So far in the Web3 Explained series we have learned the basics of what a blockchain is, who uses them, and how they are secured. In the most recent article, we touched on the concept of rewarding Miners and Validators with cryptocurrency as a form of payment for their work. Some blockchain projects, like Bitcoin, exist to provide a decentralized store of value without government interference. Think of these projects as “digital dollars” that compete with Fiat currency. Other blockchain projects exist to provide a platform for programs to be written and executed on. In this article, we will learn about Ethereum, a blockchain technology that is a decentralized store of value, a global transaction system, and a platform to build applications on top of.

Fiat currency — pronounced just like the car company, Fiat currency is any money declared by a governing body, typically not backed by a commodity like gold or silver.

Ethereum Quick History

While Ethereum is not even a decade old, it is the leading blockchain technology in Web3. I want to give you a high-level view at the successes and failures in the Ethereum project so far. Don’t worry if the terms and acronyms are foreign concepts, I will explain them all further along in this series.

• 2013 — a developer named Vitalik Buterin began working on a blockchain project inspired by Bitcoin’s success. Rather than copying Bitcoin exactly, Vitalik aimed to create a blockchain that was more general purpose rather just than a store of value. 

• 2015 — Ethereum launched, creating 72 Million Ether (ETH) tokens (Ethereum’s native cryptocurrency) which were distributed to early investors. 

• 2016 — A security flaw in a Smart Contract led to a hack in The DAO, resulting in $60 Million worth of ETH tokens being lost. These funds were recovered weeks later via a Fork in the blockchain.

• 2017 — A collectible game called CryptoKitties (very similar to Tamagotchi’s) launched with massive success, demonstrating Ethereum’s potential to host decentralized applications (often shorted to dApps) on the blockchain. At their peak, CryptoKitties were selling for $200,000.

• 2018 — The year of “ICO Summer”. Initial Coin Offerings (ICOs) are similar to Initial Public Offerings (IPOs) where the stock of a company becomes available to purchase for the first time, except ICOs are for cryptocurrencies instead of stocks. In 2018 alone, there were 3,804 ICOs which raised over $11.5B.

• 2020 — This was the year of “DeFi Summer”. DeFi, or Decentralized Finance, provides the same services as Centralized Finance (think banks, brokerages, etc.) like borrowing, lending, and investing but with Smart Contracts instead of a middleman. At the time of writing, there is over $40B currently locked up in DeFi on Ethereum.

• 2021 — The year of “NFT Mania”, when pictures of cartoon monkeys were selling for millions. Non-Fungible Tokens, NFTs, are Smart Contracts that represent some digital asset. At the time of writing, a popular NFT project called Bored Ape Yacht Club, which features avatar-style pictures of 10,000 cartoon apes has a market cap of $1.02B.

Smart Contracts

All of the organizations and applications above were built onto the Ethereum blockchain. In the first article of this series, I told you that blockchains are simply a set of transactions connected together into a chain and distributed amongst the public. While this is much more accurate for Bitcoin, this does hold true for Ethereum as well (I didn’t lie this time!), however Ethereum also provides something called the Ethereum Virtual Machine (EVM). We won’t get into the nitty-gritty of what the EVM is doing, but the short story is it allows everyone in the world to write programs or applications and execute them on Ethereum itself. This means instead of building a website, developing a mobile app, or maintaining desktop software, developers can deploy their program onto Ethereum itself making it accessible to anyone in the world. We call these programs Smart Contracts. 

Example Time

Let’s revisit our summer trip example from Blockchains | Web3 Explained. In this example, we had a few friends who needed to transfer funds to each other to ultimately pay the host of the AirBnb for their summer trip. While we did utilize the transparency of blockchain technology to prove who paid their fair share, this still gives Dave or Sally the opportunity to be malicious and keep the funds.

