Hey you!
Welcome back to “that’s what she said”, the newsletter that explains web3 better than your cousin at the Christmas dinner, who “invested in crypto once” and now thinks he’s Satoshi.
Two weeks ago, we dove into web3, broke down the different eras of the internet and their key traits (if you missed it, go educate yourself!). This time, we're going even deeper into blockchain basics. If web3 gives you the big picture, blockchain is the canvas it's all built on.
To understand the concept of blockchain, we need to strip away the hype and get to the actual mechanics. Because once you get it, everything else in web3 starts clicking into place.
Ready to finally know what everyone's talking about? Let's dive in.
📒 What is Distributed Ledger Technology (DLT)?
We should start with the bigger picture: Distributed Ledger Technology, or DLT.
Think of a ledger like a record book that tracks transactions, similar to your bank statement, but for everything. Traditional ledgers are controlled by one authority, but DLT completely flips this idea.
DLT is a system where transaction records are stored across multiple locations simultaneously, with no single point of control. Instead of one bank keeping your records, imagine hundreds or thousands of computers around the world all maintaining identical copies of the same record book. When someone wants to add a new entry, the majority of these computers must agree it's valid.
This approach gets rid of the need for a central authority while keeping records transparent, secure, and unchangeable. It's like having a group project where everyone has the same information and any changes need group approval, except this one works flawlessly.
What makes DLT so powerful is that it creates trust without requiring people to trust each other. Traditional systems make you trust banks, governments, or other institutions to keep accurate records. With DLT, the system itself becomes trustworthy through math, cryptography, and consensus rules rather than institutional reputation.
A distributed ledger needs a peer-to-peer computer network and consensus algorithms so the ledger gets reliably copied across all the different computer nodes in the network. There are several types of DLTs (hashgraph, Directed Acyclic Graph (DAG), holochain, tempo), but the most common one is blockchain.
🔎 Blockchain: The Most Famous DLT Kid
While all blockchains are DLTs, not all DLTs are blockchains, though these terms are often used interchangeably in casual conversation. Think of DLT as the broader category and blockchain as the most popular implementation.
Blockchain is essentially a distributed ledger where transactions are bundled into blocks and linked together in chronological order using cryptographic hash functions. Each block contains a timestamp and a reference to the previous block, creating an unbreakable chain of records stretching back to the very first transaction.
Here's where it gets interesting: each block doesn't just contain transactions, it contains a unique mathematical fingerprint (called a hash) of the previous block. This creates a domino effect where changing any historical transaction would require recalculating every subsequent block's hash. In a network with thousands of participants, this becomes computationally impossible.
As you remember, web3 sparked in 2008: blockchain was introduced by an unknown figure (or group) using the pseudonym Satoshi Nakamoto in a whitepaper titled Bitcoin: A Peer-to-Peer Electronic Cash System. In 2009, the first blockchain-based network — Bitcoin — was launched. It offered a simple but groundbreaking use case: sending money without needing banks or governments.
🛠 Blockchain Mechanics: How It Works
Let's break down the blockchain process step by step, because understanding the mechanics helps demystify the technology. Imagine you'd like to send some crypto to your friend. What happens in this case?
👉 Transaction Initiation
When you want to send cryptocurrency to someone, you create a transaction request. This is like writing a check: you're saying "I want to send X amount to person Y." You sign this digitally with your private key (like your unique signature) to prove you own the money.
👉 Broadcasting to the Network
Your transaction doesn't go directly to the recipient. Instead, it's announced to the entire network of computers called nodes. Think of it like shouting your transaction to a crowd: everyone hears it at the same time.
👉 Waiting in the Pool
Your transaction joins a "waiting room" called the mempool, where it sits with other pending transactions. It's like being in line at a bank: you wait your turn to be processed.
👉 Miners/Validators Get to Work
Special network participants called miners (in Bitcoin) or validators (in other blockchains) collect transactions from the mempool. They bundle multiple transactions together into a block, like putting several checks into one envelope.
👉 Creating the Block
Each block contains:
- Multiple transactions
- A timestamp (when it was created)
- A unique fingerprint (hash) of the previous block
- Its own unique fingerprint
This fingerprint system creates the "chain": each block is mathematically connected to the one before it.
👉 Network Verification
Before the block can be added, the majority of the network must agree it's valid (the rule according to which they agree on this is called a consensus mechanism). They check:
- Is your digital signature authentic?
- Do you have enough money for your transactions?
- Aren't you trying to spend the same money twice?
- Are all the math calculations correct?
👉 Reaching Consensus
Once most of the network agrees the block is valid, it gets approved. This is like having multiple witnesses confirm a contract is legitimate.
👉 Adding to the Chain
The approved block is permanently added to the blockchain, and copies are sent to all participants. Your transaction is now complete and cannot be changed or reversed.
As a result, your crypto appears in your friend’s digital wallet, and your balance decreases accordingly. All network participants can verify these changes.
