Blockchain Basics


If you're new to Blockchain, this is a great place to start. In this section, we will guide you through the most general concepts about Blockchain technology, providing you with a solid foundation to build on.

1. What is Blockchain?

Blockchain is a revolutionary technology consisting of a continuous chain of data blocks, each housed in a network of active computers. Each block contains a set of transactions which, upon completion, are sealed and linked to the previous block. This process is validated by other computers on the network using specialized algorithms.

Blockchain's main attribute is its decentralization, which means that no single entity or computer can alter the record of events stored on the chain. It is a system that depends not on a central authority but on a diverse assembly of smaller players.

This decentralized nature reinforces Blockchain security, making it an ideal choice for financial applications and other industries that require high-security data management.

2. What are cryptocurrencies?

Cryptocurrencies are digital assets that operate on decentralized blockchain networks. Like other currencies, they serve as a means of purchasing services and goods online, offering advantages such as enhanced security, privacy, speed, and cost-effectiveness.

The market is filled with thousands of unique cryptocurrencies, each presenting potential investment opportunities. However, as with any investment, entering the cryptocurrency market involves risks, and thorough research is recommended to understand the nuances of each system.

3. What is a Decentralized Market?

The term "Decentralized Market" means a market structure that allows participants to engage in direct trade with each other, bypassing the need for a centralized authority such as a bank or other intermediaries. Participants simply connect to a node, which facilitates data transfer, eliminating the need to know or trust trading partners.

A Decentralized Market exemplifies the concept of a peer-to-peer network in action.

4. What is a Centralized Market?

Unlike a Decentralized Market, a Centralized Market operates with all orders directed through a central exchange point, devoid of an authoritative or competitive validator. This implies that every buy order goes through this central exchange, where it is paired with a sell order.

Centralized Markets often come with their drawbacks, including higher fees, a lack of transparency, and a heightened security risk. This stems from the network's reliance on a single point of exchange, which increases the likelihood of system failure or susceptibility to hacking.

5. What is Ethereum?

Ethereum, launched in 2015, is a blockchain-based platform that supports a wide array of projects globally.

Its distinguishing features are the "Proof of Stake" (PoS) consensus algorithm and the ability to host "smart contracts". It is also the largest network hosting decentralized applications (dApps), leading the charge in developer activity within the crypto sphere.

6. What are Smart Contracts?

Essentially, smart contracts are self-executing programs that trigger when pre-determined conditions are met. These are employed to automate the execution of agreements, thereby ensuring immediate certainty of outcomes for all participants without needing intermediary involvement or loss of time.

Therefore, smart contracts are not directly governed by users. They operate independently, separate from the network and the developers who designed them, which increases their reliability. Furthermore, its operations are accessible for review by anyone on the public network, promoting transparency consistent with the blockchain philosophy.

Additionally, individuals can interact with these smart contracts by submitting transactions, which can set off certain events in the contract.

7. What is Gas?

Gas is essentially the fee charged for the computational effort required to authenticate a transaction on the network. This verification work is carried out by the network nodes, which contribute their computational resources to maintain the network's functionality. As compensation for this service, they receive a fee from each transaction they process.

The fee is usually calculated in terms of ETH (Ethereum's native cryptocurrency).

8. What is a dApp?

Dapps, short for Decentralized Applications, are software applications built on decentralized networks like Ethereum using smart contracts, which come with an interface for user interaction.

What sets them apart from traditional apps is the lack of a private, centralized server connection. Instead, they operate on a public, decentralized network, providing greater transparency about their back-end operations and processes.

9. How can I buy and sell Crypto?

To buy and sell cryptocurrency, you can use either Decentralized Exchanges (DEXs) or Centralized Exchanges (CEXs).

DEXs are decentralized markets that are not governed by a single entity. The caveat is that they can be more challenging to navigate because they require users to understand how to securely store and protect their digital assets. Some examples of DEXs include KLAYSwap, Uniswap, PancakeSwap, and Sushiswap.

