Everything Crypto Explained
Cryptos, blockchain, NFTs, and Web 3.0 all explained.
“Yo did you hear about Bitcoin?”
“Web 3.0 is secured because of the blockchain!”
“Ethereum 2.0 is having a proof-of-stake system!”
You probably heard people say this. Many times. After all, that’s why you’re here. Even if you know nothing, everything is going to be explained here. NFTs, blockchain, Web 3.0, etc. Everything.
The Blockchain
Everything is powered by the blockchain. Cryptos, NFTs, and Web 3.0.
What is the blockchain?
The blockchain is like a database or a digital ledger. It is just a list of records, all chained together.
What are blocks?
Blocks are the individual records on the blockchain. Each block contains:
- Data — This could be transaction data, etc
- Hash — A base 16 number representing the encrypted data
- Previous hash — The hash of the previous block, thus creating a chain of blocks
Why blockchain?
The blockchain was created so that data could be stored in a decentralized environment. This means that nobody owns all of the data singlehandedly. Instead, everyone has their copy of the blockchain, and each time a new block is added, everyone’s blockchain also gets the new update.
About Decentralization
Decentralization. The blockchain is decentralized, again, meaning that nobody owns and everybody has a copy of the blockchain. Each copy is synchronized with the other.
Wallets
If a cryptocurrency (see the crypto section for more information) is running on the blockchain, then every participant of the blockchain (called nodes) has a wallet address. They have a public wallet address for receiving transactions, and a private wallet address for spending. The public wallet address is public, but the private wallet address should always be private. You can think of the public wallet address as a username, and the private wallet address as a password.
How does it work?
- Request — Someone requests a transaction and signs it with their private wallet address.
- Broadcast — All nodes in the blockchain network get notified of the transaction
- Proof-of-Work — Nodes validate the transaction by “mining” it. They try to brute force generates a hash that meets a certain requirement, like X amount of zeroes at the beginning of the hash. This computational problem gets harder as more nodes join the competition, thus removing the risk of a monopoly. The first node to solve the problem gets rewarded with cryptocurrency (see a crypto section for more information on it). This processing time varies depending on the difficulty level, but for Bitcoin, it is 10 minutes.
- Consensus — Before the block is finally added to the blockchain, all nodes of the network verify that the signature by the private wallet address of the block has not been tampered with and is valid.
- Addition — Once there is a consensus, the transaction is complete and added to the blockchain
How are they secure?
- Hashing — All of the blocks are hashed and cryptographically secure. If you change one of the block's data, then the hash will change, therefore the previous hash on the next block will be wrong, making all following blocks invalid
- Proof-of-work — The proof-of-work is done by “mining” a block. Since mining is hard and takes time, it ensures that the blockchain is secured. For example, if a hacker changes the transaction data on the block, it makes all following blocks invalid, so the hacker must mine every following block again, slowing down the hacker
- Consensus — Even if a hacker somehow mines every following block, making their blockchain valid again, remember that everyone has a copy of the blockchain. So, the hacker only tampered with their blockchain, and to broadcast the changes to all of the participants, they must take control of 51% of the blockchain, which is nearly impossible.
Cryptos
Cryptocurrency is just digital currency. However, what makes it different from U.S. dollars or any other currency is that it removes the need for a middleman. For example, if you wanted to send someone some dollars, your transaction would go through a middleman like your bank, before going to the other person.
In crypto meanwhile, there is no middleman, therefore you do not need to trust anyone. Your transaction goes straight to the other party. What makes cryptos secure is the underlying blockchain technology.
NFTs
Ah. NFTs. The craze. Most people don’t even know what it stands for and still try to get into it.
NFT stand for a non-fungible token, meaning that each NFT token is non-fungible. This means that one NFT is not equal to another NFT, unlike one Bitcoin that has the same value as another Bitcoin. An NFT is a unique digital asset, mostly digital art, and people bid for them in a cryptocurrency called Ethereum. The winner of the bidding gets the NFT and is the official owner. Now yes, anyone can take a screenshot of the NFT right in their browser, however, they are not the official owner of the NFT, meaning it won’t have any value. It’s like Pokemon cards, if you print out a copy of a Pokemon card, nobody will want it since it is just on plain paper.
NFTs are run on the blockchain also.
NFT Collections
This is where the craze begins. NFT collections are just like what they sound like: a collection that contains many NFTs. These NFT collections are made up of a few base layers, like eyes, hair, mouth, nose, shirt, etc. Then, these base layers are combined to make a unique NFT.
But what makes this interesting, is that certain base layers have different rarities, like a certain type of hair which is rare. This rarity and scarcity drive value for NFTs.
OpenSea is a popular NFT marketplace.
To learn more about NFTs, see this blog by me.
Web 3.0
Web 3.0 is an idea for the next iteration of the web, ran on the blockchain. How Web 3.0 is expected to work is that you own all of your data. In the modern age of technology, monopolies and tech giants collect and sell your data to third-party companies. Meanwhile, in Web 3.0 you own all of your data. You can choose to sell it you wish, and you can remove it whenever you like.
To incentivize users, Web 3.0 promises to “tokenize” every possible interaction. This means that every possible action will reward the users with some type of token, either cryptocurrency or an NFT. Then, the user will have a collection of cryptocurrency and NFTs and can sell it in this vast ecosystem of tokens.
To read more about Web 3.0, see this blog by me.
Summary:
Nobody knows the future of crypto. Nobody knows the future of NFTs. Nobody knows the future of Web 3.0. But one thing is certain, blockchain technology will continue to be used and will have a huge impact on our lives.
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