Subscribe to Nishant Gaurav
<100 subscribers
<100 subscribers
Share Dialog
Share Dialog
"In Web 3, there’s nothing real and nothing virtual. There are only things which are digital, or digital representations of physical entities."
This the first part of a 10-part series of essays where I will be taking a more practical approach on the crypto Web 3 world. The goal is to keep a balance between the technical details and its real world implications, for a completely uninitiated audience. This is not the first time I am documenting my findings, but all prior attempts have been in the form of slides. I work at an early stage investment fund in India and my first assignment was to build our investment thesis on crypto. After presenting and debating with non-crypto-native people, I realized that the fastest way to teach crypto is to keep practical applications at the center of the discussion.
Blockchain is a technology built on top of multiple underlying technologies which must be understood before decoding the blockchain itself. The next step will be to understand blockchain, and the ultimate goal is to gauge the different applications that can be built on blockchain and how they going to impact our daily lives. In every post I aim to undertake at least one real-world application which was not possible in the Web 2 world. Without any further ado, here is the overall plan:
Building blocks of Blockchain: Cryptography keys, hash functions, and Bitcoin
Layer 1 Fundamentals: Ethereum and smart contracts
Layer 1 Advancements: Solana, PolkaDot, and Cosmos
Layer 2: Polygon, Optimism, Arbitrum, etc.
DeFi (The money market of Web 3) part 1: Lending and Exchange
DeFi part 2: Stablecoins and Yield farming
DeFi part 3: Flash loans and Hacks
NFTs (The capital and goods market of Web 3)
DAOs (The corporates of Web 3)
List of apps to interact with Web 3 and tools to DYOR (Do Your Own Research)
What is the one big promise of the blockchain technology?
It provides a framework for people to do business in a trustless world. It means you do not have to trust any person or organization. You can assume the worst: that people not only can be selfish but they can also be malicious. The selfish person only cares about his/her own profits but the malicious person is okay with losing $200 if he can ensure you lose $100 too.
All of us have heard one common use-case of blockchain, i.e. digitalization of land records so that people can transfer land in a decentralized way and the current ownership record is publicly accessible. So, we will keep this example at the center of our discussion for this piece. There are generally two legs in any economic transactions:
The buyers pay the money; and
The sellers transfer the good (or perform the service).
Firstly, we will understand the one-way transaction where the money is transferred from the buyer to the seller. We will compare the blockchain way with the current methods like PayPal, UPI, etc. Basically, the digital transfer of money is not about transferring anything. It is merely about adding an entry in an online ledger (be it in Web 2 or Web 3) which records the transaction. Bitcoin is a decentralized network which maintains a shared ledger (database). The "decentralized" modifier implies that no single member (or a group of members) of the network can tamper with that ledger. In the Bitcoin network (notice the capital B), the currency is also called bitcoin (notice the small b). The shared ledger of Bitcoin has only one functionality: it records the transactions which people are doing using the digital currency “bitcoin”. (A smaller denomination is called satoshi and there are 100 million satoshis in one bitcoin.)
Each entry (line) in the shared ledger looks like "Send coin X to Address A." This entry should be only accepted in the ledger, if the sender of the entry is the owner of the coin X. The transaction "Send coin X to address A" can be compared to an offline bank transfer form in mainstream finance. The transfer form will only be accepted if it is signed by the owner of coin X. Let's discuss two technical building blocks which will help us to understand how the cheque is signed digitally and ownership is verified in a trustless decentralized way:
Asymmetric Encryption: The symmetric encryption model was similar to the physical lock and key model. Where the same key is used for locking (encrypting) and unlocking (decrypting). Now your secret key cannot be publically shared, otherwise your lock will be useless. Anybody will be able to unlock it. Therefore blockchain uses asymmetric encryption which uses a pair of keys: encrypting key (e) and decrypting key (d). It is computationally infeasible to find 'd' given 'e'. Now, 'e' is publically shared and it is known as public key and 'd' is known as private key which is kept secret. Hence the private key is not shared and the public key is not secret.
