Blockchain is the technology used by cryptocurrencies to track, record, and timestamp their transactions. In 2009, Bitcoin was the first successful cryptocurrency built on the blockchain. Since then, a lot of innovative blockchain use cases have emerged.

Blockchain

Non-Fungible Tokens (NFTs), being certificates of authenticity, can be used to prove the ownership of any digital asset: concert tickets, video game items, artworks, or even digital properties. This section will help you to understand and explore the different ways you can use NFTs.

At NonFungible.com, we provide trusted NFT data and tools so that you can develop personal strategies that are best suited to your needs. This section will teach you how to use our Market Tracker to screen the latest NFT market trends and make informed decisions.

Analytics

Navigating through the NFT ecosystem requires separating signals from noise. Established in 2018, NonFungible.com has been a key stakeholder in the NFT industry since its infancy. Over time, we have developed a solid understanding of the way the NFT community works, backed by our trusted data &amp; experience.

Ecosystem

About Blockchain


<p>A blockchain is a <strong>free tool to exchange information, ensuring better control of user data through cryptography</strong>. It is a unique database. There are rules on how data can be added but once uploaded, it&#8217;s designed to be impossible for it to be erased, adapted or altered in any way.</p>



<p>Decentralized by nature, a blockchain is based on the principle of Peer to Peer (P2P) networking. The majority of networks have no dedicated server or single authority in control but instead function through the ongoing consensus among their user base. Becoming a user of a certain crypto coin or participating in a crypto project makes you an integral part of a greater decentralized network.</p>



<p>A blockchain or ‘distributed ledger’ holds data by applying the information to individual computer files called blocks which are in turn chained together. Once chained together, the contents hold immutable information because each new block carries the DNA of the previous block and is chained to it,therefore making it virtually impossible to alter.</p>



<p>In 1991, the first blockchain was created by Stuart Haber and W Scott Stornetta. Its function was to transmit information in an encrypted manner.</p>



<p>The blockchain as we know it today is the result of many milestones:</p>



<ul><li>1998: Nick Szabo works on ‘bit gold’, a decentralised digital currency</li><li>2000: Stefan Konst publishes his theory of cryptographic secured chains</li><li>2008: Satoshi Nakamoto (pseudonym) releases a white paper establishing the model for a blockchain</li><li>2009: Nakamoto implements the first blockchain as the public ledger for transactions made using Bitcoin</li></ul>



<p>All these actors have something in common: they’re part of the Cypherpunk movement. Directly from this inspiration, the idea of a blockchain as we know it today was born.</p>



<h2>What Is Blockchain Technology?</h2>



<p>We&#8217;ve looked into blockchain itself, but you’ll likely have heard of blockchain technology, so what exactly is it?&nbsp;&nbsp;</p>



<p>In itself a blockchain database is not widely used outside of very particular applications.&nbsp; The excitement begins when global networks of otherwise unconnected users, developers, miners, and so on develop and build communities and technologies around certain blockchains.</p>



<p>The purpose of a blockchain is to ensure the flow of information from a sender to their recipient in a decentralized manner.</p>



<p>In short, a blockchain becomes:</p>



<ul><li>A distributed digital ledger maintained by a network of computer nodes (backups of all the transactions of a blockchain).</li><li>A trustless peer-to-peer network.</li><li>Impossible to erase, adapt or alter.</li></ul>



<h2>Blockchain Layers: First Layer, Second Layer &amp; Sidechains</h2>



<p>Today, there are several blockchain &#8216;layers&#8217;.</p>



<p>The first layer, called &#8216;Layer 1’ or ‘L1&#8217;, serves as the basis for all transactions when launching a blockchain.</p>



<p>The &#8216;Layer 2’ or ‘L2&#8217; or second layer is created to overcome problems that cannot be solved on the first layer. For example, Bitcoin does not allow a significant number of transactions per minute. The Lightning Network was created to resolve that issue, and we&#8217;ll come back to that later. Second layers were designed as &#8216;extensions&#8217; of first layers.</p>



<p>And then there are sidechains. These parallel blockchains work independently but can be compatible with other blockchains.</p>


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<p class="has-text-align-center">This work is licensed under a <a href="http://creativecommons.org/licenses/by/4.0/" target="_blank" rel="noreferrer noopener">Creative Commons Attribution 4.0 International License</a>.</p>


Blockchains are the foundation technology on which all cryptocurrencies sit. A blockchain is a free tool to exchange information, ensuring better control of user data through cryptography.

What Is Blockchain?


<p>Among the common attributes of a blockchain, foremost is the need for governance. Indeed, the operation of a blockchain is based on a system that does not grant any trust to its peers. It is therefore the code defined beforehand that will &#8216;make law&#8217;.</p>



<p>Although this code is written by developers, its content and goal are decided by validators and users who take care of running the network.</p>



<h2>The Blockchain Trilemma: Security / Scalability / Decentralization</h2>


<div class="wp-block-image">
<figure class="aligncenter size-large"><img src="http://nfcms1/app/uploads/2022/07/blockchain-trilemma.png" alt="blockchain trilemma" class="wp-image-39795"/><figcaption><em>The Blockchain Trilemma</em></figcaption></figure></div>


<p>This trilemma illustrates the issues to be solved when developing a blockchain:</p>



<ul><li>Decentralization represents the validators.&nbsp;Are there enough actors who will validate the transactions? If not, a small number of individuals will be able to rewrite or censor transactions more easily.</li><li>Security represents developers. Are there any flaws in how the code of a blockchain is written? Developers are at the center of this concern because they are guarantors of the security of the code and therefore of the network.</li><li>Scalability represents users.&nbsp;Can the blockchain support a large number of users at the same time? It is important that a blockchain can support a significant transaction load.</li></ul>



<p>With more centralization, security is reduced but scalability is improved.&nbsp;With more decentralization, there is more security but less scalability. If a blockchain centers on users&#8217; governance, decisions will take more time to be enacted.</p>



<p>The use of a blockchain must meet specific needs. Blockchain was created to do without a trusted intermediary, or to minimize the trust to be given to trusted third parties. Therefore each one operates as its own system, which may or may not be established in a community way.</p>



<h2>Consensus and Decentralized Governance</h2>



<p>Overcoming the lack of trust between dispersed and otherwise disconnected users worldwide is one of the main achievements of the blockchain system.&nbsp;Decentralized governance requires a trustless consensus.</p>



<p>Blockchain consensus algorithms are systems that&nbsp; allow users, both human and machine, to organise themselves in a way that facilitates a secure and trustless system. The nodes will be able to check with the other nodes that the transmitted information is accurate and any user will then be able to check on a block explorer the existence of the transaction. These agreements will then validate the blocks and transactions.&nbsp;</p>



<p>It is vital that each node maintains an identical copy of the database. This means that everyone, or more precisely, each node, must agree on the validation methods used. A consensus is formed around what will prove the data transfer has taken place. These methods range from computers solving complex mathematical equations (Proof of Work) to delegating power to a limited number of &#8216;super validators&#8217; (‘Delegated Proof of Stake’ or DPoS).</p>



<h2>Types of Consensus Algorithms Used for NFTs</h2>



<p>Consensus is the essence of how crypto-currencies are decentralized. In particular, zero-trust agreements allow the use of a blockchain and the validation of transactions by a vast number of users. This is a direct contrast to fiat currencies issued by a central entity such as a bank.</p>



<p>The only common point between all consensuses is their cryptographic aspect. If a single consensus could be established among all blockchains, life would be easier!</p>



<p>There are many kinds of consensus, but we will focus only on the main ones used.&nbsp;Here is a list of the different consensus algorithms that exist:</p>



<ul><li>Proof of Work (Bitcoin, Litecoin, Dogecoin, Ethereum)</li><li>Proof of Stake (ETH2, Solana&#8230;)</li><li>Delegated Proof of Stake (EOS, WAX, Polygon…)</li></ul>



<p>Those different types of consensuses have been imagined to solve specific problems.&nbsp;For example, the &#8216;Proof of Work&#8217; consensus algorithm was applied to avoid &#8216;double-spending&#8217;. Later on, the &#8216;Proof of Stake&#8217; consensus algorithm appeared to more easily manage the number of transactions and/or reduce the energy impact of mining.&nbsp;Many consensus algorithms were imagined long before the appearance of blockchains, and thanks to them it has been possible to implement blockchains on a large scale!</p>



<p>We won’t detail all the types of consensus in this Academy. We’ll only mention those that directly or indirectly concern NFTs.</p>


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<p class="has-text-align-center">This work is licensed under a <a href="http://creativecommons.org/licenses/by/4.0/" target="_blank" rel="noreferrer noopener">Creative Commons Attribution 4.0 International License</a>.</p>


Overcoming the lack of trust between dispersed and otherwise disconnected users worldwide is one of the main achievements of the Blockchain system.
Decentralized Governance requires a trustless consensus.

Trustless Consensus on Blockchain


<p>Cryptocurrency is very different from other digital solutions such as banking apps and PayPal, even if on the surface, they might look similar and have corresponding use cases.</p>



<h2>Decentralized vs Centralized&nbsp;</h2>


<div class="wp-block-image">
<figure class="aligncenter size-large"><img src="http://nfcms1/app/uploads/2022/07/decentralized-vs-centralized.jpg" alt="decentralized vs centralized" class="wp-image-39805"/><figcaption><em>Decentralized vs Centralized Blockchain</em></figcaption></figure></div>


<p>Traditional digital financial solutions are in essence centralized and controlled by the governments and companies that maintain those monetary systems.&nbsp;</p>



<p>Centralized systems have a history of manipulation and interference, and after the financial crash of 2007 many individuals desired a more stable and fair financial solution.</p>



<p>Satoshi Nakamotos’ <a href="https://bitcoin.org/en/bitcoin-paper" target="_blank" rel="noreferrer noopener">Bitcoin Whitepaper</a>, published at the end of 2008, was a groundbreaking document that described how cryptography could create a trustless peer-to-peer form of electronic cash without the need for any middleman to be involved in the transactions. The strength of Bitcoin is mainly to have been the first cryptocurrency to prevent the risk of double-spending.</p>



<p>This decentralized structure offered a potentially more balanced and equal system, with each user or ‘node’ connected to the network playing its part in reaching a consensus. A consensus is when each user can participate in the validation of the blockchain transactions by downloading a node containing the entire blockchain from its beginning.</p>



<p>When the majority of nodes agree to execute a transaction or discover a new block, this is called a &#8216;consensus&#8217;. In this way, it becomes extremely hard to manipulate the blockchain because it would require more than half of the nodes to agree to rewrite the blocks.</p>



