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Table of Contents
1. Blockchain Terminologies
- Gas Fees
- Validation of a block
- Mnemonic phrase
- Smart Contracts
- P2P Network
2. Introduction to Blockchain
3. What are the Popular Consensus Protocols ?
- Proof of Work (PoW)
- Proof of Stake (PoS)
- Delegated Proof of Stake (DPoS)
- Proof of Elapsed Time (PoET)
- Proof of Authority (PoA)
- Proof of Space (PoSpace)
- Proof of History (PoH)
4. What are Whitepapers?
5. Some Popular Blockchain
- Hyperledger Fabric
6. Safety from Scams
1. Blockchain Terminologies
- Crypto or crypto-currency, is a digital currency designed to work as a medium of exchange through a computer network that is not reliant on any central authority, such as a government or bank, to uphold or maintain it.
- Individual coin ownership records are stored in a digital ledger, which is a computerized database using strong cryptography to secure transaction records, to control the creation of additional coins, and to verify the transfer of coin ownership.
- In crypto, we see a lot of volatility. So, a term was commonly introduced: Hold On For Dear Life.
- It is more like an advice given to newbies in crypto that however volatile the market gets, the way to make profits from good projects is to hold on for dear life, simply put – hold on for a long time to see benefits out of it.
- Transaction in crypto space basically means an exchange of data or crypto.
- For a transaction to take place, whether it is a transaction of data or crypto, certain gas fee is meant to be paid.
1.3 Gas fees/Transaction fees
- Miners and validators validate transactions and make sure no wrong transactions take place and hence they are rewarded for it with some crypto.
- This rewarded crypto is the gas/transaction fees, people have to pay in order to make transactions. The more gas fees you pay, the faster the transaction will take place.
1.4 Validation of a block
- Before adding any block to a blockchain, it has to be validated by nodes.
- Suppose a certain node solves the mathematical problem meant to be solved to add a new block, that block won’t be added easily to the whole blockchain.
- For every node to add it to the blockchain, each node will verify if the block is acceptable or not.
1.5 NFT (Non Fungible tokens)
- NFTs are used to represent ownership of a unique asset.
- Asset can be either a virtual land, token or an image, which can be any unique entity with only one unique owner.
- NFTs are all the hype these days. Non Fungible tokens as the name suggests are digital assets that are non fungible (non replaceable).
- NFTs have opened up a whole new industry in the blockchain space. It can be any form of digital asset, from a picture to a doodle, from a music album to a graphic design, and many more.
- Some of the popular NFTs that you must have heard of include, Bored Ape Yacht Club (BAYC), Everydays- the first 5000 days, CryptoPunks, and many more.
- But why are they so valuable? It’s their community and utility they provide that decides their worth. As in the offline world people used to invest in paintings and stuff, in this digital era people are choosing to invest in digital art.
- NFTs are more than just Digital art, they have so many use case like it can be used as a token to a community event or pass to an virtual event, used for digital land purchases in virtual worlds and for next-generation music ownership, licensing and publishing.
- In, 2021 $250 M worth of NFT transactions took place.
- The most expensive NFT was sold for $69.3 million purchase of Beeple’s historic “Everydays: The First 500 Days” bought by Sundaresan, read the full story of most expensive NFTs sold – here.
- One of the rarest is this joker-face TPunk #3442. It was sold for 120 million TRX in August 2021 to Justin Sun, CEO of Tron. This was the most expensive NFT ever sold on the Tron blockchain.
- Defi, acronym for Decentralized Finance, is basically a finance technology meant to remove the third parties from a transaction.
- It takes control of money from third parties like banks and financial institutions back to people.
- Some popular Defi include names like PanCake Swap, Aave, Colony Lab, and many more.
1.7 Mnemonic phrase
- A mnemonic phrase is a word, sentence or a poem meant to be remembered or noted down safely at the time of opening a new wallet.
- It is the only security protocol or key, you can use to get your crypto wallet account back in case you forget the password.
- Warning: If you forget this mnemonic phrase or key or password, there is no way to recover the account, as there is no central institution maintaining the same.
- The concept of staking was introduced with the consensus protocol ‘Proof of Stake’.
- Here validators stake their crypto to validate a block and are rewarded for validating correctly and fined for wrong validations.