Hash Function: A function is piece of code which takes some input and gives some output. Hash functions convert data of any size into an output of fixed length (usually 256 characters). The modifier "hash" implies that the function cannot be reverse engineered. The hash function acts like a fingerprint of any data. It has two properties:
Confusion: You cannot figure out the message (aka input) from the hash (aka output). If you record your fingerprint on your phone, the phone cannot figure out your any other detail like height, weight, or gender. Basically, if you reveal the hash of a file, other people cannot figure out the contents of the file. (The output of the hash function is called hash.)
Diffusion: The hash (output) changes drastically even if a tiny change is made in the data (input). Even identical twins do not have the same fingerprints. Basically you can guarantee that two files are the same if they have the same hash because no two different files can have the same hash.
All the bitcoins on the Bitcoin network belong to some publicly visible address aka public key (think of it as a bank account number). Every coin is represented in two parts:
Its value in satoshi.
The hash of the public key to which the coin belongs.
Now, the sender of the transaction "Send coin ‘X’ to address A" signs it with his private key. Using the public key of the sender you can verify if the signature (created by private key) on the transaction is valid or not. Continuing our mainstream finance analogy, here we are evaluating if the signature on the bank transfer form is correct or not.
Then you compute the hash of the public key and check it against hash value present in the coins which are getting spent in the transaction. If both the hashes are matching then the sender of the transaction is verified as the rightful owner of the coins being spent (coin ‘X’) in the transaction. In this step, we check if the person who is trying to do the bank transfer, has that money in his bank account or not.
Three technical details which are important to note here is:
The bitcoin community is very paranoid about security. Therefore, they are storing the hash of the public key in the coins, instead of the full public key. This is because asymmetric encryption is vulnerable to quantum computing. If this was not done. Then the person with the first successful quantum computer will be able to find the private keys of any public key on the decentralized ledger. The person who owns the private key can spend the coins. But hashes are quantum proof. So storing hash of public key on a public ledger is less risky than storing the public key itself.
The private key is like the lamp of Aladdin and the funds stored in it is like the genie. The genie does not belong to Aladdin, he only belongs to the owner of the lamp. News of crypto exchanges or wallets getting hacked is frequent. In most of the hacks, the hackers are able to find a vulnerability in the OS or the browser to get access to the private key. Once the private key is leaked, the hackers can transfer the funds stored into other accounts. Therefore, people store private keys in cold wallets (hard disks which are not connected to internet). The blockchain is not hackable but the private keys can be stolen.
All the computers who are validating these transactions, maintain (store) a list of unspent coins (or currently circulating coins). In every transaction, the coin which is spent is taken out of this list and new coins are created which are added in the unspent coin list. To prevent double spending of the same coin, each coin is checked if it is present in the unspent coins list before the transaction gets validated.
Until now, we have just talked about validating a single transaction. We are yet to see how a “block” of transactions gets validated. But before that, we need to understand how is the blockchain technology ensuring trust in the trustless world?
A blockchain is just a chain of blocks. Each bitcoin block has three elements:
Blockheader: contains hash of the previous block and a random data aka nonce.
Transaction count: Typically 2000 transactions per block.
List of transactions
The magic of blockchain is: consensus on the last block implies consensus on the entire blockchain. If you trust that the block-3 (in the diagram below) is valid, then you must also trust the block-2, because the hash (fingerprint) of block-2 is present in block-3. Since fingerprints are unique, this means block-2 is the immediate parent of block-3 and all the transactions of block-2 happened before the transactions of block-3 which means block-2 was accepted by the decentralized bitcoin network.
How are new blocks generated in decentralized way?
