Last week, we started to get comfy with some basic blockchain concepts such as trustlessness and immutability. This week builds on that, as we explore seven more things you should be aware of when considering which blockchain ecosystem to call home.

In 7 Blockchain Basics, we distinguished distribution from decentralization. Recall that distribution refers to the physical location of the computers that keep the blockchain running. By contrast, decentralization refers to the number of computers running copies of the blockchain data and the fact that no computer or entity controls the network.

While distribution is important for network robustness (you can have 1 million computers running a copy of blockchain data, but if they are all in the same zip code and that area gets hit by a natural disaster, the blockchain goes offline), decentralization is the metric to which most crypto natives pay attention. In blockchain-speak, a connected computer running a synchronous copy of blockchain data is called a node. The more nodes running copies of the data, the more decentralized the blockchain. A more decentralized blockchain is a more secure blockchain.

As the above chart illustrates, not all blockchains are created equal. BSC is basically a centralized blockchain, Solana is slightly better, while Bitcoin and Ethereum have arguably similar levels of decentralization. Note, however, that after the Merge, when Ethereum becomes a proof-of-stake network, Ethereum will become more decentralized by a factor of 20. There are currently over 300,000 validators on Ethereum’s proof-of-stake network.

A key indicator to pay attention to when considering where to deploy capital on chain is the number of developers actively building within the ecosystem. The more developers active within the ecosystem, the more projects being built. The more projects being built, the more users within the ecosystem. The more users, the more devs… and the cycle continues. As the below chart indicates, the Ethereum ecosystem far and away has the biggest draw for developers.

Those of you new to blockchains have heard of consensus mechanisms, even if you don’t know what they are. A consensus mechanism is the method by which network validators - those who arrange transactions, build blocks, and keep the synchronous data - reach agreement on what data to include on chain. A functioning consensus mechanism assures that all network validators have the same data on their computers.

The first consensus mechanism was Bitcoin’s proof-of-work, which relies on validators using high amounts of computing power to solve complex algorithms known as hash functions. Each block on the chain has a specific hash function, and the first miner to solve that function (which is sort of like finding a random number in a huge dataset) gets to create the block and the miner is rewarded in bitcoin. The other network validators can run the hash function to check the work, and in this way the integrity of the data on the blockchain is preserved. Many major blockchains currently use proof-of-work, although that is starting to change. Ethereum is planning to migrate to a new consensus mechanism called proof-of-stake this year.

Proof-of-stake has been in the headlines recently, as Ethereum is moving to that validation method. Notably, it’s estimated that proof-of-stake is 99% more energy efficient than proof-of-work. With proof-of-stake, network validators stake the blockchains’ native currency to secure the network. This capital, this stake, can be reduced or eliminated, what’s called slashing, if the validator behaves dishonestly or lazily. Dishonest is pretty clear, in that it means the validator is attempting to include fraudulent transactions, while lazy means that the validator doesn’t propose blocks or their node experiences downtime.

Although there are dozens of other consensus mechanisms, proof-of-work and proof-of-stake are by far the most common.

All blockchains have a native token that allows you to pay for transactions within the network. For Bitcoin, it’s bitcoin; for Ethereum it’s Ether; for Solana it’s SOL; for Avalanche it’s AVAX, for Polkadot is DOT, and Cardano is ADA. While these native tokens serve as the blockchain currency, they are also seen as distinct assets depending on the narrative adopted by the cryptoverse. For bitcoin it’s the idea that it’s a store of value, also known as digital gold. For Ether, it’s programmable magic internet money. But for you the main takeaway is the native currency is used for transactions but can also have secondary characteristics.

A bridge is the name for a protocol that enables users to move cryptocurrencies between various blockchain networks. Bridges let users move assets or data to unrelated ecosystems, such as bridging ether to the Solana network, or within the Ethereum ecosystem, to Layer 2 scaling solutions and side chains. Notably, when using a non-native token of another blockchain, that token will be wrapped e.g. a synthetic version that tracks the native token will be used. Examples include wBTC, which allows the use of bitcoin on Ethereum, or wETH, which allows the use of ether on other blockchains. Bridges also allow users to connect to dApps (decentralized applications) within other ecosystems. Bridges can be centralized or decentralized, and rely on liquidity to move assets back and forth. Pro tip: it’s good practice to check a bridge’s liquidity before transferring assets.