<p>Consensus is reached when 51% or more of nodes validate a transaction.</p>



<h2>Private vs Public Blockchains&nbsp;</h2>



<p>There are two types of blockchain: public and private.</p>



<p>The majority of cryptocurrencies are decentralized and held on publicly viewable blockchains. These blockchains are part of a trustless, peer-to-peer open network of users or nodes dispersed around the world.&nbsp;There is not one single authority but rather a collective of users agreeing to a mass consensus. Secured by cryptography, cryptocurrency is virtually impossible to double-spend or falsify.&nbsp;</p>



<p>The most famous example of a public blockchain is obviously that of Bitcoin, but Ethereum also meets this criterion. Anyone can explore transactions on these blockchains by using a Block Explorer or Etherscan.</p>



<p>A private blockchain, on the other hand, will only give access to this information to a small group of entities (people, companies..) previously chosen by their creator. This is the case, for example, with <a href="https://www.hyperledger.org/" target="_blank" rel="noreferrer noopener">Hyperledger</a>, which will leave this choice to the company, which can customize its blockchain as it sees fit.&nbsp; Interestingly, more and more banks are creating their own internal blockchains that are under private, centralized control of the banks themselves.</p>



<p>There is also a third case. Some blockchains use a consensus to guarantee the anonymity of a user while allowing visibility of transactions. This is the case, for example, with <a href="https://www.getmonero.org/" target="_blank" rel="noreferrer noopener">Monero</a> which by design gives information on the total number of transactions as well as the total number of $XMR spent in a block without letting information about who sent how much to whom.</p>



<h2>Different Types of Cryptocurrencies</h2>



<ul><li>Coins&nbsp;</li></ul>


<div class="wp-block-image">
<figure class="aligncenter size-full is-resized"><img loading="lazy" src="http://nfcms1/app/uploads/2022/07/04_cryptos.jpg" alt="Logos Bitcoin - Ethereum - Monero" class="wp-image-39101" width="1010" height="219"/><figcaption><em>Bitcoin &#8211; Ethereum &#8211; Monero</em></figcaption></figure></div>


<p>The term &#8216;altcoins&#8217; is used to refer to all cryptocurrencies other than Bitcoin. This is due to the dominance of the Queen Mother of cryptos which accounts for over 60% of the market capitalization of all crypto!&nbsp;However, this term is used very implicitly and there is no specific rule that determines at what percentage a crypto becomes an alternative to Bitcoin. Each altcoin has its own blockchain.&nbsp;An altcoin is a full-fledged cryptocurrency that meets a specific need, with its own community and associated consensus.</p>



<ul><li>Tokens</li></ul>


<div class="wp-block-image">
<figure class="aligncenter size-full is-resized"><img loading="lazy" src="http://nfcms1/app/uploads/2022/07/05_tokens.jpg" alt="Logos Polygon (ex-Matic) - Aavegotchi GHST - Enjin" class="wp-image-39096" width="1010" height="219"/><figcaption><em>Polygon (ex-Matic) &#8211; Aavegotchi GHST &#8211; Enjin</em></figcaption></figure></div>


<p>Unlike altcoins, <a href="https://nonfungible.com/academy/blockchain/what-are-tokens" target="_blank" rel="noreferrer noopener">tokens</a> depend on cryptocurrency. They are therefore set apart from other cryptos yet there is confusion between cryptocurrencies and tokens. For example,&nbsp;Ethereum is a cryptocurrency, but the Aavegotchi token ($GHST) is a token. In order to be considered a token, they must meet a standard that allows interaction and interoperability with the blockchain to which it is attached.&nbsp;It is quite common to see a project starting as a token (EOS, TRX &#8230;) before becoming an altcoin the day they decide to use their own blockchain in order to continue to evolve.&nbsp;</p>



<ul><li>Stablecoins&nbsp;</li></ul>


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<figure class="aligncenter size-full"><img src="http://nfcms1/app/uploads/2022/07/06_stablecoin.jpg" alt="Logos Tether - DAI - USDC" class="wp-image-39106"/><figcaption><em>Tether &#8211; DAI &#8211; USDC</em></figcaption></figure></div>


<p>Stablecoins are tokens whose value is always tied to a specific fiat currency. The oldest example of this is <a href="https://tether.to/en/" target="_blank" rel="noreferrer noopener">Tether</a>, which is tied to the United States dollar. It has been around since 2014 and was a Bitcoin token before moving to Ethereum.&nbsp;Even in times of strong demand or supply, its price has always been within a few cents of a dollar. Stablecoins like Tether are mainly used for trading because they allow exchanges between cryptocurrencies with a stable indicator to fiat currency without entering the fiat system.</p>



<p>Since the advent of DeFI, other uses have been developed such as lending or borrowing stablecoin. In particular, it is now possible to create forms of decentralized savings that are more advantageous than what a bank can offer today.</p>



<ul><li>CBDC (Central Bank Digital Currencies)</li></ul>



<p>The latest creation in terms of blockchain usage, Central Bank Digital Currencies, are issued by the central banks of a country. They are therefore backed by the fiat currency of the country that issued it. Unlike stablecoins, CBDCs are issued by central banks and not by a company, foundation, or association outside the fiduciary system. It is therefore a government that defines the rules for its use, emission, and regulation without being obliged to ask its users what they think. CBDCs are therefore cryptocurrencies in name only and should not be confused with other existing projects.</p>


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Crypto or cryptocurrency is a digital store of value that can be exchanged and traded just like regular global currencies.

What Are Cryptocurrencies?


<p>In its early days, crypto was primarily a technical and political experiment aimed at bypassing a traditional centralized system like banks. Each crypto must meet a specific need. The reasons for buying or selling must be considered and be part of a strategy, be it financial, political, or even starting a collection. Individual responsibility being the credo of cryptos, we believe that knowing their history allows a better understanding of the present situation and therefore, to make informed decisions about the future.</p>



<h2>Bitcoin’s Birth and Early Days</h2>



<p>The early years of Bitcoin served primarily to prove that a decentralized peer-to-peer digital asset exchange system did work. The first crypto exchange platform, bitcoinmarket.com (now defunct), appeared in March 2010. It was followed a few months later by a company that converted its <em>Magic: The Gathering</em> trading card business into a crypto exchange: MtGox.&nbsp;In 2011, Frenchman Mark Karpelès bought MtGox and succeeded in propelling the crypto exchange to the rank of No. 1 worldwide in terms of Bitcoin volume traded.</p>


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<figure class="aligncenter size-full"><img src="http://nfcms1/app/uploads/2022/07/MtGox-logo.png" alt="MtGox logo" class="wp-image-39826"/><figcaption><em>The MT.GOX exchange logo</em></figcaption></figure></div>


<p>Then, a movement took shape within the community: Bitcoin 2.0.&nbsp;In 2012, aiming for uses other than monetary exchange (shares, collectibles, or real estate), users sought to take advantage of the lack of fungibility of Bitcoin to authenticate transactions by &#8216;marking&#8217; the parts sent. In a way, this was the birth of the NFTs!</p>



<p>Their first use case could be traced back to <a href="https://medium.com/hackernoon/ico-101-history-of-initial-coin-offerings-icos-part-1-from-mastercoin-to-ethereum-4689b7c2326b" target="_blank" rel="noreferrer noopener">J.R. Willett with the Mastercoin</a> ($MSR) project after he sent the Whitepaper (called &#8216;<a href="https://cryptochainuni.com/wp-content/uploads/Mastercoin-2nd-Bitcoin-Whitepaper.pdf" target="_blank" rel="noreferrer noopener">The Second Bitcoin Whitepaper</a>&#8216;) to Satoshi Nakamoto and didn’t receive an answer. The goal was to put in place an overlay to facilitate the use of smart contracts over the Bitcoin protocol. But with no upfront funding or time to look for it, he used the concept of colored coins to exchange Bitcoin sent to a specific crypto-address for the latter to be automatically exchanged for $MSR.&nbsp;Around 5,000 Bitcoin were raised for him to carry out his project, thus creating the first Initial Coin Offering (ICO) in the history of crypto!</p>



<h2>Silk Road Shuts Down</h2>



<p>In 2013, the world learned of another crypto use case during the <a href="https://www.fbi.gov/contact-us/field-offices/newyork/news/press-releases/ross-ulbricht-the-creator-and-owner-of-the-silk-road-website-found-guilty-in-manhattan-federal-court-on-all-counts" target="_blank" rel="noreferrer noopener">FBI&#8217;s shutdown of Silk Road</a>, a marketplace connecting sellers and buyers of drugs, weapons, counterfeits, and other illegal assets that operated online since 2011. <a href="https://bitcoinist.com/celebrities-support-ross-ulbricht-appeal/" target="_blank" rel="noreferrer noopener">The American crypto community defended Ross Ulbricht</a> with all their strength in the name of the &#8216;free market&#8217; but justice remained deaf to libertarian convictions and sent Ross to spend the rest of his days in prison. Interest in Bitcoin drove the corresponding USD value to over $1000 in December 2013 and several central banks began to speak out against its existence despite positive support in the US.&nbsp;</p>



<h2>Birth of Counterparty</h2>



<p>From the start of January 2014, on the forum <a href="https://bitcointalk.org/" target="_blank" rel="noreferrer noopener">Bitcointalk</a>, a decentralized exchange marketplace for artists, developers, or entrepreneurs using a bitcoin overlay was created that changed the daily life of creators around the world: <a href="https://counterparty.io/" target="_blank" rel="noreferrer noopener">Counterparty</a>. Still in existence today, Counterparty has evolved over the years to provide the opportunity to create, trade, give, stake, and earn dividends from artistic works in an open and free manner for anyone.&nbsp;</p>


<div class="wp-block-image">
<figure class="aligncenter size-full"><img src="http://nfcms1/app/uploads/2022/07/Counterparty.png" alt="Counterparty logo" class="wp-image-37629"/><figcaption><em>Counterparty &#8211; Decentralized exchange on Bitcoin</em></figcaption></figure></div>


<p>In February 2014, a new kind of project was announced: <a href="https://xaya.io/huntercoin/">Huntercoin</a>. A fork of Bitcoin, Huntercoin is the first game and cryptocurrency totally hosted on a blockchain! Its mechanics allow players to recover the cryptocurrency spent on the project simply by playing and completing quests, then exchanging quest items for Bitcoin later on via Poloniex. It is the first game to use the concept of &#8216;<a href="https://nonfungible.com/academy/nft/gamefi-play-to-earn" target="_blank" rel="noreferrer noopener">play to earn</a>&#8216; which aims to reward players for their time spent playing rather than asking them to pay to win. Although the project is still accessible, from the start players were warned that the bots would take over one day or another.</p>



<p>The same month, <a href="http://archive.wikiwix.com/cache/index2.php?url=https%3A%2F%2Fwww.wired.com%2Fwiredenterprise%2F2014%2F02%2Fbitcoins-mt-gox-implodes%2F%3Fcid%3Dco19086554" target="_blank" rel="noreferrer noopener">MtGox noticed 744,408 $BTC was missing from its wallets</a> (around US$ 350 million at that time) and filed for bankruptcy within days. The administrative management of the company was to blame: it was only when users sold and wanted to withdraw their funds that MtGox realized the daily reconciliation of the accounts had not been made for 2 years.</p>