The bitcoin design says, for the new block to be validated and added to the chain, the hash of the block should meet certain criteria. Recall that due to the diffusion property of hash function, the hash (output) changes drastically with a minor change in the block (input). Basically the output of the hash function is hard to predict. The nonce in the blockheader can have any random data. The computer which is trying to mine (create) a new block, is basically changing the nonce in each round and hoping that the hash of the block meets the specified criteria. This hit-and-trial approach, needs a lot of computation which requires electricity. Therefore it is called Proof-of-Work. The idea is that the computing resources will be distributed across the world, so no single entity can decide the validity of the next block.
What is this specific criteria which the hash must meet?
The hash has fixed 256 characters. The criteria is that the first few (say 10) characters will be zero. The puzzle is to find the right nonce which will lead to a valid hash. The computing power keeps increasing with launch of faster chips, therefore the difficulty of the puzzle should increase over the years which means more initial characters need to be zeroes (say 12). The computers who are trying to solve this puzzle are called miners.
What is the incentive for miners? How is the supply of bitcoins increasing?
The miner which creates a new block is rewarded with some new bitcoin. Basically the Bitcoin network incentivizes the miners to do computing work by giving them bitcoins. Block rewards half every four years and eventually they will become zero. Therefore there will only be 21M bitcoins ever. Currently 19M bitcoins have been mined.
Why ‘Proof-of-Work’ works?
Assume that currently Block-1 has been mined. Now every mining computer (aka node) in the bitcoin network is competing to produce the next block. Now let’s say if some node succeeds and broadcasts to the network the new valid block, i.e. Block-2. Now, all nodes will use the hash of Block-2 in the header of the next block. If any node is not accepting the Block-2 or is not aware of it, and trying to mine the next block with by assuming Block-1 as the latest block, then by the time this miner successfully mines a new block (say Block-2B), some other node (who have accepted Block-2) would have mined Block-3. Now, the network will see that the parent of Block-3 is Block-2 and the total chain length is 3. But if you try to consider Block-2B as valid, then it’s parent is Block-1 and total length is 2. The block which has the longest chain length will be accepted and the work done on Block-2B goes to waste.
Vires In Numeris: This latin phrase is popular in bitcoin community. It means: In numbers, we trust. The nodes in the Bitcoin network trust the longest chain.
Why does Proof-of-Work need to be computationally heavy?
Let’s assume that Proof-of-Work was computationally easy. Then a resourceful person can get too many computers and can create his own chain (containing tampered blocks) quickly which is longer than the original chain by mining Block-2B, Block-3B, Block-4B and so on. Thus the security of the blockchain network gets compromised as rightful transactions of Block-2 are no longer considered valid by the network as the tampered chain is now the longest one. But in reality, Proof-of-Work is computationally hard. Thus a hacker needs infeasible amount of computing resource to hack the blockchain.
Let’s try to see what changes with the example of Land Records Digitalization. This is where the rubber meets the road, and we come across a few limitations of the blockchain. This is a two-way transaction, where the land is transferred from the seller to the buyer and the money is transferred from the buyer to the seller. Now, land is a physical object and blockchain only works on digital objects. Therefore, you create digital objects which are mapped to the physical object (land). This mapping will be handled by some organization. Government will probably distribute licenses to few entities to ensure the integrity of the mapping. The entities which take care of mapping physical objects (or any real world digital data which does not exist natively on the blockchain) are called Oracles. A very common use-case of oracle is to supply realtime accurate price of assets trading on centralized crypto exchanges. Thus you are forced to trust a centralized player in the trustless world if you are dealing with objects which don’t exist natively on a blockchain. For now, let us assume these players (oracles) are well-regulated and we can trust them. Here are the steps involved in the decentralize land transfer:
You have to map each plot in the country to a digital token.
The transaction to transfer a plot P from party A to party B at a sale price S will look like “Send S to A and Send P to B”.
