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.
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, transformed into a series of characters that will all be the same weight.
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.
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 Mining and Validating explains in more detail the different transaction verification processes. Here we will only detail the differences between simple and complex transactions.
A ‘simple’ 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.
Once the transaction is signed with my private key, 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.
Because of its simplicity, this type of transaction has the lowest fees regardless of the blockchain used.
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.
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.
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.
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 ‘gas limit’ ends up being higher.
Likewise, sending an NFT will require a smart contract containing even more lines of code and will therefore cost even more!
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.
An Atomic Swap is an automated exchange between two cryptocurrencies (BTC and ETH for example). Some decentralized exchanges like Bisq allow this, but it is a complex operation, frowned upon by regulators.
This requires having sufficient liquidity in the market and flawless security (to avoid hacks).
Atomic swaps are therefore mainly carried out on centralized exchange platforms, but between what is displayed in real-time on your portfolio and the ‘concrete’ 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.
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 Uniswap or directly from Metamask, this can sometimes be very expensive in transaction fees!
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.
There are two possible ways to create a smart contract:
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. 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.
There are some blockchains that are programmable and designed to allow the building of apps, otherwise known as decentralized applications (Dapps).
Ethereum is the first and most widely used blockchain for minting NFTs, but it’s not the only one! Other blockchains such as WAX or Flow were made to support a high volume of NFT transactions.
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.
Writing your own smart contract and metadata is a highly skilled developer’s task. Over the past few years, minting on platforms such as Mintbase, OpenSea, and Rarible among others has given creators the opportunity to simplify the entire technical process and mint their own NFTs. For more information, check out our Minting NFTs unit.
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