- You need to have a certain minimum requirement of crypto to be a validator, and thus makes it hard for people to become one but this problem is solved by staking pools where people give their crypto to be combinedly staked to earn rewards.
- Crypto wallets, similar to normal wallets, are just a means to securely store your crypto.
- They are designed in such a way that it is easy to transact but at the same time is impossible to be hacked by attackers.
- There are several security layers in a wallet and hence keeps crypto and NFTs safe.
- Most used crypto wallets are Metamask, Coinbase wallet, Binance, Ledger Nano X and crypto.com
- Web3 is a new era of the internet, a more decentralized and secure internet.
- In core essence it is – for the people, by the people, and to the people.
- It is the internet on blockchain and hence protects people’s privacy and hence provides an internet which is not controlled by a handful of people.
1.11 Smart Contracts
- Smart contracts are digital contracts written on blockchain or immutable agreements used to create a mirror of a legal agreement between two parties and stored over the immutable ledger.
- Smart Contracts are the second Evolutions for the blockchain.
- Rules written on a blockchain are automatically executed once the conditions are met.
- As smart contracts are written on blockchains, they are immutable and no changes can be made in it. But not every blockchain supports smart contracts, some that do include, Solana, Ethereum, Tezos, and many more.
1.12 P2P Network
- Peer to peer network, commonly known as P2P is a decentralized network communications model that consists of a group of devices (nodes) that collectively store and share files where each node acts as an individual peer.
- In this network, P2P communication is done without any central administration or server, which means all nodes have equal power and perform the same tasks.
- Blockchain is a type of DLT (Distributed Ledger technology), taking the concept of P2P network to a more secure, organized, and decentralized level, has become everyone’s source of attention.
- Blockchain is basically an immutable ledger, that is, it cannot be changed or manipulated in any way.
- Fiat or Fiat money is a currency that lacks intrinsic value and is established as a legal tender by government regulation.
- In simple words, Fiat is the paper currency of any country like INR(Indian National Rupees) in India.
2. Introduction to Blockchain
- Bitcoin, the first Cryptocurrency and the one that brought blockchain technology to the light in 2009, was created with an aim to build P2P form of transactions.
- Blockchain technology simply explained is a chain of blocks, where blocks contain data in a way that makes the data easy to access, immutable, safer and transaction irreversible.
Image from Pixabay – Source
- Blockchain is decentralized (Keep reading you will get it), which means a copy of data is stored in every node that is connected to the network which also makes it impossible to erase or modify a transaction.
- Blockchain is a network of nodes, where nodes can be anything from a computer to a mobile phone to a laptop on that network.
- All the data is stored on every node of the network. As there are multiple copies of the data, even if an attacker manages to manipulate the data on one node, we can easily identify the attack and protect the blockchain.
- P2P network, that is ‘Peer-to-peer’ network as the name suggests refers to a network where there is no mediator or third party involved. P2P, however, refers to the distributed network, blockchain is more based on decentralization of the network. These two words are often mistaken for one another, but they are efficiently different.
- Check this video link here to find the difference between “DLT vs Blockchain vs Bitcoin”.
A decentralized system is a subset of a distributed system. Blockchain can be called decentralized in terms of its architecture and control but it is centralized in terms of its build logic. It cannot be controlled by a single entity nor can it have a central control point in its network but it does follow a single logic. Think of as, how common law works, common law is nothing but general convention accepted on the basis of precedents.
Blockchain is architecturally decentralized because it does not have a central control point, politically decentralized because no single person makes it, it is like a practice accepted by the mass, but logically centralized because it is law and is meant to be followed.
To understand decentralization better, we a look at the image below
Read more about Decentralization – Here.
What makes blockchain so secure?
Blocks in a blockchain are held in a hashed form(Secret form that is very tough to crack), that way, one cannot read it with ease but more to that each block contains
- Block number,
- Nonce (Number only used once), and
- Previous block Hash.
So, if any changes are made in a data of block, its hash eventually changes but because every block contains a hash from the previous block, all the blocks after the victim block will not correspond to the chain. hence for an attacker to manipulate data in a blockchain, he will have to make changes to all the blocks that come after the targeted block.