To validate this transaction, the signature of A and B must be provided while submitting the transaction. Then the miner will check:
If B is the owner of S
If A is the owner of P
If both the checks pass, then transaction is valid and submitted to the network in some block. This is called atomic transaction, where both the legs are accepted together. If the check of any leg fails, the other leg will also be rejected.
When the block gets validated, B becomes the owner of the P and A becomes the owner of S. Every node in the network will update this information in their local copy. If A tries to sell P to somebody else, say C, the nodes will flag that A is no longer the owner of P. Similarly, if B tries to buy some other asset by transfer S to the seller, the network will know that B is trying to double spend the coin S and this transaction will not be accepted.
There are two legs in any transaction - the transfer of goods and the transfer of money.
We firstly focused on transfer of money. Understood the various checks which are done to validate a single transaction.
Blockchains are made of “blocks” of transactions. We decoded one popular way to validate a block of transaction, known as “Proof-of-Work”.
Then we understood how both legs of transaction are validated atomically (simultaneously) using a real-world example of Land Ownership Transfer.
We highlighted that blockchain cannot directly interact with objects which don’t exist natively on the blockchain (e.g. land plots). We need to trust “oracles” which map each land plot to a digital token living on the blockchain.
In the beginning of this article, I have listed the 10 chapters in this series. There I have described NFTs as the capital and goods market of Web 3. Some of you may not be familiar with NFT or Capital Markets. But I think all of us understand the difference between money and goods. Each land plot is a good which is worth some money. In this post I’ve explained how Land transfer will happen on bitcoin. But technically it will never happen, as you need NFTs to represent Land digitally and the Bitcoin network is very primitive (it only accepts currencies not goods). There is a concept of colored coins on Bitcoin, which are designed to represent real-world asset on the bitcoin network. If you’re interested you can google it; this post has already gotten longer than it was supposed to be :)
Excuse me for having written at such length, but I could not abbreviate when dealing with the fundamentals of a generational technology. The next article in this series will be centered around “The merge” which is the most significant event in the history of blockchain. Which token will benefit the most – Ether or tokens of L2s like MATIC? I’ll break it down for you, stay tuned :)
"In Web 3, there’s nothing real and nothing virtual. There are only things which are digital, or digital representations of physical entities."
This the first part of a 10-part series of essays where I will be taking a more practical approach on the crypto Web 3 world. The goal is to keep a balance between the technical details and its real world implications, for a completely uninitiated audience. This is not the first time I am documenting my findings, but all prior attempts have been in the form of slides. I work at an early stage investment fund in India and my first assignment was to build our investment thesis on crypto. After presenting and debating with non-crypto-native people, I realized that the fastest way to teach crypto is to keep practical applications at the center of the discussion.
Blockchain is a technology built on top of multiple underlying technologies which must be understood before decoding the blockchain itself. The next step will be to understand blockchain, and the ultimate goal is to gauge the different applications that can be built on blockchain and how they going to impact our daily lives. In every post I aim to undertake at least one real-world application which was not possible in the Web 2 world. Without any further ado, here is the overall plan:
Building blocks of Blockchain: Cryptography keys, hash functions, and Bitcoin
Layer 1 Fundamentals: Ethereum and smart contracts
Layer 1 Advancements: Solana, PolkaDot, and Cosmos
Layer 2: Polygon, Optimism, Arbitrum, etc.
DeFi (The money market of Web 3) part 1: Lending and Exchange
DeFi part 2: Stablecoins and Yield farming
DeFi part 3: Flash loans and Hacks
NFTs (The capital and goods market of Web 3)
DAOs (The corporates of Web 3)
List of apps to interact with Web 3 and tools to DYOR (Do Your Own Research)
What is the one big promise of the blockchain technology?
It provides a framework for people to do business in a trustless world. It means you do not have to trust any person or organization. You can assume the worst: that people not only can be selfish but they can also be malicious. The selfish person only cares about his/her own profits but the malicious person is okay with losing $200 if he can ensure you lose $100 too.