We can use a smart contract to solve this problem and provide a better user experience. AirBnb could write a smart contract that accepts payments for a given date, and once the payment amount has been deposited the funds get automatically transferred to the AirBnb Host. Most AirBnb’s use some sort of digital keypad lock or a numeric lock box for keys to the home. To take it one step further into the future, the code to the keypad lock could be sent cryptographically back to Zach, Joe, Dave, and Sally at the same time that funds are transferred to the Host all done via a smart contract. 

This sounds really cool, but why would someone go this route instead of just letting AirBnb handle all of this? The short answer, is AirBnb is no longer needed to facilitate this transaction. When all is said and done, payment is either made or it’s not. If our crew of friends send the funds to the smart contract, they will receive the key to the property 100% of the time because the transaction is written in code and not reliant on a 3rd-party (AirBnb) acting accordingly. If insufficient funds are deposited, those funds are returned to the appropriate sender without Zach, Joe, Dave, or Sally spending an hour on a call with customer support. Furthermore, the Host also benefits as they no longer need to pay servicing or processing fees.

This is a crucial switch in the thought process of consumers as we enter the age of Web3. 

ETH

Many people wonder why digital money, like Bitcoin (BTC) and Ether (ETH), has any value. After all, it’s just digital money, couldn’t someone just make more? First, I send them this chart from the Federal Reserve of the United States showing them how they “make more” money all the time. The value of BTC is the easiest to understand: There is a limited supply, the difficulty to mine new BTC only gets exponentially harder, giving it both limited supply and high demand.

FRED Graph Edit descriptionfred.stlouisfed.org

ETH is a different and much more interesting scenario. The gist is ETH is not just money, it is also the fuel needed to execute a transaction on the Ethereum Blockchain. Remember when I said that smart contracts can be deployed on the blockchain and used by anyone in the world? Well, executing that smart contract takes some computational resources, however large or small. To fund, or power, the transaction you must also send along some, usually, small amount of Ether to the smart contract. We call this small amount of Ether Gas. A portion of these gas fees are paid to Miners (and soon Validators) to reward them for their work and the rest is destroyed, or burned, permanently.

Example Time, again…

Let’s revisit our summer trip example quickly one more time. We can’t actually send US Dollars on the Ethereum blockchain. Instead, we need to send ETH to the smart contract. Once we have sent enough ETH to the smart contract, it will burn a small amount to see if conditions have been met to send funds to the Host and to transfer the code to the keypad to us. Assuming the conditions have been met, the Host receives 0.4 ETH (Ether is currently hovering around $1000 / ETH at the time of writing). 

Why does ETH have value? It’s not as straight forward as other cryptocurrencies like BTC, but it’s a combination of the following:

1. There is some limited supply of it.

2. People purchase it to use in Smart Contracts.

3. People purchase it to hold in hopes that the price rises.

Gas Fees

I mentioned earlier that Ethereum has never gone down or crashed. This is due in part because of Gas Fees. Gas Fees are paid to Miners and Validators as an incentive to execute and verify a transaction, and they can only process so many transactions per second. In times of extremely high usage, the gas required to have your transaction processed will increase as the Miners and Validators will seek higher returns from their work. This can result in some pretty dramatic gas fees like the spikes you see below.

The Gas fees above are denoted in a unit called Wei. Wei is technically the smallest unit of measurement in Ethereum and it’s value is 1 ETH = 10¹⁸ Wei.

Conclusion

In this article we did a deep dive on Ethereum and Smart Contracts. We covered a brief history of the Ethereum project and learned what makes it different from other blockchain technologies. Laying a solid foundation of what smart contracts are is important as the revolutionary work being done in Web3 is rooted in them. In the next article I will cover how to create a Web3 wallet. Web3 wallets are essential to buy, sell, and store cryptocurrencies. Wallets are also required to use your crypto in DeFi, NFTs, and smart contracts in general. You have learned the basics, now it is time to get hands on in the world of Web3.