Forks are typically used by blockchain developers to upgrade the blockchain, although they have also been used to roll back the blockchain. There are two types of blockchain forks: hard and soft forks.

A hard fork is a backward-incompatible upgrade, meaning that nodes on the old blockchain cannot validate blocks on the new chains and similarly the new chain cannot validate blocks on the old chain. Sometimes hard forks happen because of community disagreement, as with Bitcoin Cash, which came to fruition because of scaling disagreements within the Bitcoin community. Ethereum forked away after the DAO Hack, and Ethereum Classic was created.

Unlike a hard fork, a soft fork is forward-compatible, meaning the split blockchains can still talk to each other after the fork. With a hard fork, all validators need to agree to the new fork or a split occurs, as discussed above. WIth a soft fork, only a majority of validators need to agree on the upgrade.

The number of active wallet addresses on a blockchain is another great way to determine the amount of activity on a blockchain. An active address is defined as a unique address that either sent or received a cryptoasset within a defined period of time. It should not come a surprise that the number of active addresses rises and falls with the overall crypto market.

Consensus mechanisms, forks, and bridges may not sound like blockchain basics, but this is where we have to expand our minds as to what is basic. Living and working at the edge of the technological world means that there is a lot of information to absorb. While not all of this material is simple, it’s still basic in that it is absolutely essential to understand these principles in order to confidently navigate this emerging system. Take the time to learn these basics now so when you encounter these terms in the wild or you are ready to dive deeper, you’ll have a foundation upon which to increase  your learning. As with all things Web3, together, we go further.

Hiro Kennelly is a writer, editor, and coordinator at BanklessDAO and the Editor-in-Chief at Good Morning News. He is also helping to build a grants-focused organization at DAOpunks.

Last week, we started to get comfy with some basic blockchain concepts such as trustlessness and immutability. This week builds on that, as we explore seven more things you should be aware of when considering which blockchain ecosystem to call home.

In 7 Blockchain Basics, we distinguished distribution from decentralization. Recall that distribution refers to the physical location of the computers that keep the blockchain running. By contrast, decentralization refers to the number of computers running copies of the blockchain data and the fact that no computer or entity controls the network.

While distribution is important for network robustness (you can have 1 million computers running a copy of blockchain data, but if they are all in the same zip code and that area gets hit by a natural disaster, the blockchain goes offline), decentralization is the metric to which most crypto natives pay attention. In blockchain-speak, a connected computer running a synchronous copy of blockchain data is called a node. The more nodes running copies of the data, the more decentralized the blockchain. A more decentralized blockchain is a more secure blockchain.

As the above chart illustrates, not all blockchains are created equal. BSC is basically a centralized blockchain, Solana is slightly better, while Bitcoin and Ethereum have arguably similar levels of decentralization. Note, however, that after the Merge, when Ethereum becomes a proof-of-stake network, Ethereum will become more decentralized by a factor of 20. There are currently over 300,000 validators on Ethereum’s proof-of-stake network.

A key indicator to pay attention to when considering where to deploy capital on chain is the number of developers actively building within the ecosystem. The more developers active within the ecosystem, the more projects being built. The more projects being built, the more users within the ecosystem. The more users, the more devs… and the cycle continues. As the below chart indicates, the Ethereum ecosystem far and away has the biggest draw for developers.

Those of you new to blockchains have heard of consensus mechanisms, even if you don’t know what they are. A consensus mechanism is the method by which network validators - those who arrange transactions, build blocks, and keep the synchronous data - reach agreement on what data to include on chain. A functioning consensus mechanism assures that all network validators have the same data on their computers.

