Base Technology: The Blockchain

At its core, a blockchain is a secure database that utilizes complex mathematical algorithms. Individuals can add information to the blockchain, but once it is recorded, it becomes immutable, ensuring that it cannot be altered.

Distributed and Decentralized Systems

Many blockchains operate in a distributed and decentralized manner, meaning that the data storage and processing are spread across numerous computers, with no single point of control.

Blocks

As indicated by the name "blockchain," data is organized into segments known as blocks. Each block is mathematically linked to the preceding one, forming a secure chain. These blocks are permanent and cannot be modified or deleted.

Validators

Despite the robust security offered by mathematical algorithms, there must be entities to solve these problems and validate the new data being added to the blockchain.

Consensus Protocols

Consensus protocols are the mechanisms that govern how validators operate. It's crucial that not just anyone can validate a block, as this could lead to potential manipulation. These protocols help ensure the integrity of validators.

The original consensus protocol, Proof of Work, is utilized by Bitcoin and, at present, Ethereum. This method is energy-intensive, requiring significant computational resources.

Proof of Stake, on the other hand, serves as an alternative to Proof of Work. While both methods involve complex mathematical challenges, Proof of Stake selects validators based on their financial investment in the platform, fostering a more secure environment.

Understanding "Crypto"

The term "crypto" encompasses anything that exists on a blockchain. This data can vary widely; many blockchains can even execute code and retain the outputs alongside textual data.

Smart Contracts

A smart contract is essentially a piece of code executed on a blockchain. These contracts can perform various functions but are restricted to storing new data, as they cannot modify existing data. They are deterministic, meaning they yield the same outcome every time they are executed, regardless of location. Modifications can be made through a system known as an “oracle.”

Oracles

An oracle is a trusted service that supplies data to smart contracts, enabling functions that would be impossible to perform on-chain, such as generating random numbers.

Wallets

To engage with a blockchain, individuals or organizations require a wallet—software that stores private keys. Private keys are large, complex numbers that are virtually impossible to guess. They are crucial for signing transactions on the blockchain, facilitating interactions with smart contracts, and managing tokens.

Public keys are derived from private keys but do not reveal the private key itself. Signing involves encrypting information with a private key, which can then be verified using the public key.

Addresses are simply more user-friendly representations of public keys. It's important to note that a private key is not the same as a password; it is unique to a specific address, and if anyone else gains access to it, they can control the associated assets.

Tokens

Tokens are a prevalent form of data stored on blockchains. For instance, BTC, ETH, and TRX are native tokens of their respective blockchains, serving as rewards for data validators. Furthermore, many blockchains can run smart contracts, leading to the creation of additional tokens with various functions. Tokens are classified into two categories: fungible tokens and non-fungible tokens (NFTs).

Fungibility refers to assets where each unit is interchangeable, such as currency. In contrast, non-fungible tokens (NFTs) are unique and come with distinct histories, making them different from one another. While NFTs are often associated with collectibles and artwork, their decentralized and tamper-proof nature allows for broader applications, including certificates of authenticity and other complex functionalities.

Web3: The Next Generation of the Internet

Web3 represents a natural progression from Web2, which enhanced internet interactivity. Earlier web pages were largely static, requiring reloads for new information, while Web2 introduced dynamic content and sophisticated applications. Web3 encompasses any internet service that interacts with a blockchain, including financial services, games, and more.

Decentralized Finance (DeFi)

Given that many blockchains are decentralized, a variety of decentralized finance (DeFi) services have emerged. These include token staking for rewards, decentralized governance, and peer-to-peer token exchanges without intermediaries.

This overview aims to clarify some of the complexities surrounding this innovative technology. As new questions arise, I will continue to expand this resource, so feel free to bookmark and revisit it.

The first video, "Future of Crypto, Blockchain & Web3 w/ Chris Dixon," explores the transformative impact of these technologies on our digital landscape.

The second video, "The What, How, and Why of Blockchains and Web3," provides a comprehensive overview of these concepts and their significance in the modern world.