Socials

Twitter: https://twitter.com/altozachmo

LinkedIn: https://www.linkedin.com/in/zachary-bloss/

ETH / BTC / DOGE / LTC / SOL — block-ops.eth

Block-Ops.xyz: https://block-ops.xyz

Private Blockchains

Something we have not discussed yet, but is absolutely crucial, is that blockchains can either be privately or publicly available. You are probably familiar with, or have at least heard of, the big public blockchains: Bitcoin & Ethereum. However, there are private blockchains like Ripple and Hyperledger as well. These private chains are targeted towards enterprises hoping to maintain control over access and immutability. Private blockchains often have a centralized authority that determines who is allowed to access the network and what data is written to it. Think of this authority as an administrator. Enterprises are attracted to these features because they allow them to create process and data sharing operations on a subscription model with other companies and in the event data needs to be “changed” or “corrected”, the administrator has access to do so.

Public Blockchains

When most people talk about blockchains, they are talking about public ones. First, a node is any computer that is participating in a blockchain. But how does one “participate” in a blockchain? Remember back to our previous article when we talked about how blockchains are connected: The Current Hash of one block becomes the Previous Hash of the next. Given these blockchains are public, and there could be millions of nodes using the blockchain at the same time, who is to say which block’s hashes match and get published on chain? What we are asking is, what determines consensus across all of the nodes?

The answer to this question is it depends on what Consensus Mechanism the blockchain uses. A consensus mechanism is a set of code that allows nodes who do not know or necessarily trust each other to agree on what data should be written to a block. These consensus mechanisms are often open-sourced, meaning anyone in the world can see, edit, and see who edited the codebase. This transparency gives most people a sense of trust in the code. While there are many consensus mechanisms out there, there are two popular ones that dominate the blockchain space: Proof-of-Work & Proof-of-Stake.

Consensus Mechanism — a set of code that allows nodes who do not know or necessarily trust each other to agree on what data should be written to a block.

It’s time to call out my own bias on Web3 technology: I believe having a centralized authority defeats the purpose of a blockchain. A blockchain is a fantastic store of data, permissions, and actions when it is governed by consensus amongst all participants. Take the summer trip example from our previous article, If a single actor, say the AirBnb Host, has the ability to change the amount Zach sent Dave or Dave sent Sally, then the blockchain only benefits the centralized authority. Private blockchains will see wide adoption by enterprises, but as users grow to expect having ownership and control in the network, they will eventually drive adoption in public blockchains.

Proof-of-Work

The more widely used of the two, Proof-of-Work (PoW) is the oldest consensus mechanism and is responsible for the environmental damage and current reputation of the Web3 space. It is the consensus mechanism of Bitcoin and for now Ethereum as well (we’ll cover this in the next section). But why is it bad for the environment?

PoW is a process that allows nodes to compete to determine what the next block hash should be. In the previous article, we learned that the Current Hash of this block becomes the Previous Hash of the next block. This was a stretch of the truth on my part for simplicity’s sake. In reality, there are rules that determine what a valid next hash can be. These rules drive competition between computers in a race to find the next valid hash, the people and computers who participate in this competition are called Miners, and the winners are rewarded with the blockchain’s native-cryptocurrency. For example, Bitcoin miners are currently rewarded 6.25 Bitcoin (~$131,145) for mining the next block.

Take Bitcoin for example. At the time of writing, a bitcoin hash is only valid if it begins with 19-zeros. So how do you find a transaction hash that starts with 19-zeros and contains both the Previous Transaction Hash and Record? Remember that cryptographic hashing is both deterministic and can not be unhashed, meaning the only viable option for determining a valid hash is via guessing and checking. The nerd-term for this guessing-and-checking is called Mining. Yes**, it’s that simple**.

While the process is simple, the amount compute power to accomplish this today is extremely high. For example, try to find the next valid hash for the phrase “I’m going to share this article!” using our favorite interactive hashing tool below.

