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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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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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>


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<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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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>



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



<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>



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<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>


<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>


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">
<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>


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 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.

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