<p>In July 2016, thanks to the tenacity of a MtGox user determined to recover his 12 BTC and a blockchain indexer (designed by Mark Karpeles), <a href="https://www.reuters.com/article/us-greece-russia-arrest-idUSKBN1AB1OP" target="_blank" rel="noreferrer noopener">WME aka Alexander Vinnik was arrested in Greece </a>by the American authorities for having stolen 630,000 BTC between 2011 and 2013 from the MtGox platform. The facts are now known to all: Bitcoin transactions are not anonymous, but pseudonymous. </p>



<p>Gradually, more and more centralized exchanges appeared. Despite a few hacks, they restored the image of Bitcoin and helped reassure newcomers in the ecosystem.</p>



<h2>The 2017 Bitcoin Bull Run</h2>



<p>In December 2017, BTC reached $20,000 and began a correction that stopped at $3,500 a couple of months later.&nbsp;While this fall caused banks around the world to react by <a href="https://nonfungible.com/news/opinions/nft-new-tulipmania" target="_blank" rel="noreferrer noopener">comparing the value of Bitcoin to Tulipmania</a>, the speculative folly of 17th-century tulips, it didn&#8217;t stop them from seriously considering the benefits they could gain from utilizing blockchain. During this period, personalities like the Winklevoss twins, Elon Musk, and Jack Dorsey recognized Bitcoin as a safe financial investment and contributed to improving public opinion.</p>



<p>In 2020, central banks were working on their closed, private blockchain CBDCs while continuing to decry Bitcoin as a technology that promotes terrorism and money laundering. This opinion is not shared by other financial institutions such as <a href="https://www.cnbc.com/2021/02/23/square-buys-170-million-worth-of-bitcoin.html" target="_blank" rel="noreferrer noopener">Square</a>, <a href="https://www.forbes.com/sites/jonathanponciano/2022/03/29/billionaire-saylors-microstrategy-takes-on-205-million-loan-to-buy-more-bitcoin-as-experts-eye-50000-price/" target="_blank" rel="noreferrer noopener">MicroStrategy</a>, or even <a href="https://www.forbes.com/sites/anthonytellez/2021/08/19/blackrock-joins-fidelity-and-vanguard-as-a-bitcoin-mining-investor/" target="_blank" rel="noreferrer noopener">BlackRock</a>, who have bought a significant number of Bitcoins, sometimes at a discount by contacting miners directly.&nbsp;</p>



<p>As of February 2021, so-called <a href="https://go.chainalysis.com/2022-Crypto-Crime-Report.html" target="_blank" rel="noreferrer noopener">&#8216;illegal&#8217; BTC transactions represented 0.32% of network usage</a>. This figure is not surprising: the darknet marketplaces accepting Bitcoin have all been closed by the authorities. Considered today as &#8216;digital gold,&#8217; the main reasons Bitcoin is traded boils down to (1) long-term investment, or (2) trading for another crypto in the hope of short-term gains.</p>


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<p class="has-text-align-center">This work is licensed under a <a href="http://creativecommons.org/licenses/by/4.0/" target="_blank" rel="noreferrer noopener">Creative Commons Attribution 4.0 International License</a>.</p>


Initially, cryptos were technical and political experiments aimed at bypassing a traditional centralized system held by banks. The first exchange platform for Bitcoin appeared in March 2010.

Short History of Bitcoin


<p>Vitalik Buterin allegedly came up with <a href="https://markets.businessinsider.com/news/currencies/vitalik-buterin-created-ethereum-following-world-of-warcraft-debacle-2021-10" target="_blank" rel="noreferrer noopener">the idea of creating Ethereum after a spell modification in World of Warcraft</a> made his character obsolete. This need for more horizontality and transparency in decisions taken by a centralized body is strongly reminiscent of Bitcoin&#8217;s positioning towards banks.</p>



<p>In December 2013, Vitalik Buterin and 7 others founded Ethereum by uploading the <a href="https://ethereum.org/en/whitepaper/" target="_blank" rel="noreferrer noopener">Ethereum Whitepaper</a> with two objectives: to relieve the Bitcoin blockchain and create a network of decentralized computers capable of managing applications and programs.&nbsp;</p>



<p>The idea charmed entrepreneur Joseph Lubin, who had already been interested in the concepts of cryptography for a while.&nbsp;</p>



<p>In July 2014, the 42-day presale took place and unlocked the sale of 60 million Ether for 31,591 BTC (about 18 million of dollars).</p>



<h2>The DAO Hack</h2>



<p>In November 2015, the ERC-20 became the new standard for the whole Ethereum community. This technological innovation allowed anyone to create their own token and created a project-specific economy while taking advantage of the stability of the Ethereum network.</p>


<div class="wp-block-image">
<figure class="aligncenter size-full"><img src="http://nfcms1/app/uploads/2022/07/The-dao-logo.jpg" alt="The dao logo" class="wp-image-40457"/><figcaption><em>The DAO Logo</em></figcaption></figure></div>


<p>One of the first large-scale projects to adopt this standard is &#8216;The DAO&#8217; (now extinct). Each of the $DAO tokens granted its holder voting power over the distribution of Ether contained in the smart contract.<br>Despite the project encountering massive, though unexpected, success ($100 million raised), it was short-lived and investor confidence was shaken when 3.6 million ETH was stolen in June 2016. The hacker took advantage of a security flaw in the smart contract to siphon funds from the DAO. Since 45 days were needed to release the funds, he threatened to sue the Ethereum foundation if a ‘fork’ was ever considered to save time.</p>



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<p><strong>A quick word about ‘forks’.&nbsp;</strong></p>



<blockquote class="wp-block-quote"><p>When the code that runs a blockchain needs to be updated, it&#8217;s called a &#8216;fork’.&nbsp;</p><p>There are two types of ‘forks’:<br>&#8211; <em>Hard Fork</em>: the blockchain is split in two and the modification will directly impact the blockchain. For example, it is possible to rewrite the blockchain in order to cancel transactions.<br>&#8211; <em>Soft Fork</em>:&nbsp;the blockchain is not split, only its operation changes — e.g, changing the fees system.<br>To rewrite part of the transactions on the blockchain, it is necessary to create a new chain of blocks, though it will still be possible to operate on the old blockchain. A ‘Hard Fork’ usually occurs when a consensus wasn’t reached among the community.</p></blockquote>



<hr class="wp-block-separator has-css-opacity"/>



<h2>The Birth of Ethereum Classic</h2>



<p>The decision made at that time by 86% of the community was to rewrite the blockchain to undo the hack, resulting in a ‘hard fork’ of Ethereum: the blockchain &#8216;remembering&#8217; The DAO hack was called Ethereum Classic (ETC) while the rewritten blockchain kept the name: Ethereum. The hacker never followed through on his threat…</p>


<div class="wp-block-image">
<figure class="aligncenter size-full"><img src="http://nfcms1/app/uploads/2022/07/Ethereum-Classic-Logo.png" alt="Ethereum Classic Logo" class="wp-image-39854"/><figcaption><em>Ethereum Classic Logo</em></figcaption></figure></div>


<p>After two ‘soft forks’ of the protocol (Tangerine Whistle and Spurious Dragon) to secure the network against Dos attacks, Ethereum regained trust from its users in 2017 and enabled projects such as <a href="https://www.bancor.network/" target="_blank" rel="noreferrer noopener">Bancor</a> (a decentralized token exchange protocol) or <a href="https://status.im/" target="_blank" rel="noreferrer noopener">Status</a> (a messaging application on Ethereum, allowing both to send money and messages) to carry out their ICO. The success of the investors was so important that the blockchain became saturated with it, extending the time to complete transactions exponentially and rendering the network unusable.&nbsp;</p>



<h2>The CryptoPunks Experiment</h2>



<p>It was in the middle of 2017 that the <a href="https://larvalabs.com/" target="_blank" rel="noreferrer noopener">Larva Labs</a> team experimented with a project that infused new life into the Ethereum blockchain. Releasing 10,000 ERC-20 tokens, each containing a different image of pixelated punks, the company created the first NFTs on this blockchain: the <a href="https://nonfungible.com/market-tracker/cryptopunks" target="_blank" rel="noreferrer noopener">CryptoPunks</a>.&nbsp;The CryptoPunks release was only known about by a few seasoned collectors. Owning an Ethereum wallet was enough to claim your punk, which ensured ease of access. In the months that followed, a large number of projects launched their own ICOs, taking advantage of the public&#8217;s reignited enthusiasm for cryptocurrencies.</p>


<div class="wp-block-image">
<figure class="aligncenter size-full"><img src="http://nfcms1/app/uploads/2020/03/cryptopunks.jpg" alt="cryptopunks" class="wp-image-40466"/><figcaption><em>CryptoPunks</em></figcaption></figure></div>


<p>CryptoPunks inspired what would become the standard for non-fungible tokens in January 2018: the <a href="https://nonfungible.com/academy/blockchain/what-are-tokens" target="_blank" rel="noreferrer noopener">ERC-721</a>. Thanks to this, it has become possible to create unique and indivisible assets, paving the way for many projects, especially in the world of video games. Due to a fall in the value of the crypto market during this period, many initiatives went under the radar.</p>



<p>Fortunately, this sector being famously resilient, all the tools necessary to facilitate its development ended up being created:</p>



<ul><li>Thanks to <a href="https://metamask.io/" target="_blank" rel="noreferrer noopener">Metamask</a>, a web browser is enough to interact with the blockchain.</li><li>Thanks to <a href="https://opensea.io/" target="_blank" rel="noreferrer noopener">OpenSea</a>, the exchange of NFTs has taken on a decentralized dimension.</li><li>Thanks to <a href="https://nonfungible.com/market-tracker" target="_blank" rel="noreferrer noopener">NonFungible.com</a>, the sales history of this thriving market has become visible to everyone.</li></ul>



<p>Gradually, more games and art platforms appeared, increasing the possibilities of buying and selling assets offered on Ethereum. The real difficulties encountered in this ecosystem occurred during the summer of 2020 when Decentralized Finance (DeFi) attracted an increasing number of users, resulting in congestion of the network.&nbsp;</p>



<p>This problem, already encountered in 2017, should be resolved in the future by the <a href="https://ethereum.org/en/upgrades/" target="_blank" rel="noreferrer noopener">ETH2 update</a> which began its deployment in December 2020 with the Beacon Chain update. Its impact on end-users will only be seen in a few years. In the meantime, overlay solutions like Matic make it possible to avoid excessive costs and ensure greater speed of transactions which are favored by more and more users.</p>


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<p class="has-text-align-center">This work is licensed under a <a href="http://creativecommons.org/licenses/by/4.0/" target="_blank" rel="noreferrer noopener">Creative Commons Attribution 4.0 International License</a>.</p>


In 2013, Ethereum was founded with two objectives: relieve the Bitcoin blockchain and create a network of decentralized computers capable of managing applications and programs.


