Cryptocurrency, Blockchain and NFT- Explained
I am not an expert in this field, so if you claim to be the next Satoshi Nakamoto, feel free to skip ahead.
For others who are confused and overwhelmed with FOMO from the hype around crypto, blockchain and NFTs - I got you.
Why the sudden hype?
In the past there have been failed attempts to create digital currency. Why? Well the most obvious answer is that the person/organization creating the currently can easily allocate millions of ‘digital’ dollars to themselves. But with blockchain, this is nearly impossible. Therefore even the governments are now thinking of adopting this form of technology.
With the pandemic of COVID19, the importance of digitization became more of a need than a ‘good to have’. This digital mandate isn’t new; it’s simply been brought into laser focus.
Blockchain
Let’s begin with the very basics.
Where is your data stored traditionally?
Every piece of digital data (for example your online bank account information) is stored in a database somewhere on shared servers, alongside that of others. When you enter your login credentials on the web browser, you send a request to the server to query the database(where everyones information is stored as well) and the server pulls up your profile specifically.
A database stores it’s data into table form- similar to manually storing data on an excel sheet. All records in a traditional database are therefore centralized and managed by an administrator.
Let’s say I want to send you money online from my bank. Each bank has it’s own database and they create APIs to interact with other local banks. If you live in the same country as me then it’s a fairly simple process.
Now let’s say you and I were continents apart. I will then need to input detailed info of where the money is going (using standardized protocols that involve routing numbers, swift bank codes etc). The bank in the receiving country will have specific departments that deals with foreign income and after rigorous verification (~1–2 week) will release the funds to you. That’s rather cumbersome.
What exactly is blockchain?
Imagine there are only 100 dollars available in the world and there are a total of 100 people who can use them. But instead of centralized banks controlling the flow of this money, it is governed by the people themselves. To ensure the credibility of such a system, each person owns a record (ledger) of each and every exchange (transaction) of this 100 dollars that takes place. In order for any transaction (request to send or receive money) to successfully take place, a random group of 10 people distributed all over the world (known as crypto miners) agreed to verify the authenticity of every request coming in. The miners cross reference several hardcopies of the ledger for verification. Once the crypto miners agree the transaction is valid, they send out an alert that automatically updates every hardcopy of ledger. In return, these miners get paid a small fee for their service. This is the premises of Blockchain.
Blockchain is a specialized type of database. It is a shared, unchangeable ledger technology that enables a set of peers (just like you and me) to work together to create a unified, decentralized network by keeping a record of all transactions.
A blockchain, as the name implies, structures it’s data into chunks (blocks) that are chained together.
Each block in the chain contains several transactions, and every time a new transaction occurs on the blockchain, a record of that transaction is added to every participant’s ledger. There is no central place for it to be stored, but rather stored across all networks, which is decentralized.
Blockchain eliminates the need for a centralized authority. Think about that for a second. It’s powerful.
Taking the example above, let’s say instead of going through the bank, I have a ‘digital wallet’ that supports blockchain transactions. I will simply need a ‘sending’ private key and your ‘receiving’ public key (which is the digital wallet address) to securely begin the transaction. The transaction then allocates to a block. The block is then validated with the help of a consensus algorithm used by the network. The network verifies the transaction. Once the transaction is verified completely (usually within minutes), it is added to the blockchain, and you will receive the money. The update is distributed across the entire network.
All historical data of my digital wallet usage is also stored across the network. Therefore if a single record is tampered with, all other records cross-reference each other and easily pinpoint the record with the incorrect information.
Blockchain technology is not only limited to digital currency, but can be used to hold a variety of other information such as legal contracts, supple chain management, healthcare records etc. Cryptocurrency (or digital currency) is just one single use case of this technology.
Let’s talk Crypto
Bitcoin was the first digital currency that uses the decentralized blockchain model to record a list of all transactions taking place. Today there are thousands of new cryptocurrencies in the market however bitcoin has the largest market capitalization and therefore is the most popular.
All transaction on bitcoin’s blockchain can be viewed by anyone using one of the blockchain explorers. You can use the unique transaction ID, an address to a wallet or the block number. Let’s take a look at one of the examples. Below is a list of the recent blocks on the bitcoin network.
Take a deeper look into Block 680660:
We can also see the Miner’s public address, value of assets and all incoming/ outgoing transactions:
This transparency ensures that the public can trust the network.
Another popular cryptocurrency is Ethereum. Ethereum, unlike bitcoin, is not just a currency, but rather a platform to facilitate contracts and much more. There is an extra component of smart contracts. What is important to note is although they both use ‘blockchain’ technology, the protocol defined to use these currencies is different. I’ll explain the difference between the two in a later article.
NFT
We covered blockchain and one use case this technology which is cryptocurrency. Another application of this technology is seen in NFTs. In today’s digital age, images or clips can be downloaded from the internet and the original artists gets little or no credit for their work. An NFT solves this problem.
So what is an NFT?
An NFT stands for non-fungible token. Similar to crypto, it’s a digital asset stored on the blockchain. Why is that important? Well, NFTs transform digital works of art into one-of-a-kind collectible item that can easily be verified and accredited.
NFTs captured the attention of the media after a digital collage of images created by artist Beeple sold for over $69 Million at Christie’s auction house.
Here is the image:
And yes you are right, anyone can download a copy of Beeple’s art from the internet. Just like anyone can print Mona Lisa in the Louvre from a simple google search. But that doesn’t mean you own those original artwork- and millionaires and billionaires like to brag about such things. Essentially, they are like any other physical collector’s item, but instead of receiving an oil painting on canvas to hang on your wall, you get a JPG file.
The beauty of NFT is that it can be anything that can be stored digitally. This has a huge incentive for artists, musicians and digital content creators of all levels.
There are a variety of marketplaces to buy and sell NFTs: OpenSea, Rarible, NiftyGateway and SuperRare are just a few. Some of these require you to have a crypto wallet, so beginning your journey to cryptocurrency can be a good starting point.
A digital world is where we are headed and now is the time to invest in creating your digital footprint. Good luck!
P.S. Like the husky chasing the Bitcoin NFT? You can purchase it here: https://bit.ly/3fBUIcf
…..OR maybe just right-click and save it 🤷🏻♀️ ?