If someone manages to make changes to all the blocks coming after a targeted block, is it still safe? Well, even if someone manages to hack all the blocks on a node, we still have a copy of the blockchain in all the nodes of the network. So, we can compare and track for any hacks easily. Hence, it is safe to say, hacking a blockchain and manipulating data is almost impossible.
Blockchain – A Long history a twitter thread – click here to read.
3. What are Popular Consensus Protocols?
- Consensus Protocols forms the structure for a blockchain to be built-on and to implement any other function on it.
- Consensus builds the logic behind any certain blockchain and hence is the only way, blockchain in any way is centralized.
- Theories say that, the blockchain is considered compromised if a hacker gets access to more than 51% of the network. Various types of consensus protocols solve the 51% attack problem in many ways.
- Blockchain Consensus also provides the following:
- Structure on how many new blocks can be added to the chain ?
- Maintains the integrity of each new block added.
Let’s discuss some of the popular consensus protocols:
3.1 Proof of Work (PoW)
- If you have heard of any Consensus Protocol, you have definitely heard of Proof of Work.
- It is one of the first consensus protocols and also the one on which several famous Cryptocurrencies such as Bitcoin, Ethereum and Dogecoin are based.
- Proof of Work is also the most energy-hungry among all the protocols.
- A lot of computational power and energy is consumed to solve complex mathematical puzzles to come up with a nonce value that generates block hash under a pre-set conditions .
- For example, in bitcoin’s chain, for a block to be validated it has to have starting 18 digits as zeros in its 64 bits hash.
3.2 Proof of Stake (PoS)
- Proof of Stake, created in 2011, is seen as a better alternative to Proof of Work by many.
- Ethereum, one of the largest blockchain networks, is seemingly shifting from Proof of Work consensus to Proof of Stake consensus.
- In Proof of Stake, mining is done through validators staking cryptocurrencies.
- These validators are rewarded for fair behavior and penalized for wrong.
- The only disadvantage of this consensus is miners can be bribed to validate a wrong transaction.
- Some of the Top cryptocurrencies such as Solana, Cardano and many more are currently based on the Proof of Stake consensus protocol.
3.3 Delegated Proof of Stake (DPoS)
DPoS, often known as democratic version of Proof of Stake. Here, a voting system is implemented to choose a validator to help in the validation of the new block. Other than validating new blocks, these validators will also help in validating transactions and in the process they will be rewarded with a transaction/gas fee. Delegated Proof of Stake protocol can also manage higher transactions per second (TPS) than Proof of Stake and can also quicker in performing and completing a transaction. Recently , DPoS is being used as a consensus protocol for blockchain projects like Bitshares, Steem and Tezos.
3.4 Proof of Elapsed Time (PoET)
Intel created Proof of Elapsed Time consensus protocol to be used in permissioned
blockchain networks. Now the way permissionless and permissioned blockchain networks
differ from each other is that you need permission to use a permissioned blockchain, while you don’t need any kind of permission to use permissionless blockchains. The two systems might sound similar, but they cannot be used for the same things. In PoET, each node is allotted a random waiting time, where the block which first completes the randomly chosen period, validates the block. Also, here anonymity is not a feature to anyone.
3.5 Proof of Authority (PoA)
Conceptualized by the co-founder and former CTO of Ethereum, Gavin Wood in 2017, Proof of Authority, as the name suggests, is a consensus where blocks are validated on the basis of the miner’s authority. Here, instead of cryptocurrencies, validators stake their reputation and authority to validate a new block and transactions. It is a perfect consensus protocol for private blockchains. PoA is also an easy-to-scale system for any blockchain as it works on a fixed number of block validators.
3.6 Proof of Space (PoSpace)
Proof of Space is somewhat similar to Proof of Work, but instead of work, here we validate a new block or a transaction on the basis of the disk space of the validator. Here, miners are incentivized on the basis of the disk space they allocate to a block. This consensus protocol is not very fair as it goes against the point of decentralization, as mining here is resource-biased. Projects like Burstcoin and SpaceMint are based on the Proof of Space consensus protocol.