Short History of Ethereum


<p>Visualize the entire Ethereum network as a vast system of ‘nodes’. These nodes represent users&#8217; computers, which are all connected together. The Ethereum Virtual Machine (EVM) acts almost as a living entity, similar to how natural organisms, such as fungi, connect using a network of underground mycelium for thousands of miles across the forest.&nbsp;</p>



<p>Continuing with this analogy: if Ethereum is the mycelium connecting the forests through its underground network, then Ethereum tokens and decentralized applications (Dapps) are the trees that flourish because of it&nbsp;Endless trees can grow in the Ethereum forest, each with its own unique properties, ecosystem and ability to seed new life. This standardized communication between all EVMs is called “interoperability”.</p>



<p>There has always been a problem validating true digital ownership since the days of <a href="https://www.napster.com/" target="_blank" rel="noreferrer noopener">Napster</a>, infamous for enabling mp3 audio file sharing at the end of the 90s. They cut out the middleman and the record labels but also offered zero protection for the artists. Finding ways for content creators and publishers to retain clear and indisputable ownership of digital media has been an ongoing challenge ever since.</p>



<p>Enter Non-Fungible Tokens. Each token is unique and holds immutable data and proof of ownership. A Non-Fungible Token is a digital asset which has been created on a blockchain, most notably held on the Ethereum network but also on other blockchain projects such as EOS, Stellar and Tron who have their Non-Fungible Token standard.&nbsp;</p>



<p>Each Token is unique and has individual properties, including a ledger of all activities such as its creation date, and entire ownership history. Large files can also be attached as well as images, and audio. In the near future, there will be more options, from full HD movies to property deeds. Each one has cross-platform interoperability and can be traded on marketplaces and exchanges or used in their own environment such as in games and virtual worlds.</p>



<h2>One Token, Different Standards</h2>


<div class="wp-block-image">
<figure class="aligncenter size-large"><img src="http://nfcms1/app/uploads/2022/07/ethereum-tokens-NFTs.jpg" alt="ethereum tokens NFTs" class="wp-image-39882"/><figcaption><em>Ethereum, Tokens and Non-Fungible Tokens</em></figcaption></figure></div>


<p>One of the most exciting original concepts behind the Ethereum blockchain is the ability to build decentralized applications and issue tokens on it. Several projects such as <a href="https://stellar.org/" target="_blank" rel="noreferrer noopener">Stellar</a>, <a href="https://eos.io/" target="_blank" rel="noreferrer noopener">EOS</a> and <a href="https://cardano.org/" target="_blank" rel="noreferrer noopener">Cardano</a> started as ERC-20 on Ethereum before migrating to their own blockchain. To ensure that the token can be identified by all wallets and any application that wants to use it, it is important to create a technological standard that will be recognized in a uniform and unanimous way across the network.&nbsp;</p>



<h2>Ethereum</h2>



<p>On Ethereum, the standard that is recognized and voted on by the community is called Ethereum Request for Comments or ERC. It follows the Ethereum Improvement Proposals (EIP). The number following the ERC is the number of the proposal that has been submitted to the Ethereum community.</p>



<p>Here are the three main ones:</p>



<ul><li>ERC-20: the Fungible Token, famous for being used for ICOs.</li><li>ERC-721: the Non-Fungible Token, famous for being used by <a href="https://www.cryptokitties.co/" target="_blank" rel="noreferrer noopener">CryptoKitties</a>.</li><li><a href="https://nonfungible.com/news/opinions/enjin-erc1155-what-have-become-of-you" target="_blank" rel="noreferrer noopener">ERC-1155</a>: the Semi-Fungible Token, famous for achieving the mass distribution of both ERC-20 and ERC-721 in a single <a href="https://nonfungible.com/academy/blockchain/transactions" target="_blank" rel="noreferrer noopener">smart contract</a>.</li></ul>



<h2>EOS</h2>



<p>EOS was built as a &#8216;software&#8217; to create decentralized applications (Dapps) and to offer the possibility to track every transaction with a very low latency rate. The fungible token standard is by design EOS. After its launch, a new standard was born in the EOS ecosystem: <a href="https://dgoods.org/" target="_blank" rel="noreferrer noopener">dGoods</a>. This standard was made to facilitate the exchange of Non-Fungible Tokens on this blockchain. Unfortunately, very few video games ended up using it.</p>



<h2>WAX</h2>



<p>After its initial coin offering (ICO) on Etheureum in early 2018, Wax decided to create its own blockchain using the EOSIO ecosystem. EOSIO is also the infrastructure of EOS, and it can be duplicated to create a new blockchain based on the same technology. The strength of the WAX blockchain resides in the fact that it’s designed to support NFTs with as much ease as EOS offers for Dapps.</p>



<h2>TRON</h2>



<p>Tron appeared in 2017 with the goal of becoming an &#8216;Ethereum killer&#8217; by offering something similar to Ethereum but with faster transactions. Almost all Dapps using the Tron blockchain are being used for gambling games. Towards the end of 2020, Tron released a Non-Fungible standard.<br>Here are the two standards used on the Tron blockchain:</p>



<ul><li>TRC-20: Fungible Standard, used mostly for high-risk gambling</li><li>TRX-721: The Non-Fungible Standard</li></ul>


<div class="wp-block-image">
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<p class="has-text-align-center">This work is licensed under a <a href="http://creativecommons.org/licenses/by/4.0/" target="_blank" rel="noreferrer noopener">Creative Commons Attribution 4.0 International License</a>.</p>


A token is a digital asset created on top of a blockchain. Each token is completely unique with individual properties (creation date, entire ownership history...).

What Are Tokens?

Blockchain Ecosystem


<p>Blockchains are not new but are essential for authenticating transaction authors without the need of a trusted third party.</p>



<h2>Private and Public Keys, Seed Phrase</h2>



<p>The cornerstone of any good crypto wallet lies in what are known as private and public keys.&nbsp;Securely sending and receiving assets is possible thanks to keys! This technique has been used since the 70s, notably thanks to Public Key Cryptography (PKC) technology. This cryptographic technology makes it possible to create a key pair: one will be public and the other, private. These two keys are linked together, which allows a recipient to verify the signature of a private key using the public key.</p>



<h3><strong>Public Key</strong></h3>



<p>Your public key is a cryptographic code that you share publicly to receive assets in your wallet. It takes the form of a character sequence (human-readable or not) that anyone will be able to see by looking for it in a block explorer.&nbsp;</p>



<h3><strong>Private Key</strong></h3>



<p>Your private key takes the form of a series of non &#8216;human-readable&#8217; characters and can be password protected. It has dual utilization: allowing for the issuing of funds, but also their import into a new wallet.&nbsp;For these reasons, it is essential to keep your private keys as secret as possible from prying eyes.&nbsp;</p>



<p><strong>Your public key can be shared publicly, your private key shouldn’t!</strong></p>



<h3>Seed Phrase</h3>



<p>In addition to the private key, there may be another way to recover your funds: the seed phrase. This series of 12 or 24 words has the advantage of being secure (the last word is generated randomly based on all the preceding ones) and more easily stored than a private key.</p>



<p>The process which encrypts a signature can be independent of the blockchain and the Internet. As long as the public key is known it is possible to recognize whether it is the key that digitally signed an action (messages , documents, transaction).</p>



<h3>Signature</h3>


<div class="wp-block-image">
<figure class="aligncenter size-large"><img src="http://nfcms1/app/uploads/2022/07/Cryptosignature-example-Metamask-signature-request-1.jpg" alt="Crypto signature, example of a Metamask signature request " class="wp-image-40696"/><figcaption>Crypto signature, example of a Metamask signature request <em>(right)</em></figcaption></figure></div>


<p>On the blockchain, the role of the Public Key Cryptography (PKC) is to ensure that only the assumed legitimate owner of the funds is able to sign a transaction. For example, if Craig Wright (founder of the Bitcoin Satoshi Vision &#8211; BSV &#8211; blockchain) were really Satoshi Nakamoto, he would be able to digitally sign a message using his private keys from the wallet of the person behind Bitcoin.</p>



<p>Thanks to Web3 and decentralized applications (Dapps), online authentication has become popular in the crypto space! All you need is a simple <a href="https://metamask.io/" target="_blank" rel="noreferrer noopener">browser plugin like Metamask</a>, the link between the public key and the private key can be proven and allow access to the desired site.</p>



<p>Thanks to this digital signature, even if the access to the account by username and password was compromised, the third party could not move the funds in the wallet.</p>



<h2>Multi-signatures</h2>



<p>Another use of signatures is the ‘multi-signature’ (or ‘multisig’). This method allows you to have a required number of signatures from several private keys before the information is verified.</p>



<p>For example, most exchanges occur via <a href="https://nonfungible.com/academy/blockchain/wallet-type-usage" target="_blank" rel="noreferrer noopener">cold-held crypto wallets</a>, and the only way to send funds is to have multiple trusted people authorize a transaction.</p>



<p>This method is one of the most secure methods to secure the contents of a wallet, but its strength is also a weakness: if one of the required parties is unable to sign (deceased, in prison) it would be impossible to send funds!</p>


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<p class="has-text-align-center">This work is licensed under a <a href="http://creativecommons.org/licenses/by/4.0/" target="_blank" rel="noreferrer noopener">Creative Commons Attribution 4.0 International License</a>.</p>


The blockchain uses cryptographic technologies to digitally sign transactions. It allows the authentication of the transaction authors without needing to trust third parties.