Keccak-256

Keccak-256 online hash function

emn178.github.io

I wrote some code to do the same thing, and found that it took 1,542,635,643 attempts over almost 22 minutes time to guess the correct hash with only 8-leading zeros on my Macbook pro. Because of this, people buy and operate much more powerful machines so they have the best chance to Mine a valid block.

Bitcoin Miners all around the world are guessing-and-checking the next hash as fast as possible, because whoever finds the valid hash first is rewarded with Bitcoin. This means those with the most powerful machines have the best odds at guessing the correct hash and being rewarded. When we say Bitcoin consumes more energy than the country of Argentina, we are talking about the energy of the miners competing to find the next valid hash.

Bitcoin was the first blockchain to implement this well-orchestrated chaos of mining, verifying, hashing, and transacting. While it’s impact on the environment is nothing to ignore, it truly was a revolutionary technology that should be celebrated and improved upon. If you want to learn more about Bitcoin, I highly recommend reading the (8-page) whitepaper published by Satoshi Nakamoto.

Proof-of-Stake

Proof-of-Stake (PoS) directly alleviates the environmental burden brought on by Proof-of-Work by allowing only one-node in the network to mine a new block instead of having the entire network compete to mine the next block. Where PoW gains it’s security and transaction integrity through competition between Miners, Proof-of-Stake requires that Validators put up collateral to participate in securing the network. Putting up this collateral is also known as Staking, hence Proof-of-Stake. This collateral can then be programmatically taken away, slashed, from any malicious Validators.

Another energy efficiency of PoS is it can run on less powerful computers further reducing the environmental impact and lowering the barrier to entry for new users interested in becoming validators. As the number of validators increases, so does the security of the blockchain as it becomes harder for nefarious actors to implement attacks against the network. The downside to PoS is the capital required to become a validator can prohibit people from being able to participate. For example, when Ethereum switches to PoS validators will be required to stake 32 ETH, which at the time of publishing costs roughly $40,000.

51% Attack

There are a few big fears concerning blockchain security, some are specific to Proof-of-Work and some are specific to Proof-of-Stake. That being said, the dreaded 51% Attack is a concern for both consensus mechanisms. In short, this attack is possible when a malicious entity is able to control 51% of the network. This majority gives them the ability to write whatever data they want to the blockchain. In a PoW network, this means controlling more than half of all of the computing resources. In a PoS network, this means controlling more than half of the capital in the network.

Conclusion

In this article we learned about the two most important consensus mechanisms and what they are used for. We covered who is participating in securing different blockchains and how exactly they go about doing so. In the next article, I will cover the Ethereum Blockchain and introduce Smart Contracts. The Ethereum Blockchain is the most popular-to-develop-on blockchain and it has the second highest market cap behind only Bitcoin. Ethereum is also going through an incredibly interesting transition where they will be swapping from Proof-of-Work to Proof-of-Stake, a transition that has never been done before and one we will get to watch unfold ourselves in Q4 of 2022.

Socials

Twitter: https://twitter.com/altozachmo

LinkedIn: https://www.linkedin.com/in/zachary-bloss/

ETH / BTC / DOGE / LTC / SOL — block-ops.eth

Block-Ops.xyz: https://block-ops.xyz

If you already have some exposure to these terms that’s fantastic! With this series, I hope to clear up misconceptions and provide explanations as someone who has been developing in emerging technology my entire career. If these terms are foreign, this series may become your best friend as I describe these technologies in layers starting with the most basic information and following through with complex applications.

Web3 is a term thrown around to describe a new version of the internet where data lives on a blockchain rather than in individual companies cloud-environments

As someone who struggled to learn these concepts on my own, I want to arm you with the information I wish I had when I first started and help you develop the ability to pick apart the crypto-hype and crypto-hate.

While there are topics I know I will cover, if there is something you are really interested let me know either by leaving a comment or by reaching out on Social Media (links below).

