Diving into the Technical Depths of Cryptocurrencies
Bitcoin, and Ethereum- let’s get it out of the way that these two things are pretty commonly heard these days, whether it’s on the news, discussed with your friends, or even just by browsing the web from your own curiosity. I remember the time when all of this started to make sense to me, and that was when I realized- there’s more to it than just Bitcoin and Ethereum.
If we look at it, these two terms are pretty broad but the one key attribute they share is the fact that they’re both cryptocurrencies.
This article is pretty much all about that. I’ll explain what they are, and then dive into the technical depths like blockchain technology, decentralized networks, types of cryptocurrencies, how people are taking advantage of these coins, and what’s just up on the horizon for this new technology.
Cryptocurrencies 101
It’s essentially in its name- a cryptocurrency is any form of currency that’s digital or virtual, that works on blockchain technology. It’s mainly used to make payments online to buy goods and services! You may already know that Bitcoin and Ethereum are the two main examples of cryptocurrencies, but there are in fact thousands more that are all maintained by a decentralized system.
Okay, well you’re probably wondering about the fact that there are already things that achieve the same goal… like PayPal or Cashapp.
Cryptocurrencies are decentralized and free from any third-party interferences. This essentially means that nothing is controlled by the government, or central authority, unlike other payment systems that the bank or the government is handling. This is important because cryptocurrency transactions pretty much never fail.
The Blockchain
Now you should have a brief understanding of what cryptocurrencies are, but the main thing that sets aside how they work is the blockchain.
We all know that whenever someone sends money, they’re creating a transaction. Whenever it’s made, there’s a hash created. In the blockchain, a hash is basically a secret code that only you can remember if you combine a few other codes you always knew. The blockchain is a way of transmitting money, without the need for other centralized banking networks.
It stores data in a transparent and unalterable way. Since it’s transparent, it makes attempting to alter data pretty much virtually impossible since others on the network would be able to view any changes made.
Transactions: We know that a transaction is when someone sends money or assets to someone else. Now when a transaction is recorded in the blockchain, all the details (price, ownership, etc.) are verified by consensus across all nodes. (groups)
Blocks: Blocks are linked together in a chain and they are batches of transactions with a hash of the previous block in the chain. This essentially means that once a block is put together by some miner on the network, all nodes add this to the end of their blockchain. Other miners who hear about a new block, must accept it as the next block on the blockchain, which is what makes all of this super secure.
Proof-of-Work: Proof-of-work is an idea in blockchain that allows decentralized crypto networks to come to an agreement on transactions. We see this concept through almost every transaction as I mentioned before, and it prevents/makes the chain insanely difficult to compromise or manipulate. Though as the years’ pass, proof-of-stake will be more prominent.
Proof-of-Stake: Proof-of-stake does require a validator, similar to traditional proof-of-work, however, PoS comes with a ton of improvements; better energy efficiency, reduced hardware requirements which makes the blockchain more accessible to everyone, better immunity to centralization (more nodes in a network), and also stronger support for the blockchain in general.
Centralized vs Decentralized Networks
Centralized
A centralized cryptocurrency network is a platform where digital assets may be bought and sold. In this case, you must rely on a third party to monitor the transaction and protect the assets on behalf of the investor. Their transactions are not recorded on the blockchain.
You must offer your personal details for verification in these exchanges. If you’re a company, on the other hand, you’ll need to give the exchange with your corporate details so it can verify your account. Now this may seem pretty secure, but there are still some chances of breaches occurring, which is why decentralized networks come into play.
Decentralized
Decentralized cryptocurrency networks provide the same end result as a centralized one and they are pretty similar, but the biggest difference between the two is the fact that it doesn’t have a third party on which you can rely. All of the funds are stored in the blockchain. Decentralized platforms allow peer-to-peer trading for which it uses assets and tokens, unlike the centralized system.
How it Works:
- An order is placed by a token owner to exchange his or her assets for another asset offered in exchange. The token owner determines the amount of units they must sell, the token’s price, and the time limit for accepting bids for their assets.
- Other users can offer bids by putting a buy order after the selling order has been made.
- Once the sellers have chosen the time, both sides evaluate and execute all of the offers.
Web 3.0
If I were to give a one-liner about what web3 is all about, I’d say that it’s literally the next era of the internet. When I was learning about this topic, I found that the easiest way to grasp this new innovation was to understand the history of the internet.
The Internet
The internet pretty much altered the world as we know it. If you really think about it, I’ll emphasize that the internet changed everything. For example, let’s just say you’re curious about a problem you’ve been having. Depending on it, a quick Google search might solve it. With all that being said, obviously this breakthrough invention had its stages before becoming what it is today.
Web 1.0: Web 1.0 features static websites where data and content are served through the websites' file system. In other words, these pages have little to no backend systems which almost every website today has. Most sites in the Web 1.0 era were personal websites / portfolios.
Web 2.0: For the past decade we’ve been in the Web 2.0 era where popular websites like Facebook, Twitter, and YouTube take place. These types of sites feature dynamic content, developed APIs that were utilized, more secure data storage systems, and they also allow users to retrieve, and input data within the site.
Web 3.0: Web 3.0 is the next evolution of the internet where websites are governed by blockchain technology. Web3 allows you to manipulate and interact with a blockchain node remotely or locally. Instead of using a centralized server like mainframes, this uses peer-to-peer decentralized networks. Instead of using an HTML API, these use smart contracts, which are self-executing applications deployed on the blockchain.
Decentralized Autonomous Organizations
DAOs are essentially member-owned communities. You can think of it as an internet-native business without centralized leadership. It’s an organization with no independent CEO that can authorize changes and handle services. Instead, you don’t need to rely on/trust anyone in the group as you’re just trusting the code which is fully transparent and verifiable by everyone.
The Future of Cryptocurrencies
If you look at pretty much any popular long-term cryptocurrency chart on the internet, it’s obvious that the popularity behind this technology has increased drastically and will only happen to increase in the future.
More and more websites are utilizing Web 3.0 technology, more people are taking advantage of cryptocurrencies and revolutionizing the digital asset industry, and it’s finally becoming more and more mainstream. Crypto will not only be used to help peoples’ needs, but it will impact our lives in such a great way.
This new technology will only grow even further and change the world.