Signing and Authentification


<p>Depending on the blockchain, the way to generate addresses will vary but the basic concept remains the same for all wallets: Enabling the ability for users to initiate transactions on a peer-to-peer basis.</p>



<p>It is important to clarify a few concepts beforehand:</p>



<ul><li>Each address is unique.</li><li>Each seed phrase can generate as many addresses as you want.</li><li>If a seed phrase is compromised, all the addresses created from this seed phrase are compromised.</li></ul>



<p>The number of wallet type is so large that today we can classify them into different categories. Some are easy to use but not very secure. Others are hard to use but are very secure. Again, we encounter the blockchain trilemma where a balance needs to be found among decentralization, security and scalability that suits the individual user and their needs.</p>



<h2>Custodial&nbsp;and Non-Custodial Wallets</h2>



<figure class="wp-block-image size-large"><img src="http://nfcms1/app/uploads/2022/07/Custodial-vs-Non-Custodial-Wallet-Blockchain-1.jpg" alt="Custodial (left) vs. Non-Custodial Wallet" class="wp-image-40687"/><figcaption>Custodial (left) vs. Non-Custodial Wallet (right)</figcaption></figure>



<h3><strong>Custodial Wallets</strong></h3>



<p>Custodial wallets make use of the blockchain as easy as possible for the end-user by generating and/or keeping your private keys. Therefore, transactions sent as well as their follow-ups are technically managed by a third party.</p>



<p>The downside of this type of wallet is the lack of control over its funds as most of them are fully configured by the service that provides them to you.</p>



<p>Therefore, the security of your data is not up to you and should there be any concerns with your funds, it will depend on the seriousness of the third party service to return them to you.</p>



<p>Examples: <a href="https://www.argent.xyz/" target="_blank" rel="noreferrer noopener">Argent</a>, <a href="https://www.revolut.com/" target="_blank" rel="noreferrer noopener">Revolut</a>, <a href="https://www.walletofsatoshi.com/" target="_blank" rel="noreferrer noopener">Wallet of Satoshi</a>, all portfolios of centralized exchanges.</p>



<h3><strong>Non-custodial Wallets</strong></h3>



<p>Unlike custodial wallets, non-custodial wallets put the user at the center of the security policy.&nbsp;</p>



<p>As soon as the address is created, the private key (also called ‘secret key’) and seed phrase are generated and sent to the user. In this process, there is supposedly no third party that sees the keys or seed phrase.<br>It is therefore impossible for the wallet developers to find out your private key or seed phrase if you ever lose it.</p>



<p>Examples: <a href="https://wasabiwallet.io/" target="_blank" rel="noreferrer noopener">Wasabi</a>, <a href="https://metamask.io/" target="_blank" rel="noreferrer noopener">Metamask</a>, <a href="https://www.token.im/" target="_blank" rel="noreferrer noopener">imToken</a>…</p>



<h2>Cold vs Hot Wallets</h2>



<p>In addition to the custodial or non-custodial classification that determines who generates the private keys, there is a second classification for wallets: ‘hot&#8217; or &#8216;cold’.</p>



<p>This term indicates whether the wallet has been designed to be permanently connected to the internet in order to function, or if its purpose is to remain offline to increase its level of security.</p>



<p>Depending on your wallet usage, you can choose your preferred option:</p>



<ul><li><em>Cold wallet</em>: For occasional use. This can be a sheet of paper or a USB device.</li><li><em>Hot wallet</em>: For frequent use. This can be a web browser plugin or a smartphone app.</li></ul>



<p>Generally, ‘cold wallets’ are used to store large amounts of money or rare assets. Assets transferred require the physical action of the owner in the real world, making the hacking of this type of wallet almost impossible.</p>



<p>‘Hot wallets’ are much easier and faster to use, but they have the disadvantage of being more exposed to hacking and phishing risks. This includes malware sneaking into your computer while you’re installing your wallet, or even worse, the replacement of the address in the clipboard at the time of a transaction.</p>



<p>‘Cold wallet’ examples: <a href="https://www.ledger.com/" target="_blank" rel="noreferrer noopener">Ledger</a>, <a href="https://trezor.io/" target="_blank" rel="noreferrer noopener">Trezor</a></p>



<p>‘Hot wallet’ examples: <a href="https://metamask.io/" target="_blank" rel="noreferrer noopener">Metamask</a>, <a href="https://templewallet.com/" target="_blank" rel="noreferrer noopener">Temple</a>, <a href="https://phantom.app/" target="_blank" rel="noreferrer noopener">Phantom</a></p>


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<p class="has-text-align-center">This work is licensed under a <a href="http://creativecommons.org/licenses/by/4.0/" target="_blank" rel="noreferrer noopener">Creative Commons Attribution 4.0 International License</a>.</p>


A wallet is an essential tool to manipulate cryptocurrencies or tokens. It provides you with an address to send or receive transactions.

Wallet Type and Usage


<p>In the world of traditional banking, banks act as guarantors of transactions. Each expenditure passes through centralized bodies that take care of the management and validation of transactions. This centralized market has had disastrous consequences for the lives of many for the benefit of a very small group of individuals because banks have taken advantage of the trust of their users. Having abused their position many times in the past, the trust placed in them has been badly damaged leaving many to seek alternatives.</p>



<h2>What Problem Does Mining Respond to?</h2>



<p>In order to prevent individual entities from holding too much control over the management of banking transactions, the validation of crypto transactions was designed to reduce the amount of trust granted to any single validator (miners, delegates, etc.).</p>



<p>Miners are one of the essential components for a crypto to function properly. Guarantors of the security of the network, they are the ones responsible for validating the transactions before entering them in the blocks. Depending on the consensus (‘Proof of Work’, ‘Proof of Stake’, etc.), their task will differ, but before going into the details, it is important to discuss theory.</p>



<p>To explain the issue of establishing a common strategy (consensus) between several parties who do not trust each other (miners) yet need to validate the veracity of very important information (a transaction), the metaphor of the ‘Byzantine Generals’ Problem’ is often used.</p>


<div class="wp-block-image">
<figure class="aligncenter size-large is-resized"><img loading="lazy" src="http://nfcms1/app/uploads/2022/07/The-Byzantine-Generals-Problem-1-scaled.jpg" alt="A Consensus Issue: The Byzantine G" class="wp-image-40775" width="1024" height="576"/><figcaption>A Consensus Issue: The Byzantine Generals Problem</figcaption></figure></div>


<p>In the image above, three armies want to conquer the castle in the middle. A problem quickly emerges: if one of the three armies attacks alone, it will be severely weakened by the attack on the castle and one of the other armies may gain the upper hand later.</p>



<p>Two of the armies decide to make an alliance. But a new problem arises: When to attack? A castle spy can slip among the messengers tasked with passing information on to the other army and falsifying information that could disrupt the well-oiled plan.</p>



<p>There are two known solutions to this problem:</p>



<ul><li>Transmit the information orally to a large number of messengers so that more than the majority of messengers are able to transmit the correct information.</li><li>Transmit the information in writing to several messengers provided that the writing is not falsifiable.</li></ul>



<p>In the world of blockchain, these two solutions blend with other methods to ensure the best possible accuracy of the information, most often in a transparent and public manner. Even if the verification method may change depending on the consensus between the parties, the purpose remains the same: to have a majority of validators who report the same information to be entered on the blockchain.</p>



<h2>What is Crypto Mining?</h2>



<p>As we have seen previously, mining depends on the chosen consensus. Some forms are very energy-intensive but allow better decentralization while others will favor greater centralization to ensure greater speed of transactions but are more disadvantageous in terms of security.</p>



<h3>Sending A Transaction</h3>



<p>If I want to send 2 ETH to Jess, several steps will have to be taken:</p>



<ol><li>I will &#8216;declare&#8217; my intention publicly by signing it with my private key.</li><li>The nodes, which have the history of the blockchain, will check that I have the 2 ETH in my wallet so that the transaction can be sent.</li><li>Miners will select my transaction if the fees are sufficient.</li><li>They will validate that the transaction exists by solving complex mathematical equations.</li><li>Once the majority of miners agree on the solving of the math equations, the transaction is entered in a new block.</li><li>The information contained in this block is synchronized with all the nodes of the network.</li><li>Jess receives the 2 ETH I sent her.</li></ol>



<p>Miners, therefore, participate in three stages of the transaction sending process: Choosing a transaction, validating it, and entering it in a new block. Everything else is automated in code already written on the blockchain.</p>



<h3>Finding A New Block</h3>



<p>In this process, the transaction is written in a new block.&nbsp; According to the blockchain, new blocks are issued over a defined amount of time (every 10 minutes for Bitcoin, every 13 seconds for Ethereum…) and contain a reward that awaits the miners who &#8216;found&#8217; the block first!</p>



<p>In 2009, this reward was 50 BTC for each new block found. In 2021, the reward was 6.25 BTC. Bitcoin uses a method called &#8216;halving&#8217; which halves the rewards for every 210,000 blocks mined. And once all blocks have been issued (scheduled for 2140), there will be no more block rewards for miners when a new block is discovered.</p>



<p>For Ethereum, its creators rightly believed it would not necessarily become scarce in the future thanks to its versatility. As a result, the reward per new block found has been adjusted several times over its history and will be further changed in coming updates to the blockchain (ETH2).</p>



<p>This reward attracts envy and the miners fiercely compete to determine who will succeed in being the first to solve the mathematical equation contained in the new blocks. Naturally, the miners will contribute more and more computing power to solve the equations, but the more computing power there is, the more the algorithm that generates the equations will take this increase into account and the more complex the equations will become.</p>



<p>This balance between the computing power required to find new blocks and the generation of the complexity of the equations to be solved is called ‘mining difficulty’.</p>



<h3>Mining Difficulty</h3>



<p>At the start of any blockchain using ‘Proof of Work’, the initial mining difficulty is relatively low because little computing power is allocated to find new blocks or validate transactions. If a blockchain is successful, then it will attract an increasing number of miners who want to participate in securing the network. This will expand the computing power and in turn the mining difficulty.</p>



<p>Although theoretical, it is possible for a human to solve this equation by hand; using a computer is just far faster and more efficient. In the beginning, a simple microprocessor was enough to mine Bitcoin, but as the difficulty increased, miners made a transition to systems with more powerful graphics card processors. Since 2012, miners have started using chips designed specifically to solve the <a href="https://www.nicehash.com/blog/post/the-history-of-cryptocurrency-mining" target="_blank" rel="noreferrer noopener">equations generated by the encryption algorithm: Application-Specific Integrated Circuit (ASIC)</a>.</p>



<p>To further increase the probability of receiving a reward, miners began to pool their computing power in order to form &#8216;mining pools&#8217; which then distribute the block rewards and transaction fees between parties. The rewards are proportional to the computing power a party contributed to the pool.</p>



<p>Some blockchains like <a href="https://www.getmonero.org/" target="_blank" rel="noreferrer noopener">Monero</a> have implemented a hard fork preventing ASICs from mining the blocks. This ensures that the mining is always done by microprocessors and prevents large companies holding ASIC farms from pocketing the majority of the rewards.</p>



<h2>Double-Spending Through A “51% Attack”</h2>



<p>We have seen previously that in order to achieve consensus, it is essential that <strong>a supermajority of nodes provide the same information</strong>. What happens if this majority reports corrupted information? This is the Achilles’ heel of &#8216;Proof of Work&#8217; mining and it&#8217;s called a &#8216;51% attack&#8217;.</p>



<p>Having a majority of the computing power makes it possible to rewrite part (or even all) of a blockchain. This can have several consequences, one of the most common of which is called <strong>double-spending</strong>. Using the example transaction that I sent to Jess previously, the majority miner group would then be able to erase the transaction in the next block. As a direct consequence, my debit will be canceled without canceling the credit in Jess&#8217;s wallet.</p>