All of us have heard one common use-case of blockchain, i.e. digitalization of land records so that people can transfer land in a decentralized way and the current ownership record is publicly accessible. So, we will keep this example at the center of our discussion for this piece. There are generally two legs in any economic transactions:
The buyers pay the money; and
The sellers transfer the good (or perform the service).
Firstly, we will understand the one-way transaction where the money is transferred from the buyer to the seller. We will compare the blockchain way with the current methods like PayPal, UPI, etc. Basically, the digital transfer of money is not about transferring anything. It is merely about adding an entry in an online ledger (be it in Web 2 or Web 3) which records the transaction. Bitcoin is a decentralized network which maintains a shared ledger (database). The "decentralized" modifier implies that no single member (or a group of members) of the network can tamper with that ledger. In the Bitcoin network (notice the capital B), the currency is also called bitcoin (notice the small b). The shared ledger of Bitcoin has only one functionality: it records the transactions which people are doing using the digital currency “bitcoin”. (A smaller denomination is called satoshi and there are 100 million satoshis in one bitcoin.)
Each entry (line) in the shared ledger looks like "Send coin X to Address A." This entry should be only accepted in the ledger, if the sender of the entry is the owner of the coin X. The transaction "Send coin X to address A" can be compared to an offline bank transfer form in mainstream finance. The transfer form will only be accepted if it is signed by the owner of coin X. Let's discuss two technical building blocks which will help us to understand how the cheque is signed digitally and ownership is verified in a trustless decentralized way:
Asymmetric Encryption: The symmetric encryption model was similar to the physical lock and key model. Where the same key is used for locking (encrypting) and unlocking (decrypting). Now your secret key cannot be publically shared, otherwise your lock will be useless. Anybody will be able to unlock it. Therefore blockchain uses asymmetric encryption which uses a pair of keys: encrypting key (e) and decrypting key (d). It is computationally infeasible to find 'd' given 'e'. Now, 'e' is publically shared and it is known as public key and 'd' is known as private key which is kept secret. Hence the private key is not shared and the public key is not secret.
Hash Function: A function is piece of code which takes some input and gives some output. Hash functions convert data of any size into an output of fixed length (usually 256 characters). The modifier "hash" implies that the function cannot be reverse engineered. The hash function acts like a fingerprint of any data. It has two properties:
Confusion: You cannot figure out the message (aka input) from the hash (aka output). If you record your fingerprint on your phone, the phone cannot figure out your any other detail like height, weight, or gender. Basically, if you reveal the hash of a file, other people cannot figure out the contents of the file. (The output of the hash function is called hash.)
Diffusion: The hash (output) changes drastically even if a tiny change is made in the data (input). Even identical twins do not have the same fingerprints. Basically you can guarantee that two files are the same if they have the same hash because no two different files can have the same hash.
All the bitcoins on the Bitcoin network belong to some publicly visible address aka public key (think of it as a bank account number). Every coin is represented in two parts:
Its value in satoshi.
The hash of the public key to which the coin belongs.
Now, the sender of the transaction "Send coin ‘X’ to address A" signs it with his private key. Using the public key of the sender you can verify if the signature (created by private key) on the transaction is valid or not. Continuing our mainstream finance analogy, here we are evaluating if the signature on the bank transfer form is correct or not.
Then you compute the hash of the public key and check it against hash value present in the coins which are getting spent in the transaction. If both the hashes are matching then the sender of the transaction is verified as the rightful owner of the coins being spent (coin ‘X’) in the transaction. In this step, we check if the person who is trying to do the bank transfer, has that money in his bank account or not.
Three technical details which are important to note here is:
The bitcoin community is very paranoid about security. Therefore, they are storing the hash of the public key in the coins, instead of the full public key. This is because asymmetric encryption is vulnerable to quantum computing. If this was not done. Then the person with the first successful quantum computer will be able to find the private keys of any public key on the decentralized ledger. The person who owns the private key can spend the coins. But hashes are quantum proof. So storing hash of public key on a public ledger is less risky than storing the public key itself.