On the other hand, CEXs are centralized marketplaces that are generally more user-friendly, offering standard account features like password recovery. Some well-known CEXs are Binance and Coinbase.

At the moment, DEV tokens can only be purchased through decentralized markets. We recommend using Uniswap; however, it is crucial to ensure you're purchasing the correct tokenopen in new window.

10. What is a Wallet?

A Wallet is a software application that holds cryptocurrencies by securely storing your Private Keys, which work in conjunction with the corresponding Public Keys.

Private Keys are complex, randomly generated numbers consisting of hundreds of digits. While anyone can deposit crypto into an address associated with a Public Key, only the corresponding Private Key can authorize withdrawal from that address.

Wallets allows us to access our cryptocurrencies with passwords or Key Phrases, without having to memorize the Private Keys. However, it is safer to have the Private Keys written down in a secure location, just in case.

Wallets allow us to access our cryptocurrencies using passwords or passphrases, eliminating the need to memorize complex Private Keys. However, for added security, it's advisable to have a written record of your Private Keys stored in a secure location.

Wallets can be "Cold" or "Hot". A Cold Wallet is one that is not connected to the internet, providing a higher level of security against digital threats. On the other hand, a Hot Wallet is connected to the Internet, offering convenience but a slightly lower level of security due to its online presence. Wallets can be further categorized into various forms such as desktop, hardware, web and paper wallets, each offering different advantages and disadvantages.

11. What is DeFi?

DeFi, short for Decentralized Finance, refers to a range of financial products and services that serve as alternatives to to those usually offered by centralized institutions such as commercial banks, credit unions and insurance companies.

DeFi goes beyond the conventional model by offering faster, less expensive and more adaptable methods of borrowing, lending and trading assets, without the restrictions imposed by centralized entities.

Typically, DeFi services are accessed through dApps, which are applications built on decentralized protocols.

12. What is Staking?

Staking refers to the process where you lock up your funds in a secure Smart Contract for the benefit of a network and receive rewards in return. These rewards can be thought of as analogous to interest earned over time on staked funds.

When it comes to staking with DEV Tokens, it involves Patrons depositing these tokens into a smart contract associated with the specific Creator they wish to sustainably support. By doing so, both the Patron and the Creator are rewarded with DEV Tokens.

13. What is a Pool?

A Staking Pool is a specific type of Smart Contract where stakeholders deposit their tokens with the aim of earning rewards. Staking Pools provide an opportunity for individuals to generate passive income through consistent and predictable staking returns.

More specifically, Staking Pools allow users to pool their resources together, thereby increasing their collective chances of earning rewards. Consequently, these rewards are distributed among all participants in the pool. These potential earnings are often projected and expressed as an Annual Percentage Yield (APY).

For instance, in the case of Cobogo, Patrons can stake their DEV tokens in a pool associated with a particular YouTube Creator. Both the Patron and the Creator share the rewards generated, with a split of 49% to the Patron and 51% to the Creator.

14. What are NFTs?

An NFT, or Non-Fungible Token, is a unique form of digital token that, unlike typical cryptocurrencies, cannot be broken down into smaller increments. Each NFT signifies exclusive ownership of a specific digital asset on the blockchain. NFTs have become an invaluable tool for artists, allowing them to digitize their work, directly reach their audience, and receive comprehensive payments with minimal or zero third-party intervention.

15. What are Tokenomics?

Tokenomics refers to the economic architecture that a project must design for its digital currency. This architecture encompasses elements such as the distribution and supply of tokens, the potential influence on the future price of the token and the ability for future modifications to the original model, among others.

This blueprint for the token's economic ecosystem is typically developed prior to the token's launch and can be refined over time as needed.

16. What is Layer 2 (L2)?

Layer 2 refers to a supplementary structure established atop the Ethereum blockchain. Its primary function is to address transaction speed and scalability issues found on the Ethereum Mainnet.

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Contributors: Daniel Cukier