Questions I will answer:

1. What is a blockchain and why should I care?

2. What are Bitcoin and Ethereum?

3. Aren’t these just pump-and-dump scams?

4. Why do people pay millions for 8-bit avatars and monkey pictures?

5. This is all bad for the environment right?

Topics I will cover:

1. How to get started in Web3

2. Bitcoin, Ethereum, and “Layer 1's”

3. Applications of Blockchain Technology

4. Crypto Price (in)stability

5. NFTs, DeFi, and DAOs

These articles are being posted on both Medium and it’s Web3 cousin Mirror.xyz. A big part of learning Web3 is participating so head on over there and collect this article as an NFT!

The first part in this series is now available, continue on to read it either on Medium or Mirror.xyz!

Socials

Twitter: https://twitter.com/altozachmo

LinkedIn: https://www.linkedin.com/in/zachary-bloss/

ETH / BTC / DOGE / LTC / SOL — block-ops.eth

Block-Ops.xyz: https://block-ops.xyz

What is a Blockchain?

At it’s most basic, a blockchain is a series of records stitched together one-by-one into an immutable sequence. The technology varies slightly from project-to-project (I’ll cover this later on as well) but generally a record consists of multiple transactions. Each transaction has three basic components:

Quick Segway into “Hashing”

You’re going to hear the term “hash” used frequently in this space, and that is because without hashing we wouldn’t have Web3. So why do we care about hashing? Hashing is very similar to encrypting, except it is impossible to decrypt something that has been hashed. This lays the ground work for how we string individual transactions into blocks and then into a blockchain.

Something crucially important about hashing is it is not random. Hashing a word or sentence will always result in the same hash. The nerd-term for this is “deterministic”. The Ethereum Blockchain uses a hashing algorithm called Keccak-256, the nuances of that algorithm are not important but what is important is it is deterministic. Below is a link to a free demo where you can play around with this hashing algorithm for yourself.

Try entering “This article series is really good” and “This article series is really good!”

https://emn178.github.io/online-tools/keccak_256.html

You got “b13b6b8d9da9897717a0d03aa1815807587ccf50f9d2dae85080c29decece055” and “6d729172f9e86d2f292928901a6424762adbbabc723cfee0f1f64072a883d264” back didn’t you?

You and I got the same values because the hashing algorithm is deterministic. The very interesting and equally powerful fact is that there is no way to decode a hash back into the original text. The only method for determining the input text is via guessing-and-checking every possible combination of numbers, letters, and symbols until you get the appropriate hash. Doing this requires a ton of computing power and is extremely expensive. Hold this thought, we’ll come back to it.

Blockchains, Assemble!

So let’s put a block together ourselves to truly understand what all of the hype is about. Let’s say my friends and I are going on a few trips this summer and we need a way to coordinate all of our payments. In this example, Zach & Joe send $100 each to Dave, who then gives that money along with another $100 to Sally who is responsible for paying the host of the AirBnb.

Zach first sends $100 to Dave. This is the first transaction we will examine, and at it’s simplest this is just a receipt like you would get from a store. The difference is our transaction will live on a blockchain instead of on a piece of paper or a company’s database. So going back to our transaction components, we know the Record will be “Zach sent $100 to Dave” and our Current Transaction Hash will be the hashed value of this Record: “c3e9fecca5c299b4e9ba9496c974d7d28eae25a38ab200d2bc3a474b93ceff8b”. You may be wondering what the Previous Transaction Hash is, well this is how blocks become a blockchain. Our Current Transaction Hash becomes the Previous Transaction Hash of the next block.

Let’s recap. Each Record gets hashed. That hash along with the previous hash make up a transaction, and these transactions are joined together by the hashes matching. So the next transaction “Joe sent $100 to Dave” gets hashed and now we have the following chain of transactions on our blockchain.

Conclusion

We covered some really complex topics. We explored the core technology behind what transactions, blocks, and blockchains are. In the next article, I will cover the mechanics of what happens when transactions are added to a block, who is actually doing all of this and how blocks are created in the first place. I will also touch on the environmental impact of Web3 by explaining Proof-of-Work and it’s successor Proof-of-Stake.

