledger is immutable. If something false is written at the start, that falsehood becomes permanent — garbage in, garbage for ever. Voting from home doesn’t become secure: whoever stole your key would vote in your place, irreversibly. Medical records don’t get better by being public and impossible to correct.

The question to ask, before every “let’s put it on the blockchain”, is always the same one. Does the ledger here have to be immutable and public, or do I just need a database built properly? In the second case an ordinary database costs a thousand times less and can be corrected, which is often exactly what is wanted.

Why is it talked about as a revolution?

It is underrated because underneath that noise sits something that did not exist before: a ledger nobody controls, that anyone can write to by following the rules, and programs that carry out an agreement with nobody having to authorize them. That opens up possibilities that weren’t there — decentralized finance is the first and the most concrete.

Two questions are enough to find your bearings. The first: which intermediary is this thing taking out? If there is no answer, a blockchain isn’t needed. The second: what breaks if the code is badly written? Because in a system where what is written stays written, a mistake doesn’t get corrected. It gets paid for.