Web3 is a confusing place. If you are a beginner, terms like “blockchain”, “NFT” and “smart contract” are opaque terms designed to stifle rather than provoke curiosity. That skepticism is reflected in the data. Worldwide, only 1 in 10 of her working-age internet users owns some form of cryptocurrency, the digital token required to engage with much of the Web3 ecosystem.
This is ironic because Web3 is the latest version of the Internet and is based on the idea of accessibility and fairness. Don’t let the critics fool you. The stereotype that cryptocurrencies and NFTs belong in the exclusive and unwelcome “crypto buddy” niche is a satirical generalization. These tools are made with everyone in mind and are worth learning for anyone (or any age). And, just as importantly, they are rapidly changing the way the world works. Blockchain (the technology underpinning everything that goes into Web3) is certainly complex, but the concepts on which it is built are actually quite easy to understand. So let’s dive in.
What is blockchain?
Blockchain is a distributed digital database that stores, moves, and tracks information globally without sacrificing transparency. This data is contained in “blocks” that are linked together to form a chain-like record of information flow. Think of blockchain as a kind of internet infrastructure. Just as the internet allows programs such as his Gmail, Spotify, or PayPal to exist, blockchain also allows apps and programs to run, albeit in a unique way.
Several blockchains exist and form their own ecosystems online. Ethereum, Solana, Tezos, Flow and Polygon are all separate blockchains. Blockchains are often called public ledgers because data transactions can be seen by anyone. No single agency or organization acts as a gatekeeper for the information it contains.
This is one of the reasons blockchain technology is so attractive to so many. Its openness and transparency allow users to control access to their data and even do what they want behind closed doors with Web2 databases and systems operated by big tech companies such as Apple, Google and Microsoft. is in stark contrast. The decentralized nature of blockchain creates an immutable and transparent record of data flow.
So what makes blockchain so democratic?
A blockchain system is managed by a network of users. For example, instead of relying on a single centralized source like Amazon’s data centers, Web3 is a distributed network of devices (called nodes) running specific blockchain software (such as Ethereum) around the world. operated by
Data transaction records (such as cryptocurrency or NFT transaction records) are stored in blocks that are linked together to form a chain of bookkeeping. Transaction requests are validated or rejected by majority vote within the network. For a block and the transaction it contains to be formally and irrevocably added to the global ledger, a majority of the computers (nodes) in the network must agree on the validity of the transaction. This aspect of blockchain is what makes it so secure and decentralized. No single person or group can change or hide that information.
But what if someone hacks those nodes?
The core principle is that users within the system (rather than third parties such as banks or technology companies) validate transactions proposed in that system. If I want to send X amount of cryptocurrency to a friend on the blockchain, a user in the system operating a verification node receives my request, verifies its authenticity, and the transaction is collectively approved by the network.
Even if a hacker takes control of a node and attempts a counterfeit transaction (and steals someone’s valuable digital assets in the process), the other nodes in the system are unaware of it. For Ethereum, hundreds of thousands of individuals and organizations running software around the world act as validators for that blockchain. Forging a transaction on a blockchain would require a hacker to control more than half of these nodes, which is nearly impossible. For this reason, the more users running nodes in the system, the more the blockchain can be prevented from being hacked.
So how exactly does blockchain technology work?
We now know that blocks of data are linked together to form a chain of record keeping that is transparent and distributed in this system. The next thing to know is that these blocks contain several things.
The first is called the cryptographic hash of the previous block. If that statement freaks you out a bit, you’re not alone, but don’t let that scare you. Encryption is the study of secure communication techniques that allow only the sender and receiver to understand the contents. And hashing is simply a way of compressing data. Cryptographic hashing, in turn, combines the security features of cryptography with the message relaying features of hashes.
A block contains a cryptographic hash of the previous block to ensure it has not been tampered with. Blocks also include timestamps, which record the dates of the transactions included in the block and the data in those transactions.
You’ve heard of smart contracts, what are they?
A staple of Web3, smart contracts are programs on the blockchain that execute when certain conditions are met. Generally, these are coded with instructions that are triggered only in appropriate circumstances and are therefore used to automate the execution of contracts without the need for a third party.
One well-known smart contract is Ethereum’s ERC-721, the data standard used to create NFTs.
That’s all great, but why use blockchain?
Blockchain technology is primarily used to enable transactions related to cryptocurrencies and NFTs, but is only the underlying infrastructure for these functions. As such, its infrastructure can be applied in potentially endless ways. The Internet as we know it today enables applications and websites to function, but the Internet itself is not limited to specific apps and services. Similarly, organizations around the world are using blockchain technology for supply chain record keeping, data storage, payment processing, digital identification, carbon credit tracking, royalty distribution, healthcare, and many other industries and industries. We are looking for ways to improve and innovate the application.
Despite Web3’s difficult 2022, the technology behind the next version of the Internet is too valuable and exciting to ignore. As more institutions start experimenting with blockchain technology, we can expect to see changes big and small across the industry. Web3 is still in its infancy, so we need to learn more about the technology before it becomes widely adopted.