The first consensus mechanism was Bitcoin’s proof-of-work, which relies on validators using high amounts of computing power to solve complex algorithms known as hash functions. Each block on the chain has a specific hash function, and the first miner to solve that function (which is sort of like finding a random number in a huge dataset) gets to create the block and the miner is rewarded in bitcoin. The other network validators can run the hash function to check the work, and in this way the integrity of the data on the blockchain is preserved. Many major blockchains currently use proof-of-work, although that is starting to change. Ethereum is planning to migrate to a new consensus mechanism called proof-of-stake this year.

Proof-of-stake has been in the headlines recently, as Ethereum is moving to that validation method. Notably, it’s estimated that proof-of-stake is 99% more energy efficient than proof-of-work. With proof-of-stake, network validators stake the blockchains’ native currency to secure the network. This capital, this stake, can be reduced or eliminated, what’s called slashing, if the validator behaves dishonestly or lazily. Dishonest is pretty clear, in that it means the validator is attempting to include fraudulent transactions, while lazy means that the validator doesn’t propose blocks or their node experiences downtime.

Although there are dozens of other consensus mechanisms, proof-of-work and proof-of-stake are by far the most common.

All blockchains have a native token that allows you to pay for transactions within the network. For Bitcoin, it’s bitcoin; for Ethereum it’s Ether; for Solana it’s SOL; for Avalanche it’s AVAX, for Polkadot is DOT, and Cardano is ADA. While these native tokens serve as the blockchain currency, they are also seen as distinct assets depending on the narrative adopted by the cryptoverse. For bitcoin it’s the idea that it’s a store of value, also known as digital gold. For Ether, it’s programmable magic internet money. But for you the main takeaway is the native currency is used for transactions but can also have secondary characteristics.

A bridge is the name for a protocol that enables users to move cryptocurrencies between various blockchain networks. Bridges let users move assets or data to unrelated ecosystems, such as bridging ether to the Solana network, or within the Ethereum ecosystem, to Layer 2 scaling solutions and side chains. Notably, when using a non-native token of another blockchain, that token will be wrapped e.g. a synthetic version that tracks the native token will be used. Examples include wBTC, which allows the use of bitcoin on Ethereum, or wETH, which allows the use of ether on other blockchains. Bridges also allow users to connect to dApps (decentralized applications) within other ecosystems. Bridges can be centralized or decentralized, and rely on liquidity to move assets back and forth. Pro tip: it’s good practice to check a bridge’s liquidity before transferring assets.

Forks are typically used by blockchain developers to upgrade the blockchain, although they have also been used to roll back the blockchain. There are two types of blockchain forks: hard and soft forks.

A hard fork is a backward-incompatible upgrade, meaning that nodes on the old blockchain cannot validate blocks on the new chains and similarly the new chain cannot validate blocks on the old chain. Sometimes hard forks happen because of community disagreement, as with Bitcoin Cash, which came to fruition because of scaling disagreements within the Bitcoin community. Ethereum forked away after the DAO Hack, and Ethereum Classic was created.

Unlike a hard fork, a soft fork is forward-compatible, meaning the split blockchains can still talk to each other after the fork. With a hard fork, all validators need to agree to the new fork or a split occurs, as discussed above. WIth a soft fork, only a majority of validators need to agree on the upgrade.

The number of active wallet addresses on a blockchain is another great way to determine the amount of activity on a blockchain. An active address is defined as a unique address that either sent or received a cryptoasset within a defined period of time. It should not come a surprise that the number of active addresses rises and falls with the overall crypto market.

Consensus mechanisms, forks, and bridges may not sound like blockchain basics, but this is where we have to expand our minds as to what is basic. Living and working at the edge of the technological world means that there is a lot of information to absorb. While not all of this material is simple, it’s still basic in that it is absolutely essential to understand these principles in order to confidently navigate this emerging system. Take the time to learn these basics now so when you encounter these terms in the wild or you are ready to dive deeper, you’ll have a foundation upon which to increase  your learning. As with all things Web3, together, we go further.

Hiro Kennelly is a writer, editor, and coordinator at BanklessDAO and the Editor-in-Chief at Good Morning News. He is also helping to build a grants-focused organization at DAOpunks.