<p>When a 51% attack is underway, the majority group of miners will mine a longer blockchain on their own. By design, nodes will synchronize with the longer chain. If the legitimate nodes want to refuse the transactions, they will have to gain the majority of the hash rate for the malicious attackers. The negative effect of this method becomes immediately apparent when it causes the price of the relevant crypto to drop almost instantly. Since the blockchain is not exclusively for crypto-currencies, this falsification of data could also result in fraudulent monitoring of food, industrial, or energy supply chains.</p>



<figure class="wp-block-image size-large"><img src="http://nfcms1/app/uploads/2022/07/blockchain-51-attack-1.png" alt="The 51% Attack" class="wp-image-40875"/><figcaption>The 51% Attack, Source: <a href="https://ethresear.ch/t/timeliness-detectors-and-51-attack-recovery-in-blockchains/6925" target="_blank" rel="noreferrer noopener">ethresear.ch</a></figcaption></figure>



<h2>Proof of Stake: The Alternative to Proof of Work</h2>



<p>&#8216;Proof of Stake&#8217; miners’ tasks have been divided into several roles, yet the end goal remains the same: ensuring that the information is transmitted correctly while respecting a peer-to-peer consensus. This consensus will be achieved utilizing a completely different method from proof of work. Instead of solving complex mathematical equations with dedicated machines, proof of stake requires the user to hold a certain amount of crypto. By design, the network will recognize those who keep enough assets to be trustable in order to validate the transactions.&nbsp;This way, users no longer have to spend transaction fees and block rewards are distributed to different validators across the network. The quantity of crypto necessary for a user to become a validator is generally a significant amount (32 ETH for ETH2 for example), but this stake in the network is necessary to prove the reliability of the candidates for validation.</p>



<p>There are several variants of ‘Proof of Stake&#8217; (PoS). The most popular of which is the &#8216;Delegated Proof of Stake&#8217; (DPoS) used by both EOS and WAX. There are some key differences between the variants, but the core concept remains the same.&nbsp;DPoS allows a user to stake their tokens in a trusted validator. Based on the percentage that this stake represents on the entirety of what the node manages, the user will receive a proportional reward of the block reward. The validator’s proof of stake is thus participatory and does not receive the full block reward.</p>



<p>Without being exhaustive, here are the advantages of &#8216;Proof of Stake&#8217; (PoS) and Delegated &#8216;Proof of Stake&#8217; (DPoS):</p>



<ul><li><a href="https://nonfungible.com/academy/ecosystem/nfts-impact-environment" target="_blank" rel="noreferrer noopener">Greener for environment</a></li><li>More transactions are supported at the same time</li><li>Faster transactions</li></ul>



<p>And the disadvantages:</p>



<ul><li>Encourages nepotism</li><li>Centralization of validation by whales</li></ul>



<p>The balance of these consensus methods is found at the level of the number of crypto (or tokens) necessary to be a validator, but also of those who are &#8216;contributors&#8217;, namely those who have decision-making power on the changes to be made at the consensus level. A validator will be in charge to validate the transaction, whereas the contributors will be in charge to propose soft or hard fork or any major upgrade proposition of the blockchain.</p>


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<p class="has-text-align-center">This work is licensed under a <a href="http://creativecommons.org/licenses/by/4.0/" target="_blank" rel="noreferrer noopener">Creative Commons Attribution 4.0 International License</a>.</p>


Miners are essential players of the blockchain. Guarantors of the security of the network, they are responsible for validating crypto transactions before entering them into the blocks.

Mining and Validating


<p>Now that we know how a digital signature works and how it interacts with the blockchain, there are still a few things to know before sending your cryptocurrencies to a recipient.</p>



<p>The digital signature is not the only thing required before a transaction can be written on the blockchain. The information transmitted by the blockchain must be ‘hashed’, that is to say,&nbsp; transformed into a series of characters that will all be the same weight.</p>



<p>Once this is done, the digital signature is attached to information to be transmitted. This leaves room for verification. The blockchain was designed so that it is possible to verify information publicly, with the least amount of trust and outside involvement from verifiers.</p>



<figure class="wp-block-image size-large"><img src="http://nfcms1/app/uploads/2022/07/birth-blockchain-transaction-1-1.jpg" alt="The Birth of A Blockchain Transaction" class="wp-image-40863"/><figcaption><em>The Birth of A Blockchain Transaction</em></figcaption></figure>



<p>There’s some variation in how transactions occur on different blockchains, but ultimately they are based on the same concept: transfer value in the most decentralized way possible. The chapter dedicated to <a href="https://nonfungible.com/academy/blockchain/mining-validating" target="_blank" rel="noreferrer noopener">Mining and Validating</a> explains in more detail the different transaction verification processes. Here we will only detail the differences between simple and complex transactions.</p>



<h2>Simple Transaction</h2>



<p>A &#8216;simple&#8217; transaction is a transfer of cryptocurrency from one wallet to another. This is the easiest operation for the network to perform because it only requires debiting one wallet to credit another.</p>



<p>Once the transaction is <a href="https://nonfungible.com/academy/blockchain/signing-authentication" target="_blank" rel="noreferrer noopener">signed with my private key</a>, the blockchain will be consulted to validate that I have sufficient funds. After confirmation of available funds, the transaction will be sent to the miners so that they can execute the order.</p>



<p>Because of its simplicity, this type of transaction has the lowest fees regardless of the blockchain used.</p>



<h2>Complex Transactions</h2>



<p>As the name suggests, a complex transaction is more complex. Some features enabled by the blockchain allow for more sophisticated operations than simply sending crypto from one wallet to another. This is made possible thanks to smart contracts which automate all the processes.</p>



<p>As each blockchain uses a different operation to make the smart contract work (Script for Bitcoin, EVM for Ethereum), in order to remain as clear as possible, we will list here the most common use cases of complex transactions.</p>



<h3><strong>Sending (Non-)Fungible Tokens</strong></h3>



<p>As we have seen previously, a token is a digital asset that is linked to a cryptocurrency. This means that unlike crypto where the blockchain was designed to natively support transactions for its currency, tokens must go through a smart contract to be able to transit from one wallet to another.</p>



<p>To take the example of the Ethereum blockchain, sending a fungible token from one wallet to another will always cost more in fees than just sending Ether. Miners will have to read more lines of code to complete the transaction and that is why the &#8216;gas limit&#8217; ends up being higher.</p>



<p>Likewise, sending an NFT will require a smart contract containing even more lines of code and will therefore cost even more!</p>



<p>This system of reading a line of code by miners or validators is the same regardless of the blockchain. Even though the fee system differs in the ‘Proof of Stake’ (PoS) standard, the complexity of sending the transaction remains the same and will therefore require more time for the validators on the network to complete the transaction.</p>



<h3><strong>Atomic and Token Swap</strong></h3>



<p>An Atomic Swap is an automated exchange between two cryptocurrencies (BTC and ETH for example). Some decentralized exchanges like <a href="https://bisq.network/" target="_blank" rel="noreferrer noopener">Bisq</a> allow this, but it is a complex operation, frowned upon by regulators.</p>



<p>This requires having sufficient liquidity in the market and flawless security (to avoid hacks).</p>



<p>Atomic swaps are therefore mainly carried out on centralized exchange platforms, but between what is displayed in real-time on your portfolio and the &#8216;concrete&#8217; realization of the atomic swap, there can be a long delay. This helps ensure that the trading occurs at the best possible price not only for you but for the centralized exchange platform.</p>



<p>The token swap uses roughly the same principle as the atomic swap except that it takes place on the same blockchain. It uses a standard understood by all smart contracts, facilitating the management of the process and making the exchange between two tokens much easier. Although it is possible to carry out tokens swaps in a decentralized manner, notably thanks to <a href="https://uniswap.org/" target="_blank" rel="noreferrer noopener">Uniswap</a> or directly from <a href="https://metamask.io/" target="_blank" rel="noreferrer noopener">Metamask</a>, this can sometimes be very expensive in transaction fees!</p>



<h3>Smart Contract</h3>



<p>Among the most expensive operations to perform, creating a smart contract means including in a transaction all the code necessary for the operations that you want to trigger in order to register it on the blockchain, and thus automate the entire process.</p>



<p>There are two possible ways to create a smart contract:</p>



<ul><li>Write everything from A to Z and then deploy it on the blockchain where it will be verified.</li><li>Use a third-party service that will create your own.</li></ul>



<p>The first solution obviously allows almost total freedom of creation (depending on the ability of the blockchain to process the contract) but requires technical skills that are not within the reach of everyone.&nbsp;However, there are many resources available online and the existing communities are very helpful for new developers who want to get started in the creation of smart contracts.</p>



<h3><strong>How Does NFT Minting Work?&nbsp;</strong></h3>



<p>There are some blockchains that are programmable and designed to allow the building of apps, otherwise known as decentralized applications (Dapps).</p>



<p>Ethereum is the first and most widely used blockchain for minting NFTs, but it’s not the only one! Other blockchains such as <a href="https://on.wax.io/wax-io/" target="_blank" rel="noreferrer noopener">WAX</a> or <a href="https://www.onflow.org/" target="_blank" rel="noreferrer noopener">Flow</a> were made to support a high volume of NFT transactions.&nbsp;&nbsp;</p>



<p>Minting NFTs is the term used to create an NFT from a smart contract and metadata where the contract has to conform to certain pre-agreed standards.</p>



<p>Writing your own smart contract and metadata is a highly skilled developer’s task. Over the past few years, minting on platforms such as <a href="https://www.mintbase.io/" target="_blank" rel="noreferrer noopener">Mintbase</a>, <a href="https://opensea.io/" target="_blank" rel="noreferrer noopener">OpenSea</a>, and <a href="https://rarible.com/" target="_blank" rel="noreferrer noopener">Rarible</a> among others has given creators the opportunity to simplify the entire technical process and mint their own NFTs. For more information, check out our <a href="https://nonfungible.com/academy/nft?unit=minting-nfts" target="_blank" rel="noreferrer noopener">Minting NFTs</a> unit.</p>


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<p class="has-text-align-center">This work is licensed under a <a href="http://creativecommons.org/licenses/by/4.0/" target="_blank" rel="noreferrer noopener">Creative Commons Attribution 4.0 International License</a>.</p>


Blockchain transactions aim to transfer value in the most decentralized way possible. Explore the differences between simple and complex transactions.