The private key is like the lamp of Aladdin and the funds stored in it is like the genie. The genie does not belong to Aladdin, he only belongs to the owner of the lamp. News of crypto exchanges or wallets getting hacked is frequent. In most of the hacks, the hackers are able to find a vulnerability in the OS or the browser to get access to the private key. Once the private key is leaked, the hackers can transfer the funds stored into other accounts. Therefore, people store private keys in cold wallets (hard disks which are not connected to internet). The blockchain is not hackable but the private keys can be stolen.
All the computers who are validating these transactions, maintain (store) a list of unspent coins (or currently circulating coins). In every transaction, the coin which is spent is taken out of this list and new coins are created which are added in the unspent coin list. To prevent double spending of the same coin, each coin is checked if it is present in the unspent coins list before the transaction gets validated.
Until now, we have just talked about validating a single transaction. We are yet to see how a “block” of transactions gets validated. But before that, we need to understand how is the blockchain technology ensuring trust in the trustless world?
A blockchain is just a chain of blocks. Each bitcoin block has three elements:
Blockheader: contains hash of the previous block and a random data aka nonce.
Transaction count: Typically 2000 transactions per block.
List of transactions
The magic of blockchain is: consensus on the last block implies consensus on the entire blockchain. If you trust that the block-3 (in the diagram below) is valid, then you must also trust the block-2, because the hash (fingerprint) of block-2 is present in block-3. Since fingerprints are unique, this means block-2 is the immediate parent of block-3 and all the transactions of block-2 happened before the transactions of block-3 which means block-2 was accepted by the decentralized bitcoin network.
How are new blocks generated in decentralized way?
The bitcoin design says, for the new block to be validated and added to the chain, the hash of the block should meet certain criteria. Recall that due to the diffusion property of hash function, the hash (output) changes drastically with a minor change in the block (input). Basically the output of the hash function is hard to predict. The nonce in the blockheader can have any random data. The computer which is trying to mine (create) a new block, is basically changing the nonce in each round and hoping that the hash of the block meets the specified criteria. This hit-and-trial approach, needs a lot of computation which requires electricity. Therefore it is called Proof-of-Work. The idea is that the computing resources will be distributed across the world, so no single entity can decide the validity of the next block.
What is this specific criteria which the hash must meet?
The hash has fixed 256 characters. The criteria is that the first few (say 10) characters will be zero. The puzzle is to find the right nonce which will lead to a valid hash. The computing power keeps increasing with launch of faster chips, therefore the difficulty of the puzzle should increase over the years which means more initial characters need to be zeroes (say 12). The computers who are trying to solve this puzzle are called miners.
What is the incentive for miners? How is the supply of bitcoins increasing?
The miner which creates a new block is rewarded with some new bitcoin. Basically the Bitcoin network incentivizes the miners to do computing work by giving them bitcoins. Block rewards half every four years and eventually they will become zero. Therefore there will only be 21M bitcoins ever. Currently 19M bitcoins have been mined.
Why ‘Proof-of-Work’ works?
Assume that currently Block-1 has been mined. Now every mining computer (aka node) in the bitcoin network is competing to produce the next block. Now let’s say if some node succeeds and broadcasts to the network the new valid block, i.e. Block-2. Now, all nodes will use the hash of Block-2 in the header of the next block. If any node is not accepting the Block-2 or is not aware of it, and trying to mine the next block with by assuming Block-1 as the latest block, then by the time this miner successfully mines a new block (say Block-2B), some other node (who have accepted Block-2) would have mined Block-3. Now, the network will see that the parent of Block-3 is Block-2 and the total chain length is 3. But if you try to consider Block-2B as valid, then it’s parent is Block-1 and total length is 2. The block which has the longest chain length will be accepted and the work done on Block-2B goes to waste.
