Blockchain Basics, Part 1
Calling all women in web3! Welcome to the first installment of our Blockchain Basics Crypto Witch Club Guide on our blog! Ready to start learning all things blockchain?
WHAT IS BLOCKCHAIN TECH?
A blockchain is a growing list of records (called blocks) that are linked together using cryptography. These blocks contain information that forms a chain. Once data is recorded, it cannot be modified, corrupted, or deleted. Think of it as an unbreakable database — or like a google sheet or excel document where each box stacked on top of each other forms a column. However, unlike a google sheet or excel document, once the information is submitted into those boxes / blocks, it cannot be altered or corrupted. Permanence, baby.
You actually may be already using blockchain already without knowing it …
Blockchain is already used for:
Monitoring supply chains and food safety
Copywriting and royalty protection (hello, artists)
Streamlining healthcare data to increase efficiency of personal medical records
WHAT IS CRYPTOCURRENCY?
Cryptocurrency (or ‘crypto’) is digital currency that can be used to protect your savings against inflation, earn interest, and invest in new technology. Cryptocurrency uses an online ledger (blockchain) with strong cryptography to secure online transactions. What does that even mean?
The Breakdown
You don’t need a bank account to hold or transfer crypto, it’s accessible to anyone with a phone
Faster transactions + lower transaction fees
Can receive higher APY than traditional banks offer
Cuts out middleman (traditional banks!
Gives access to credit
Cannot be counterfeited
WHAT ARE NFTs?
NFT stands for non-fungible tokens. An NFT is not a cryptocurrency, but — like cryptocurrencies — uses blockchain technology to assign ownership to digital and physical items. NFTs carry unique identifiers, allowing the tokenizing of real-world items through smart contracts. This facilitates the ability to buy, sell, and trade NFTs. Smart contracts built into an NFT’s code also allows for royalties to be executed.
What COULD be an NFT
Any digital asset that can represent a real-world object can technically be turned into an NFT. This includes:
Music
Restaurant + Hotel reservations
Experiences
Your passport
Merchandise
Real estate
HOW DOES BLOCKCHAIN RELATE TO CRYPTOCURRENCY?
If you don’t read anything else here — read this Witches! Here’s a quick breakdown on how this ecosystem works together.
Now that you know that blockchain is a growing list of records (blocks) that forms a chain that cannot be altered or corrupted — let’s break down how it relates to cryptocurrency and NFTs.
Think of a blockchain as train tracks. These train tracks are the foundation on which cryptocurrency and NFTs (trains) run on. The blockchain provides security (through cryptography) and infrastructure that keeps the trains — cryptocurrency and NFTs — safe, without needing to be governed by a central figure or bank.
NEED TO KNOW TERMS
COIN VS. TOKEN
All cryptocurrencies fall into 2 categories: Coins and tokens. Here’s the difference (once you know, it’s easy to spot!)
Coins are cryptocurrencies that have a standalone, independent blockchain
Tokens are cryptocurrencies that DO NOT have their own blockchain. For example, ERC-20 tokens run on the Ethereum blockchain
These are coins: BTC, ETH, XRP, BNB
These are tokens: LINK, MANA, MKR, WBTC
SOME DIFFERENT PROTOCOLS
Proof-of-work (PoW) Proof-of-work (PoW) is based on cryptography — a form of mathematics. (Hence, the name cryptocurrencies!) Cryptography uses mathematical equations that are complicated and require powerful computers to solve. Due to that, it can result in extremely high energy consumption. (PoW) Proof-of-work (PoW) is based on cryptography — a form of mathematics. (Hence, the name cryptocurrencies!) Cryptography uses mathematical equations that are complicated and require powerful computers to solve. Due to that, it can result in extremely high energy consumption.
Proof-of-stake (PoS) Proof-of-stake (POS) came after POW — as an alternative to high energy usage and (sometimes) slow transaction times. Using POS, miners can validate block transactions based on how many coins they themselves hold. This diminishes the need for large amounts of energy required to complete a transaction — as no complicated mathematical work is required to execute.
Delegated proof-of-stake (DPoS) allows stakers to vote directly OR give their voting power to another to vote on their behalf. The power of a stakes’ vote is based upon the size of their stake (or the size of the stake they are voting on behalf of.) Select witness create blocks by verifying transactions
Liquid proof-of-stake (LPoS) is where token holders can loan their validation rights to other users without losing their tokens
Nominated proof-of-stake (NPoS) is where validators are selected (nominated) to participate in the protocol. Validators produce new blocks, while nominators contribute to the security and share rewards
Pure proof of stake (PPOS) is where each user’s influence on the choice of new block is proportional to their stake (number of tokens_ in the system. Users are selected at random to propose and vote on blocks
Proof-of-authority (PoA) Proof-of-authority (PoA) is a protocol where transactions are validated by approved accounts (validators). This is an automated process that does not require validators to be engaging, however, candidates are responsible for keeping their node/s safe. A node is a system connected to the cryptocurrency network that can execute specific functions.
Proof-of-history (PoH) is a variation of proof-of-stake-based protocol that provides cryptographically-based ‘timestamps’ built into the blockchain.
Triple Proof Node System: A hybrid protocol that utilizes proof-of-work, proof-of-stake, and proof-of-storage with the aim of increased security.
Zero-knowledge-proof: Zero-knowledge-proof (ZKP) is a protocol is where one party can ‘prove’ to another a given statement is true, without providing additional information (such as passwords or data).
Crypto Witch note: Ethereum (ETH) is in the process of moving from a PoW protocol to PoS, which will make it more energy efficient. More on that in part 2 of this Guide.
COINS TO KNOW
Bitcoin (BTC), The matriarch
Bitcoin (BTC) is the 1st EVER cryptocurrency created (January 2009.) Launched during the financial crisis, BTC follows the ideas set out in a whitepaper by ‘Satoshi Nakamoto’ a mysterious person or group of people that remain anonymous to this day.
BTC’s utility is to function as a store of value (savings account)
BTC has a limited supply — only 21 million will ever be available
BTC is affordable — you don’t have to purchase a full Bitcoin to invest — you can purchase as little as a Satoshi — a unit of bitcoin equivalent to 100 millionth of a bitcoin. Want to invest $10? No biggie, you will own a fraction of Bitcoin that is equal to $10 (based on BTC’s price at your time of purchase.)
Ethereum (ETH), Little sister to BTC — faster + ‘smarter’
Ethereum (ETH) was created by developer Vitalik Buterin and launched in 2015 — six years after Bitcoin. Ethereum is an open-source, blockchain-based cryptocurrency with smart contract functionality — meaning it’s technology can be used for several different purposes, such as creating NFTs and DeFi lending.
ETH is faster than Bitcoin and has the capability to process transactions more quickly
ETH is an open-source blockchain — meaning other crypto projects can run off its framework. These tokens are called ERC-20 tokens
ETH can be used for multiple utilities — from lending (without needing to use a bank as in intermediary), storing data, and self-executing contracts — known as ‘smart contracts’
Craving more?
Download our FREE Blockchain Basics Guide on our website to read the next segments or stay tuned here for the next Blockchain basics drop on proof-of-work versus proof-of-stake, altcoins, crypto exchanges, and hardware + software wallets.