Transactions


<p>We are hearing more and more about Rollups. But what exactly are they? Rollups are a way to evolve Ethereum&#8217;s capacities in order to solve the scalability problems encountered by the network.</p>



<p><a href="https://nonfungible.com/academy/blockchain/trustless-consensus" target="_blank" rel="noreferrer noopener">The blockchain trilemma</a> states that a network can only achieve two of the three pillars (decentralisation, security and scalability). And Ethereum has reached its limits in terms of scalability (number of transactions per second and fees).</p>


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<figure class="aligncenter size-full"><img loading="lazy" width="948" height="632" src="http://nfcms1/app/uploads/2022/11/triangle-blockchain.png" alt="triangle blockchain trilemma" class="wp-image-287929" srcset="http://nfcms1:80/app/uploads/2022/11/triangle-blockchain.png 948w, http://nfcms1:80/app/uploads/2022/11/triangle-blockchain-300x200.png 300w, http://nfcms1:80/app/uploads/2022/11/triangle-blockchain-768x512.png 768w" sizes="(max-width: 948px) 100vw, 948px" /></figure></div>


<h2><strong>How to solve the scalability problem?</strong></h2>



<p>A blockchain can be designed with higher transaction capacities. However, the main drawback of this technique is that blockchains with &#8220;larger blocks&#8221; are more difficult to verify and risk becoming more centralised.</p>



<p>To avoid this risk, developers can make client software more efficient or use technologies such as sharding to help spread the work of construction and validation of the chain across multiple nodes. The Ethereum 2.0 project is attempting to implement this solution.</p>



<p>It is also possible to change the way the blokchain is used. Instead of putting all their activity directly on the blockchain, users do most of their activity off-chain via so-called &#8220;layer 2&#8221; protocols.</p>



<p>There is then a smart-contract on the main chain that has only two tasks: to process deposits and withdrawals, and to verify the evidence that everything that happens off the main chain is compliant with the rules. There are several ways to achieve this proof, but they all have one thing in common, namely that validating the proof on the main chain is much cheaper than the original calculation off the chain.</p>



<p>Several solutions are available and different types of rollups exist, the most notable being ZkRollups and Optimistic Rollups.</p>



<h2><strong>ZkRollup</strong></h2>



<p>ZkRollups, also known as Zero-Knowledge Rollups, make it possible to aggregate hundreds of off-chain transactions while publishing a cryptographic proof of the state of the account balances at the end of these transactions on the main chain.</p>



<p>ZkRollup solutions process transactions off chain and batch them together before posting it to the blokchain. They also generate a cryptographic validity proof used to verify the authenticity of transaction data.</p>



<p>The validity proof called SNARK (succinct non-interactive augment of knowledge), is generated without needing to know all the transaction data; only some key details. That is why it is called a “zero knowledge rollup.”</p>



<p>The major ones are <a href="https://starkware.co/" target="_blank" rel="noreferrer noopener">Starkware</a>, <a href="https://zksync.io/" target="_blank" rel="noreferrer noopener">zkSync</a>, <a href="https://www.immutable.com/" target="_blank" rel="noreferrer noopener">ImmutableX</a>, <a href="https://aztec.network/" target="_blank" rel="noreferrer noopener">Aztec</a> and <a href="https://polygon.technology/solutions/polygon-zkevm/" target="_blank" rel="noreferrer noopener">Hermez</a>.</p>



<h2><strong>Optimistic Rollup</strong></h2>



<p>As part of this technology, funds are held on an on-chain smart contract while transactions that are off-chain are aggregated and published in a compressed manner on the Ethereum main chain.</p>



<p>Optimistic Rollups do not generate a validity proof to authenticate transaction data. There is a certain waiting period of time, during which it’s possible to be disputed by network participants.</p>



<p>If any network user posts valid proof that a transaction is fraudulent, the transaction will get rejected. The initial presumption of transaction liquidity without proof is the reason why these roll ups are called “Optimistic.”</p>



<p>The most prominent are <a href="https://portal.arbitrum.one/" target="_blank" rel="noreferrer noopener">Arbitrum</a>, <a href="https://metis.io/" target="_blank" rel="noreferrer noopener">MetisDAO</a> and <a href="https://www.optimism.io/" target="_blank" rel="noreferrer noopener">Optimism</a>.</p>



<h2><strong>Differences between ZkRollups and Optimistic Rollup</strong></h2>



<p>Differences: The key advantage of ZkRollups over Optimistic is the speed of on chain transactions. Since there isn’t a waiting time for the ZkRollups during which the authenticity of a transaction may be challenged; they are posting to the Ledger faster than Optimistic.</p>



<p>However, the cryptographic validity proofs used by ZkRollups rely on significant wash power to compute. Therefore, programs that have limited on-chain activity may find it easier/more beneficial to use Optimistic Rollup solutions.</p>



<p>They currently enjoy greater scalability because of the absence of validity proof computation. A big spike in transactions is unlikely to affect an app using an Optimistic Rollup rather than ZkRollup.</p>



<p>A further difference is smart contract interactions, Optimistic rollups are able to directly execute on the L1 whereas a ZkRollup isn’t able to.</p>



<h2><strong>What are the limitations of Rollups?</strong></h2>



<p>There are still many uncertainties regarding the design of rollups and many challenges to be overcome. These include</p>



<p>Pre-confirmation security: many rollups offer a notion of &#8216;pre-confirmation&#8217; for faster user experiences. However, the economic security of this model is limited due to the limited ability to make promises to many players at the same time.</p>



<p>User integration: few decentralised applications use rollups and few users are aware of them so few platforms support them;</p>



<h2><strong>Conclusion</strong></h2>



<p>Rollups therefore represent a new paradigm for solving Ethereum&#8217;s scalability problem. They will certainly be the cornerstone for scaling Ethereum.</p>



<p>The Ethereum community has been very enthusiastic about them because, unlike previous attempts to move to the second layer of Ethereum, this one can support generic Ethereum Virtual Machine (EVM) code, which allows existing applications to easily migrate to new solutions.</p>



<p>To do this, they made a key compromise: instead of trying to exit the main chain completely, they left a small amount of data per transaction on it.</p>



<p>There are many types of rollups and many choices in their design: from Optimistic Rollups that use proof of fraud, to ZK Rollups that use proof of validity. This bodes well for the Ethereum blockchain, which will gradually see its exorbitant fees disappear.</p>


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<p class="has-text-align-center">This work is licensed under a <a href="http://creativecommons.org/licenses/by/4.0/" target="_blank" rel="noreferrer noopener">Creative Commons Attribution 4.0 International License</a>.</p>


There are new ways to optimize and make a blockchain scalable. ZkRollup and Optimistic Rollup are among these solutions.

ZkRollup and Optimistic Rollup

Blockchain Usages


<p>As we have seen previously in &#8216;<a href="https://nonfungible.com/academy/blockchain/mining-validating" target="_blank" rel="noreferrer noopener">Mining and Validating&#8217;</a>, depending on the consensus method used by a blockchain, a fee will be required to send a transaction. Each form of consensus has its advantages and disadvantages, always responding to a <a href="https://nonfungible.com/academy/blockchain/trustless-consensus" target="_blank" rel="noreferrer noopener">balance between security, scalability, and decentralization</a>.&nbsp;</p>



<p>These costs may seem restrictive at first but if we take a closer look, they’re essential to securing the network and avoiding &#8216;double-spending’.</p>



<p>Depending on the blockchain used, costs can serve to reward miners for their commitment to the network yet they can also become completely invisible to the end-user to facilitate the various use-cases.</p>



<h2>Bitcoin Fees</h2>



<p>To understand transaction fees on the Bitcoin blockchain, you must be aware that each transaction is processed one after the other by miners based on the ‘Proof of Work’ consensus.&nbsp;Depending on the length of this transaction queue, called ‘Mempool’ or memory pool, your transactions will take more or less time to be validated. This is one of the big drawbacks of the Bitcoin blockchain: if there are too many transactions, it could take several hours or even several days before your transaction is put in a block and then broadcast on the network!</p>


<div class="wp-block-image">
<figure class="aligncenter size-large"><img src="http://nfcms1/app/uploads/2022/07/Bitcoin-transaction-fee-mechanics.png" alt="Bitcoin transaction fee mechanics" class="wp-image-39960"/><figcaption><em>Bitcoin Transaction Fee Mechanics</em></figcaption></figure></div>


<p>The fees are expressed in satoshi/byte and are calculated based on the length of the transaction and how busy the network is. A long transaction could, for example, involve several recipients. Even if most wallets nowadays pay these fees according to the queue, it is possible to pay more for your transaction to be prioritized over others.</p>


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<figure class="aligncenter size-full"><img src="http://nfcms1/app/uploads/2022/07/Bitcoin-mempool-1.png" alt="Bitcoin mempool" class="wp-image-39973"/><figcaption>Bitcoin Mempool (Memory Pool)</figcaption></figure></div>


<p>As explained above, miners will take care of entering transactions into blocks, but not just anyhow. Since fees are a form of payment for them, they will therefore prioritize the transactions with the highest fees. In the diagram above, the transactions will therefore be processed by the miners from top to bottom.</p>



<h2>Second Layer: Lightning Network</h2>


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<figure class="aligncenter size-full is-resized"><img loading="lazy" src="http://nfcms1/app/uploads/2022/07/40_LN.png" alt="Lightning Network Logo" class="wp-image-38210" width="288" height="162"/><figcaption>Lightning Network</figcaption></figure></div>


<p>Bitcoin has slow transactions and cannot handle a lot of transactions at one time. To overcome these issues, a solution has been developed: a second layer on top of Bitcoin called the ‘Lightning Network’. This second layer opens a temporary ‘mini-safe’ where a very high number of transactions can occur with almost non-existent fees.</p>



<p>Technically, this ‘mini-safe’ is a micropayment channel because of its capacity to handle in a very efficient way a small amount of Bitcoin. Instead of having a transaction validated one after another, the Lightning network opens a payment channel reserved for two entities and must be supplied with Bitcoin by both parties wishing to use the channel.</p>



<p>As long as the channel is open, the number of possible transactions is almost unlimited. When the channel is closed, each participant of the transaction will get their due number of Bitcoin.</p>



<p>Let’s take the example of Zoup and Dan who want to play poker. Each of them puts 1 Bitcoin into a Lightning Network channel and divides the 2 Bitcoin into 1 million satoshis each. They will not be able to trade more than 2 million satoshis during the game. They will be able to carry out a very large number of transactions and in order to keep the accounts, Dan and Zoup will need to complete an engagement transaction from time to time which will mark a &#8216;milestone&#8217; in the exchanges. Once they&#8217;re finished playing poker, Zoup and Dan will only have to close the channel to receive the Bitcoin owed to them.</p>



<p>Being able to use the Lightning Network is not free.&nbsp;When the channel opens, during engagement transactions and when the channel is closed, Bitcoin&#8217;s usual transaction fees apply. Each transaction carried out in the channel also costs 1 satoshi. </p>



<p>Having the ability to open up &#8216;micropayment channels&#8217; has enabled crypto or blockchain games to instantly reward gamers in satoshis much faster and more cheaply.</p>