3.7 Proof of History (PoH)
Proof of History consensus protocol came to light when Solana implemented it along with Proof of Stake to come up with a different consensus protocol. PoH makes transactions very fast and efficient as it does not require any validator or energy to validate a block. In PoH, timestamps are recorded for every transaction and combined with the transaction, are hashed and stored in the blocks. Every new block other than its own hashed form of transaction and timestamp contains the hash of the previous block. So, if any changes are made in any block by an attacker, its timestamp will change and hence, its hash won’t match with any next block. This feature of timestamps makes this consensus so secure and fast.
4. What are Whitepapers?
Whitepapers are the official documentation of any Crypto-Project. They shed light on the technology the project is based on and the scope and motive behind the project. It gives blockcchain technology enthusiasts and investors an idea of the of a project. Whitepapers contain the use-case, the future growth, time-lines of the project, and historical data/challenges of the use case . Bitcoin being the most popular crypto project, had one of the first whitepapers to be published in the crypto space, and that way, also the most read whitepapers. Whenever researching any certain project, it is crucial to read the whitepaper to know about the project in-depth. In short, a badly written whitepaper acts as a repellant, whereas a clearly written and easy-to-understand whitepaper works very efficiently. So, if you someday wish to start your own crypto project, be sure to make the whitepaper in an easy-to-understand manner, maintaining transparency.
Have a look at the following articles on whitepapers for Blockchain and Cryto:
- Top Whitepapers in Crypto and Blockchain – check it out here.
- Satoshi & Company: The 10 Most Important Scientific White Papers In Development Of Cryptocurrencies – click here.
5. Popular Blockchains in the industry
Several blockchains projects are now in the crypto space. Some are private, some are public, some are permissionless, some need permission to use, with each blockchain working on different logics and consensus, they are mostly different. Blockchains are nowadays implemented in several platforms, many use already existing ones, many build their own blockchains. With the rise in companies in Blockchain-as-a-service (Baas) space, blockchain technology is now the center of every tech entrepreneur’s attention. Currently, there are estimated to be over 30 popular blockchains in the market.
Let’s discuss some of the popular blockchains in the industry:
The most popular and the first blockchain to be introduced is Bitcoin. Created in 2009, bitcoin brought a whole new concept of digital currency at the foot of an economic recession. We do not know who invented or created it but an alias has been given to the person or organization that created Bitcoin, Satoshi Nakamoto. Bitcoin being the biggest cryptocurrency has a market cap of over 350 billion dollars even in this downtrend of crypto.
Image from Pixabay – Source
It is the most trusted, secure and biggest cryptocurrency out there. It does not support smart contracts to be built on it. As Ethereum is often referred to as the internet of blockchain, bitcoin is referred to as its gold.
It is widely known in the crypto space, that if Bitcoin is the gold of the crypto world, Ethereum is the Internet. Ethereum was created by a famous Crypto billionaire (billionaire due to Ethereum) in 2015 when Bitcoin’s developers rejected his idea of allowing apps to be built on the blockchain.
Image from Pixabay – Source
Vitalik Buterin, one of the contributors of the Bitcoin codebase built a new chain by considering the limitations of bitcoin. This second public blockchain is called Ethereum. Ethereum has the functionality of smart contracts that can automatically perform logical operations based on a set of criteria established in a blockchain.
His story is very much like if you can’t get your way, make yourself a different road. Ethereum is now being widely adopted by many blockchain developers to make their own dApps (decentralized applications). Ethereum was the first blockchain that allowed people to build smart contracts on it. A majority of big Crypto Projects run on Ethereum, and it has gained investments from several crypto billionaires and tech giants. It also has the biggest developer community and its own programming language called Solidity. With its defined rules and easy-to-use format, it has revolutionized dApps in the blockchain technology.
With the scarcity of developers we have in the industry, many of them already being Ethereum developers, many projects in the initial stage have to operate on Ethereum only because it’s very tough to find good blockchain and smart contract developers. But having such a big community is also a bad thing for Ethereum, because the network keeps on working on 100% capacity, it’s easy to get overloaded. So, nowadays scalability has been a major issue with Ethereum. With so many transaction requests in the network, the transaction speed has been very slow, topping the troubles with a high gas fee (transaction fee). Even after this, Ethereum’s big community is the reason for its quick growth and it still has the potential to grow more, as developers are working on ways to improve the platform’s scalability.