Socials

Twitter: https://twitter.com/altozachmo

LinkedIn: https://www.linkedin.com/in/zachary-bloss/

ETH / BTC / DOGE / LTC / SOL — block-ops.eth

Block-Ops.xyz: https://block-ops.xyz

Block-Ops, now released on the Kovan Testnet, is here to solve these problems by directly connecting do-ers with what needs to be done. Anyone in the world is able to create a project and stake a bounty within it. Similarly, everyone is able to submit their solution for a project. All of these Projects and Submissions are standard ERC-721 NFTs and payments are handled via decentralized smart contracts on the Ethereum Blockchain.

Why Block-Ops?

Project Managers

The traditional hiring method of sourcing, recruiting, & interviewing candidates is a long and costly process, and even once completed, you entrust a single developer to provide a solution to a problem you have now. By utilizing Block-Ops, you directly engage the entire world of developers to solve your problem, circumventing the recruiting process altogether. Best of all, if on the odd chance your project cannot be completed, you are free to pull your funds out at any time!

This gives you the benefits of open-sourcing your code, without needing to open-source your code.

Developers

We have designed our smart contracts as ERC-721 NFTs that double as decentralized escrow accounts. Upon creation of a contract, the creator (Project Manager) stores a bounty inside the NFT and upon completion of work, the developer can redeem these funds as payment.

Alongside the monetary incentive, the NFT serves as a proof-of-work done that the developer will carry with them forever. This can be displayed on a resume, social media profile, and even on Block-Ops!

Data Storage

We utilize both IPFS and Filecoin to store all Projects and Submissions, meaning you will never need to worry about accidentally misplacing or even deleting old code. Upon either Project Creation or Solution submission, the associated metadata and images are uploaded to IPFS then Filecoin. Once uploaded, you will be able to see your NFT in your Wallet. Check out our guide on adding the BlockOps NFT to your Web3 Wallet:

https://block-ops.xyz/info

Next Steps

BlockOpsDao

The next thing we will begin working on is formalizing a DAO which will be regulated via our Block-Ops Token. The DAO itself will be responsible for setting and distributing platform fees to improve the Block-Ops service and create partnerships with other DAO's.

A fault in the insurance paradigm, especially in the United States, is benefits being tied to your employer. While Block-Ops directly solves the need for employment in terms of take-home-pay, it does not yet solve the insurance issue. That is why we are exploring a partnership with Opolis, a fantastic project that provides benefits to workers in the Web3 community such as:

1. Health, Vision, & Dental Insurance

2. FSA & HSA

3. Group 401(k), Solo 401(k), and IRA options

https://opolis.co/

Zero-Knowledge Proofs & Optimistic Rollups

If there is one thing we can take away from the madness of NFT Summer, it’s that the Ethereum blockchain is not yet ready to handle hundreds of millions of concurrent users. While we always plan to use Ethereum as our settlement layer, we are exploring various ZK solutions such as zkSync v2 and Optimistic Rollups like Arbitrum or Optimism so that we can continue delivering the Block-Ops platform with even lower fees.

Community Support Channel

Once we go live with the BlockOpsDao, we will create a managed Discord Server that will authenticate based on you having our governance token. This channel will be a fantastic home for collaboration between Developers and Project Managers. We will also use this channel to brainstorm ideas of how we can give back to the community. Some ideas we are already considering are an IRL Meet Up (with a virtual option), developing a dividend-paying NFT treasury, and helping cover the fees associated with a benefits provider like Opolis.co.

Conclusion

Don’t forget to check out our website https://block-ops.xyz and follow us on twitter for the latest information on the project. Also, check out this Kovan ETH Faucet from Chainlink to get some ETH to play with our dApp.

Want to get in touch? Shoot us a message on Twitter