<h2>Ethereum Fees</h2>



<p>Ethereum also uses the ‘Proof of Work’ consensus and the way it handles transactions is very similar to Bitcoin. Each transaction must be entered into a block by the miners to be confirmed, and the fees serve both to secure the network and to reward the miners. Transaction fees on the Ethereum Blockchain are paid in Gwei and are commonly called &#8216;gas&#8217;.&nbsp;&nbsp;</p>



<p>Two concepts hide behind this name:&nbsp;</p>



<ul><li>Gas limit&nbsp;</li><li>Gas price&nbsp;</li></ul>



<p>To determine the final price for transaction fees, simply multiply the gas limit by the gas price.</p>



<p>The calculation seems simple at first, but the gas limit varies according to the type of transactions that will be carried out. For example, there’s a big difference in terms of gas limit between sending Ether to a friend and deploying a more resource-intensive smart contract!</p>


<div class="wp-block-image">
<figure class="aligncenter size-large"><img src="http://nfcms1/app/uploads/2022/07/Ethereum-fees-and-gas-limit.png" alt="Ethereum fees gas limit" class="wp-image-39981"/><figcaption>Ethereum fees and gas limit</figcaption></figure></div>


<p>On Ethereum, the more lines of code there are to be read and validated by miners, the higher the gas limit will be. The limit referred to in &#8216;gas limit&#8217; is the minimum limit for a transaction’s entire code to be read and validated by miners. Regarding the maximum limit, it is determined by the storage capacity of a block, namely 10,000,000 of Gas. Once this maximum is reached, you have to wait for the next block to register the transaction.</p>


<div class="wp-block-image">
<figure class="aligncenter size-large"><img src="http://nfcms1/app/uploads/2022/07/Average-gas-limit-gas-price-daily-transaction-Ethereum.jpg" alt="Average gas limit gas price daily transaction Ethereum" class="wp-image-39989"/><figcaption><em>Average Gas Limit, Average Gas Price, and Daily Transaction on Ethereum</em></figcaption></figure></div>


<p>The price of gas balances according to the network use. You might think that the more trades there are, the higher the price, but as the graph above shows, this is not always the case. Although between 2018 and 2019, the use of NFTs experienced a slight increase, 2020 was marked by the arrival in the ecosystem of institutional actors as well as a lot of Decentralized Finance (DeFi) projects.</p>



<h2>Second Layer: Polygon (ex-MATIC)</h2>



<p>This overlay has an extremely simple goal: to radically lower the costs as well as the time of Ethereum blockchain transactions. Designed to facilitate the exchanges of the ERC-20 and ERC-721 standards, it is nevertheless necessary to pass through a &#8216;bridge&#8217; between the Ethereum blockchain and the Polygon overlay so that the assets can be transferred.</p>



<p>Unlike the Lightning Network where it is necessary to close the channel or send an engagement transaction for the exchanges to be registered on the main blockchain, on Polygon it is possible to see the transactions taking place publicly.</p>



<p>For transactions to be validated, this secondary blockchain operates as a ‘Proof of Stake’ system, which requires a minimum number of tokens to be able to participate in securing the network. As a result, the costs inherent in the transactions are a reward for the various users who have staked their tokens.</p>



<h2>EOS and WAX</h2>



<p>The fees on WAX and EOS blockchains have nothing to do with the previous examples. Both are based on the <a href="https://eos.io/about/" target="_blank" rel="noreferrer noopener">EOSIO protocol</a> (which has lower and faster transaction fees) and use the same system of management for the transaction fees. This protocol works in ‘Delegated Proof of Stake’ and in order to work, it requires having frozen resources in the wallet.&nbsp;</p>



<p>Depending on the Dapp you want to interact with, these cryptos use three types of resources to complete a transaction: RAM, NET, and CPU.&nbsp;</p>



<p>RAM means Random Access Memory. It is the amount of space (in bytes) the Dapp will need to work properly. It will read users’ data such as keys, balances, and other account data during a transaction.</p>



<p>NET can be understood as the blockchain bandwidth. It is the amount of space (in bytes) dedicated to storing your transactions. </p>



<p>CPU stands for Central Processing Unity. It is the amount of time (in microseconds) a blockchain will dedicate to processing your transactions.&nbsp;</p>



<p>Where Ether is needed to pay gas to send your Ethereum transaction, EOS will need the CPU, RAM, or NET account resources to complete the transaction. On EOS, the CPU and NET regenerate over time while RAM will have to be bought on a secondary market. The transaction-intensive Dapps quickly raise these different counters and if too many transactions take place on the network, risk of congestion of another type will appear which will require stacking a gigantic number of EOS or WAX to be able to interact with the blockchain.</p>


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<p class="has-text-align-center">This work is licensed under a <a href="http://creativecommons.org/licenses/by/4.0/" target="_blank" rel="noreferrer noopener">Creative Commons Attribution 4.0 International License</a>.</p>


Depending on the blockchain consensus, a fee will be required to send a transaction. Along with avoiding 'double-spending’, these costs serve to reward miners for their commitment.

Fees


<p>In March 2018, John Oliver said on HBO: “<a href="https://youtu.be/g6iDZspbRMg?t=53" target="_blank" rel="noreferrer noopener">Cryptocurrencies are Everything You Don’t Understand about Money, Combined with Everything You Don’t Understand about Computers</a>”.</p>



<p><strong>The Context?&nbsp;</strong>That year, Bitcoin’s USD value went from $20,000 to $7,000 in less than a few weeks, bringing down the entire crypto market with it.</p>


<div class="wp-block-image">
<figure class="aligncenter size-full"><img src="http://nfcms1/app/uploads/2022/07/bitcoin-roller-coaster-1.gif" alt="Bitcoin Roller Coaster" class="wp-image-40703"/><figcaption>Bitcoin Roller Coaster</figcaption></figure></div>


<p>Two of the key issues for crypto are 1)understanding what they are used for and 2) what problems they seek to solve.&nbsp;Whether you are trading, investing, or just curious, here are some tips to follow BEFORE you spend a single penny in this universe:</p>



<ul><li>DYOR / Do Your Own Research: If a project sounds interesting to you, find out who the team behind it is, what they&#8217;ve done before, and if they exist in the real world (articles, conferences, videos, social media). Take the time to read the Whitepaper to find out how the governance of the project works and how the cryptos or tokens are distributed. You can find data and analysis for many <a href="https://nonfungible.com/market-tracker" target="_blank" rel="noreferrer noopener">NFT projects on our website</a>.</li><li>Don’t trust, verify: it is important not to solely rely on marketing when it comes to evaluating a project. Some announcements can be misleading and verifying the information received is essential.</li><li>Don’t FOMO, don’t panic, and bring a towel! There are many groups doing &#8216;Pump &amp; Dump,&#8217; the practice of coordinating to drive the price of crypto up or down. Keep a cool head, establish a win-loss strategy, and stick to it.</li><li>Never share your private key!!</li></ul>



<h2>Where to Buy Cryptocurrencies?</h2>



<p>In the world of cryptocurrencies, buying and selling assets has become very easy through centralized exchanges like <a href="https://www.kraken.com/" target="_blank" rel="noreferrer noopener">Kraken</a>, <a href="https://www.binance.com/en" target="_blank" rel="noreferrer noopener">Binance</a>, and <a href="https://www.coinbase.com/" target="_blank" rel="noreferrer noopener">Coinbase</a>. These platforms, however, require having at least a credit card (at best) or an identity card (at worst) before they allow you to buy or sell cryptocurrency for fiat money. </p>



<p>There are peer-to-peer purchasing methods through platforms like <a href="https://localbitcoins.com/" target="_blank" rel="noreferrer noopener">Localbitcoin</a> (or <a href="https://localcryptos.com/Ethereum/Buy" target="_blank" rel="noreferrer noopener">Localethereum</a>) that allow you to use PayPal, a bank transfer, or even (according to the vendor), pay in cash. Crypto prices on these platforms are often higher than the market, but there are times when a seller forgets to set their prices based on the market value and you can get a good deal.</p>



<p>Some projects like <a href="https://bisq.network/" target="_blank" rel="noreferrer noopener">Bisq</a> want to go even further by offering a decentralized exchange, but this requires a high level of technical knowledge, making this solution not easily accessible to the general public.<br>Since 2010, the possibilities to hold, transfer, buy or sell cryptocurrencies have multiplied and this has provided access to a wide variety of tools paving the way for greater adoption. </p>


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<p class="has-text-align-center">This work is licensed under a <a href="http://creativecommons.org/licenses/by/4.0/" target="_blank" rel="noreferrer noopener">Creative Commons Attribution 4.0 International License</a>.</p>


Whether you are trading, investing, or just curious, here are some tips to follow before you invest in cryptocurrencies.

Buying and Selling Cryptocurrencies


<p>Lending and borrowing within the crypto markets have really increased during 2020 with many decentralized finance platforms offering new ways to create passive income from your crypto holdings. Cryptocurrencies have been around for over a decade and offer a decentralized peer-to-peer exchange of value, but monetary exchange is only one element of an entire financial ecosystem that rivals our current complex system of derivatives, options, shares, etc.</p>



<p>As blockchain technology becomes increasingly accepted in the mainstream, solutions for more in-depth and complex financial products and services have become more popular and trusted. It&#8217;s difficult not to speak of the 2020 DeFi boom when talking of decentralized financial systems. The speed at which these blockchain projects (mainly Ethereum) have grown has been mind-blowing with millions of dollars locked in on Defi platforms by the end of 2020.</p>



<h2>Decentralized Finance Removes the Middle Man</h2>



<p>Both lending and borrowing are familiar concepts, yet decentralized financial systems differ from current centralized models.&nbsp; One of the most obvious differences being that in a decentralized system, there are no intermediaries and everything is run in the trustless peer-to-peer system.</p>



<p>The middle man, for instance, a loan agent or bank, is no longer required as they once were since the contract for the loan is now written into a smart contract.&nbsp;Instead, decentralized platforms have been built to enable users to borrow and lend directly to one another.</p>



<p>With a simple action, a borrower can quickly access lenders worldwide at competitive rates. The same is true for lenders who can safely issue loans through a decentralized and trusted third party. Peer-to-peer lending and borrowing offer a much more transparent system than with non-blockchain-based systems, with all transactions recorded and visible.</p>


<div class="wp-block-image">
<figure class="aligncenter size-full"><a href="https://creativecommons.org/licenses/by/4.0/" target="_blank" rel="noreferrer noopener"><img loading="lazy" width="88" height="31" src="http://nfcms1/app/uploads/2023/03/CC-BY.png" alt="" class="wp-image-288164"/></a></figure></div>


<p class="has-text-align-center">This work is licensed under a <a href="http://creativecommons.org/licenses/by/4.0/" target="_blank" rel="noreferrer noopener">Creative Commons Attribution 4.0 International License</a>.</p>


As blockchain technology spreads more widely, in-depth and complex financial products and services emerge, offering new ways to create passive income from your crypto holdings.

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