Polkadot was created by Ethereum’s Co-founder, Gavin Wood in 2016. Gavin Wood, with Web3 foundation, designed Polkadot with a total initial supply limit of 10 Million coins. When its ICO (Initial Coin Offering) was launched, 5 million coins were sold up right away, collecting over 140 million dollars worth in Ethereum. This ethereum was then stored on a cold wallet which was made by Parity, also a company by Gavin Wood. But in an accident with the wallet, 60% of the ethereum was said to have been locked away in 2019. But to recover those losses, more ICOs were organized, and their value was stabilized.
Polkadot Image by Author
Polkadot also is a contender for becoming the Ethereum- killer, as it is more scalable and has a low transaction fee. It works on the Proof of Stake consensus protocol. Polkadot is one of the very unique blockchains, even Ethereum 2.0 might implement some of its concepts. Polkadot’s supply can also be increased to even 1 billion, based on the votes of the stakeholders. Polkadot is more of a blockchain ecosystem where various platforms are connected to each other, rather than a blockchain in the traditional sense. Polkadot, being so unique that it is, has yet to achieve its full potential. With projects like RMRK, Moonriver, Moonbeam, Acala working on Polkadot, it has an amazing growth opportunity moving ahead.
5.4 HyperLedger Fabric
Anonymity is not always desired while working with some highly important data. This is where HyperLedger Fabric comes in. In 2015, Linux Foundation, with 30 other co-founders, such as IBM, Cisco, JP Morgan, Intel, and others, created HyperLedger Fabric, which is a permissioned blockchain network. Now, one might ask, what is a permissioned blockchain? As already explained above, the very simple explanation includes that you need permission to access this blockchain network, but there is more to that.
Image from Pixabay – Source
In permissioned blockchain, your identity is authenticated for you to access it. It is great to work on sensitive data transactions. HyperLedger Fabric has to comply with data protection laws, which makes it more safer for transactions. The platform users can create private channels for particular network members, meaning that only selected participants can access transaction data. However, it requires a hardware system to ensure a higher level of security. HyperLedger, very much like Ethereum, is very user-friendly.
Protocol Forks has been a big problem with many blockchains for quite a long time. Protocol Forks refer to a split that happens in a community when a new set of ideas has to be implemented to the blockchain’s basic set of ideas. When this happens, the chain produces a second blockchain that shares the same history with the previous chain, but now is a different chain of its own. This is the reason why Bitcoin has so many forks, including Bitcoin cash and Bitcoin SV. As a solution to this problem, Arthur Breitman created Tezos in 2017.
Image by Author
To avoid forks, Tezos works on a on-chain self-amendments protocol. According to this, protocols can be automatically upgraded if the majority of the stakeholders vote in favor of certain improvements proposed by any developer. This arrangement makes Tezos grow well because developers are constantly working on improvements. Tezos has seen a surge in popularity in the last couple of years. Staking, however, can be hectic and money blocking to some people due to lack of liquidity. But in Tezos, Liquid Proof of Stake is implemented that allows stakeholders to unstake anytime they want, i.e. No lock-up period. There is no doubt that Tezos is also a contender to be Ethereum-killer.
Stellar can simply be explained as a specialized transaction blockchain. It is the simplest of all the blockchains in this list but still better than many in terms of safety in transaction, in terms of transaction speed, and scalability. Stellar was created in 2014 by Jed McCaleb, who also founded Ripple. However, focussing on such a narrow scope alone also happens to be the reason it is so good for transactions.
Stellar is even trusted by IBM as they have chosen Stellar to create World Wire, a global payment system set to streamline cross-border money transfers. Being such a simple blockchain Stellar does not have its own coding language to write smart contracts on, and is liked by many developers because of its interoperability on different platforms.
Stellar has several layers of security and hence is safer. It can have a multi-signature batching system which makes it the best choice for any organization that needs to come up with a simple and effective smart contract.
Solana is not only one of the biggest contenders to be ethereum-killer but also the only smart contract platform currently available to us that can give big companies like VISA, a run for their money, in terms of transaction scalability. Solana was created by top software engineers from Intel, Dropbox, and Qualcomm in 2017. There are several blockchains that are trying to come up with a solution to the scalability problem and tackle the issues, but Solana is leaps ahead in this race.