👀 Core Properties of Blockchain
Blockchain's revolutionary potential stems from these fundamental properties that work together to create a robust, trustworthy system.
| Property | Definition |
|---|---|
| Decentralisation | The network operates across thousands of independent nodes, ensuring no single point of failure or control |
| Transparency | Creates a single source of truth shared across all participants as blockchain provides complete visibility into all transactions |
| Immutability | Ensures that once information is recorded, it becomes extremely difficult to change or delete |
| Security | Emerges from the distributed nature of the system. Instead of having one central database that hackers can target, blockchain spreads identical copies across thousands of computers |
| Consensus | The network participants collectively agree on what's true through predetermined rules and algorithms, creating a democratic validation process |
| Smart Contracts | These self-executing contracts automatically trigger actions when specific conditions are met, enabling complex automation without human intervention |
No need to panic! We'll break down consensus mechanisms, their various types, and smart contracts in the articles coming up.
⚡️ Types of Blockchain
Not all blockchains are created equal. Understanding the different types helps clarify why blockchain isn't a one-size-fits-all solution and why different applications require different approaches.
- Public blockchains are completely open networks where anyone can participate, view transactions, and contribute to consensus. They're the most decentralised form of blockchain, offering maximum transparency and censorship resistance. Examples: Bitcoin, Ethereum, Litecoin, Cardano.
- Private blockchains are closed networks controlled by a single organisation. They offer the benefits of blockchain technology while maintaining control over access and participation. Examples: Hyperledger Fabric, R3 Corda, JPMorgan's JPM Coin.
- Permissioned blockchains strike a balance between openness and control. They're open for anyone to use and view, but only certain authorised participants can validate transactions and maintain the network. Examples: Energy Web Chain, IBM Food Trust, VeChain.
- Hybrid blockchains combine elements of public and private blockchains, creating hybrid solutions that offer flexibility in how data is shared and accessed.
💪 Use Cases
Blockchain's versatility extends far beyond cryptocurrency, though that remains its most visible application:
- Financial Services benefit from faster, cheaper cross-border payments and reduced reliance on traditional intermediaries. Decentralised Finance (DeFi) platforms are rebuilding banking services from scratch, offering lending, insurance, and trading without traditional banks.
- Supply Chain Management gains unprecedented transparency, allowing companies and consumers to track products from origin to shelf while helping businesses identify inefficiencies and reduce fraud.
- Digital Identity solutions give individuals control over their data, reducing dependence on centralised authorities and improving privacy protection.
- Healthcare providers use blockchain to create secure, shareable patient records that improve care coordination while maintaining strict privacy controls.
- Real Estate transactions become more efficient through blockchain-based property records, reducing fraud and streamlining the traditionally paperwork-heavy buying and selling process.
- Voting Systems can increase election transparency and security, though careful implementation is needed to balance openness with voter privacy.
- Gaming has embraced blockchain through true ownership of in-game assets. Players can transfer characters or virtual land between games or sell them to others, creating "play-to-earn" economies that generate real income.
- Art & Media industries are transforming through NFTs and blockchain-based distribution. Artists sell digital works directly to collectors with verified authenticity, while musicians explore fairer revenue-sharing platforms that offer new ways to engage with fans.
🏔 Challenges and Limitations
Despite its uniqueness, blockchain technology faces significant hurdles that prevent widespread adoption:
- The Scalability Trilemma represents blockchain's fundamental challenge: networks can optimise for security, decentralisation, or scalability, but achieving all three simultaneously remains elusive. We'll cover this topic in more detail in the upcoming articles as well.
- Energy Consumption particularly affects systems like Bitcoin, which consume enormous amounts of electricity for mining operations (the computational process used to validate and add new transactions to the Bitcoin blockchain).
- Regulatory Uncertainty creates hesitation among businesses and individuals who need clear legal frameworks before committing to blockchain solutions.
- User Experience remains complex for average users who must manage private keys, understand gas fees, and navigate technical interfaces.
- Interoperability between different blockchain networks is limited, creating isolated ecosystems that don't communicate effectively.
Key Takeaways
- Blockchain spreads records across thousands of computers: No single authority controls the data, creating trust through math instead of institutions.
- Records can't be changed once added: Each block links to the previous one, making tampering nearly impossible.
- Transactions happen without middlemen: The network validates everything automatically, cutting out banks and other intermediaries.
- Six core properties make blockchain powerful: Decentralisation, transparency, immutability, security, consensus, and smart contracts.
- Different types for different needs: Public blockchains like Bitcoin are open to all, while private ones serve specific organisations.
- Uses go far beyond crypto: Supply chains, healthcare, gaming, and digital identity all benefit from blockchain.
- Still has problems to solve: Scalability, energy use, unclear regulations, and poor user experience hold it back.
Final Thought
And there you have it, mates! I know we've covered a lot of ground today, but here's the thing: we've barely scratched the surface of what makes this technology tick.
Think of today's article as getting your driver's license: you know the basics, but you're not ready for Formula 1 just yet. Coming up, we're going full degen mode as we dive deep into the blockchain architecture. Don't worry, I'll be right there with you, breaking it down so even your crypto-sceptic friend can understand why this stuff matters.
Keep learning, keep questioning, and remember: the best time to understand blockchain was yesterday, the second-best time is right now. So, don't lose the moment!
If you learnt something new today, pass it on. Share it with your community. Let’s spread the knowledge and level up together.
That's a wrap, normies. Quite soon, we're going under the hood with blockchain architecture and the web3 tech stack. Prepare to have your mind blown 🔥
Cookies She Left Behind
If you'd love to learn more about the basics of blockchain, I'd recommend checking out the video below:
- What is a Blockchain? by Whiteboard Crypto