Web3 is all the rage at the moment. Everyone’s talking about it, but if you’re looking in from the outside, it can seem incredibly complicated.
Web3 is the result of a number of growing trends in technology: increased focus on data and privacy, a desire to remove control from monopolistic tech companies like Facebook (aka decentralisation), and the rise of blockchain technology.
In this article, we’ll explore the basics of cryptocurrency, NFTs, and the Ethereum blockchain. We’ll also cover blockchain technology and how it all works.
Let’s get started!
What Is Blockchain Technology and How Does It Work?
Blockchain technology is another phrase that gets thrown around a lot. One of the best metaphors for how blockchains work was coined by William Mougayar.
Mougayar compares blockchains to a Google Doc. Web 2.0 is to Microsoft Word what Web3 is to Google Docs.
If you’re attempting to collaborate on Word, you need to make your changes on the document, save your file, and send it to your recipient. And then you’ll have to wait for your recipient to make their edits or add comments before they send it back.
Unless you’re using track changes, there’s no way of verifying what each person did.
With Google Docs on the other hand, you can collaborate in real time, you can see who has access to the doc, make changes, suggest edits and more. And most importantly, anyone with access to the doc can see the revision history.
There’s complete transparency.
Think of a blockchain like a Google Doc revision history for the internet. It’s a publicly-accessible digital ledger that can store and transfer information without any central authority.
Blockchains are the foundation on which cryptocurrencies like Bitcoin and Ethereum are built.
Bitcoin vs. Ethereum: What’s the Difference?
Bitcoin was the first decentralised, peer-to-peer, digital currency created.
The price of Bitcoin is determined in the same way that the value of the U.S. dollar is determined: supply and demand. Like fiat currency, when the demand for bitcoin increases, the price increases. When demand for bitcoin falls, the price falls.
Ethereum is a public blockchain that serves as the foundation for decentralised applications. In order to fund your digital wallet, such as MetaMask, you’ll need to purchase some Ethereum.
Now a wallet is either a piece of software or hardware that stores a private key (an alphanumeric password) that you’ll need to withdraw your assets from a blockchain wallet and authorize digital transactions.
Your blockchain wallet doesn’t actually store any assets, it’s more like a debit card. It has no actual value, it just stores the private key that proves ownership of a given digital asset like your crypto holdings, or an NFT.
That brings us to NFTs.
Whether you’ve had your eye on certain NFTs for a while or you’re still scratching your head when it comes to understanding what an NFT actually is, you already know they’re finding their way into the mainstream.
In the next section, we’ll break down exactly what these digital assets are and why they’ve exploded in popularity over the last two years.
NFTs: What Are Non-Fungible Tokens?
NFT stands for Non-Fungible Token. The easiest way to explain what a non-fungible token is is to start by explaining with a fungible token instead.
Regular money, or fiat currency is an example of a fungible token. If you borrowed $20 from someone and paid them back in two $10 bills, no one would bat an eye.
A fungible token is something that’s exchangeable with something else of the same kind. A $20 bill is equal to two $10 bills is equal to four $5 bills or twenty $1 bills. Trading fungible tokens is an apples to apples trade.
Now a non-fungible token is the opposite. Art is a great non-tech example of something that’s non-fungible. You can’t borrow a Monet from someone and return two Picassos instead. That’s not an apples-to-apples trade, because every piece of art is unique and therefore not interchangeable.
NFTs are digital certificates of authenticity used to assign and prove that you own a unique digital or physical asset.
An NFT can be anything (music, any kind of artwork, videos, poetry), but most people are using it to create digital art.
Now if you’re like most people, you’re probably wondering: What’s stopping people from hitting right click and saving that digital file?
And here’s where it gets murky:
Anyone can download or copy the art, but an NFT is really about ownership, and that can’t be copied or tampered with since it’s built on the Ethereum blockchain.
So going back to our art metaphor: Anyone can buy a print of a Picasso, but only one person can own the original.
Why Do People Care About NFTs?
If you’re an artist, it’s a great way for you to sell your art. Plus, you can earn royalties every time your NT is sold or changes hands. So if your NFT becomes the next Cryptopunk, you reap the benefits along with traders.
Now, if you’re looking to buy an NFT, you’re supporting an artist, buying usage rights (you can post it online, etc) and of course, bragging rights. Your NFT is like any other asset, it can appreciate and depreciate in value.
So if you buy something that you think has the potential to appreciate, you can sit tight, and sell it for profit.
With that, you’ve covered the basics on cryptocurrency. If you still haven’t quite wrapped your head around the concepts we discussed today, that’s okay. You’d be surprised how many people successfully trade in NFTs and Cryptocurrencies without understanding the basics.
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