Image by Author
Solana works on a combination of Proof of Stake and Proof of History protocols. Currently, it can easily have around 50 thousand transactions per second (TPS) on the platform. But is it the maximum limit it can reach? Absolutely not, developers say that Solana has the potential to even reach more than 700 thousand transactions per second which is a huge number compared to ethereum’s 15 TPS or Visa’s 24000 TPS. As more people join and invest in Solana, it will reach closer to its upper bound number. Solana is not just a transactional scalability solution to many of the problems but also solves the financial scalability of blockchains as it requires very less transaction charges (or gas fees).
Applications using Solana. Does Solana exist now?
Solana is still in its initial stage and has a lot of potential to grow more. Several big projects are also being established on its ecosystem including :
- Solsea (an NFT minting platform on Solana)
- Solanium (a platform to find Solana projects and invest in a crowdfunding manner), and
- Many other DApps like Audius and more.
Without any doubt, Avalanche is one of the most popular blockchain networks available to us these days. Created by Ava Labs, Avalanche was launched in September 2020. The platform’s public token sale raised $42 million in 4.5 hours, which is a big number in such a short period of time. Avalanche works on Delegated Proof of Stake (DPoS) consensus protocol. Being on DPoS, it is a bit tougher to become a validator on its network. But even so, there are several validators staking on Avalanche which shows that it is a promising project to have gained so much support in the little time it has been in the market.
Avalanche also is a great alternative to ethereum as it works on lesser gas fees and has a better scalability and can go as high as more than 4500 TPS, making it also a contender to one day compete with transaction giants such as VISA. In DPoS model, you can also delegate your stake to other validators to earn yield as well.
Projects for Avalanche
Avalanche is also a great choice for several DApps developers as evident from some big projects such as BenQi, Trader Joe, Pangolin, YieldYak, and many more working on its ecosystem.
6. Safety from Crypto Scams
With so much potential, there also are several risks involved with blockchain tech related projects. In October 2021, a scam worth more than 3 million plus dollar took place which is also called as Squid Games Scam, check this video here to read more on Squid Games Scam and how How to identify fake cryptocurrency? And how to be smart enough to avoid being scammed.
Image from Pixabay – Source
Scammers won’t stop trying to harm us but we have to get smarter in order to not get tricked. The best way to not get tricked and scammed is by gaining knowledge. Knowledge about the tech, about the projects, about the market should be gathered before diving into any project.
5 key points to remember to always be safe:
- Keep your wallet’s mnemonic phrase safe.
- Don’t connect it with just any platform before checking what access you will be giving while connecting.
- Make reading whitepapers a habit while exploring any project.
- Analyze how long the project has been in the making and who are the founders.
- Look into the future possibilities of the market and make your decision wisely.
The developments in Blockchain Technology, Metaverse, NFTs, Cryptocurrencies, Defi, clearly has overwhelmed the world with so many new concepts and technologies, to an extent that people even refuse to believe that it is possible. But it was the same when the Internet was first introduced, the same when the World Wide Web was introduced, the same when smartphones were introduced. New technologies often take time to be accepted by the world but as happened in the past, people will eventually get normalized to it. As more people get educated in the field, more improvements and new tech will be introduced, which will eventually make it more accessible to the people. (the reason why we wanted to research a lot and share this Blog with you to read and get benefitted! )
Right now, even with the few thousands of blockchain developers, the tech has developed a lot. People being skeptical of new things is expected, but let us take an example: Do you worry about the medicines your doctors give you when you are sick? No, because you know that they are qualified for it and hence you trust them.
Now, big companies like Microsoft, IBM, Facebook, Alibaba are taking interest in blockchain technology and some big shots even openly say that they see high potential for Blockchain tech in the future. Well, they are knowledgeable enough to say this. So, instead of being skeptical, we should learn, acquire knowledge, and work together to make the best use of new age technologies like Blockchain technology.
If you liked this Blog, leave your thoughts in the comments section, See you again in the next interesting blog!
Until Next Time, Take care!
– TheHackWeekly Blog By Vedaang
Checkout our Blog on “Comprehensive History of AI: First AI Model to Latest Trends” – here !p