Vires In Numeris: This latin phrase is popular in bitcoin community. It means: In numbers, we trust. The nodes in the Bitcoin network trust the longest chain.
Why does Proof-of-Work need to be computationally heavy?
Let’s assume that Proof-of-Work was computationally easy. Then a resourceful person can get too many computers and can create his own chain (containing tampered blocks) quickly which is longer than the original chain by mining Block-2B, Block-3B, Block-4B and so on. Thus the security of the blockchain network gets compromised as rightful transactions of Block-2 are no longer considered valid by the network as the tampered chain is now the longest one. But in reality, Proof-of-Work is computationally hard. Thus a hacker needs infeasible amount of computing resource to hack the blockchain.
Let’s try to see what changes with the example of Land Records Digitalization. This is where the rubber meets the road, and we come across a few limitations of the blockchain. This is a two-way transaction, where the land is transferred from the seller to the buyer and the money is transferred from the buyer to the seller. Now, land is a physical object and blockchain only works on digital objects. Therefore, you create digital objects which are mapped to the physical object (land). This mapping will be handled by some organization. Government will probably distribute licenses to few entities to ensure the integrity of the mapping. The entities which take care of mapping physical objects (or any real world digital data which does not exist natively on the blockchain) are called Oracles. A very common use-case of oracle is to supply realtime accurate price of assets trading on centralized crypto exchanges. Thus you are forced to trust a centralized player in the trustless world if you are dealing with objects which don’t exist natively on a blockchain. For now, let us assume these players (oracles) are well-regulated and we can trust them. Here are the steps involved in the decentralize land transfer:
You have to map each plot in the country to a digital token.
The transaction to transfer a plot P from party A to party B at a sale price S will look like “Send S to A and Send P to B”.
To validate this transaction, the signature of A and B must be provided while submitting the transaction. Then the miner will check:
If B is the owner of S
If A is the owner of P
If both the checks pass, then transaction is valid and submitted to the network in some block. This is called atomic transaction, where both the legs are accepted together. If the check of any leg fails, the other leg will also be rejected.
When the block gets validated, B becomes the owner of the P and A becomes the owner of S. Every node in the network will update this information in their local copy. If A tries to sell P to somebody else, say C, the nodes will flag that A is no longer the owner of P. Similarly, if B tries to buy some other asset by transfer S to the seller, the network will know that B is trying to double spend the coin S and this transaction will not be accepted.
There are two legs in any transaction - the transfer of goods and the transfer of money.
We firstly focused on transfer of money. Understood the various checks which are done to validate a single transaction.
Blockchains are made of “blocks” of transactions. We decoded one popular way to validate a block of transaction, known as “Proof-of-Work”.
Then we understood how both legs of transaction are validated atomically (simultaneously) using a real-world example of Land Ownership Transfer.
We highlighted that blockchain cannot directly interact with objects which don’t exist natively on the blockchain (e.g. land plots). We need to trust “oracles” which map each land plot to a digital token living on the blockchain.
In the beginning of this article, I have listed the 10 chapters in this series. There I have described NFTs as the capital and goods market of Web 3. Some of you may not be familiar with NFT or Capital Markets. But I think all of us understand the difference between money and goods. Each land plot is a good which is worth some money. In this post I’ve explained how Land transfer will happen on bitcoin. But technically it will never happen, as you need NFTs to represent Land digitally and the Bitcoin network is very primitive (it only accepts currencies not goods). There is a concept of colored coins on Bitcoin, which are designed to represent real-world asset on the bitcoin network. If you’re interested you can google it; this post has already gotten longer than it was supposed to be :)
Excuse me for having written at such length, but I could not abbreviate when dealing with the fundamentals of a generational technology. The next article in this series will be centered around “The merge” which is the most significant event in the history of blockchain. Which token will benefit the most – Ether or tokens of L2s like MATIC? I’ll break it down for you, stay tuned :)
No comments yet