Stories of exponential growth in crypto or digital currencies are very common among young investors these days, even though few actually understand how the cryptocurrency world works. Today, there is a very strong ambition among young people around the world to learn the crypto process quickly so that they can start minting – or in this case “mining” – money as quickly as possible. Hence, they turn to the internet for answers.
But, searching the web doesn’t always help to get the right basics about crypto working. Also, watching expert videos and taking tips from analysts may not be helpful at times.
So, what is the likely exit? Reddit’s Chief Product Officer Peter Young, on his blog A Curious Beginner’s Guide to Cryptography, gave a simple answer: “It’s often easier to learn from a curious novice than from an expert who speaks a certain language.” His blog is called “The Creator’s Economy”.
Are you new to web 3 and want someone to “explain to me like I’m five” how encryption works?
I wrote one separate post:
1. Web 3
2. Blockchain (Wallets and Keys, Proof of Work vs. Stake)
Let’s dive into… https://t.co/BzyKGUbbMy
– Peter Yang (@petergyang) September 29, 2021
In his post, Mr. Yang — who calls himself a “curious beginner” — said, “My goal is to “explain crypto concepts like my age five” (crypto concepts): Web 3; Blockchain; non-fungible tokens; Bitcoin and Ethereum; NFTs and DAOs.”
First of all, he quoted American businessman and investor Ben Horowitz: “Crypto has one feature that has not existed before – trust.”
“If the trust could be set by code, then creators wouldn’t have to rely on intermediaries. They are: they don’t have to trust banks to collect money; you don’t have to trust lawyers to draft a contract; you don’t have to trust social networks to make a living.”
To validate the above statement, Mr. Yang explained, “With confidence comes ownership. By lowering the broker tax, creators and fans can finally own the positive side of their work.”
While explaining the concept of “Web 3”, Mr. Yang said: “The best way to explain Web 3 is to compare it to Web 2. Web 2 is the Internet today, and it is dominated by technology giants. It is built on a client-server architecture, where users are the customer and companies control the servers. These companies extract value from creators and users by sitting in the middle.”
He added, “Web 3 is the Internet that cryptography created. It is built on peer-to-peer networks of computers that talk to each other without intermediaries using blockchain technology.”
“A blockchain is a linked list of transactions that are stored on a network of computers,” Yang said in Blockchain. “Blockchain” is decentralized: transactions are stored on a network of computers (nodes); “Immutable: Transactions cannot be changed once the block is committed”; and “Open: Anyone can view transactions.” Each block contains a ‘list of transactions’; a “hash (a long string of random characters) of the block”; and ‘Previous block hash (that’s how blocks are linked)’.
For example, he wrote, “Suppose Bob wants to send Mary 1 bitcoin. Both Bob and Mary need crypto wallets. These wallets are either software (eg Coinbase, Metamask, Rainbow) or hardware (eg Ledger). First Bob tells his wallet: “I want to send one bitcoin from my public address to Mary’s public address.” Second, Bob’s wallet produces a digital signature for this transaction based on his private key. Third, this signature proves that Bob actually owns one bitcoin. Bob’s wallet sends Transaction to nodes on the blockchain network These nodes then verify the transaction using Bob’s signature and public key The node collects Bob’s transaction with other transactions in a block Then works with other nodes to add the block to the blockchain Mary will only see one Bitcoin in her wallet after it is completed The three steps.”
He also said, “The most important takeaway when it comes to wallets and keys is: You can share your public key with others to send and receive transactions. But, you should never share your private key or seed phrase. If someone had access to these artifacts, they would be able to perform transactions on your behalf.
“A block can only be added to the blockchain if other nodes agree,” he added.
To explain “non-fungible tokens versus non-fungible tokens,” he said, “Swapped tokens (eg, Bitcoin and Ether). Non-fungible tokens (NFTs) are unique (eg, a piece of art). As an example, Let’s look at a game like Fortnite or Roblox: Fungible tokens are the game’s default currency (for example, VBucks and Robux). Non-fungible tokens (NFTs) are game characters’ shapes, emotes, and more.”
To differentiate between Bitcoin and Ethereum (tokens or cryptocurrencies), he said, “Bitcoin uses the blockchain and is therefore decentralized, immutable and open. There will only be 21 million bitcoins.” Bitcoin was created by Satoshi Nakamoto (pseudonym) in 2009.
While he said that Ethereum, which was created by Vitalik Buterin in 2013, is a digital token. He added, “Ether is a store of value like Bitcoin, but its main purpose is to reward nodes on the Ethereum blockchain to process transactions. Gas is how much Ether is being pushed into a node to process the transaction.”
Explaining non-fungible tokens or NFTs, he said, “NFT is a record of ownership of a unique asset. This record lives on the blockchain and is: “Decentralized: stored on a network of computers”; fixed: cannot be changed once committed ‘; Open: Anyone can see the transaction history. “
Regarding DAOs, Mr. Yang said, “A DAO is a community with a treasury owned by its shareholder members. The simplest way to describe how a DAO operates is to compare it to the company.”
Traditional vs. crypto economy
In conclusion, Yang compared the traditional economy to cryptocurrencies and money referred to (the US dollar) as exchangeable tokens (Bitcoin and Ethereum). Compare plant, machinery, and software (productive assets) to a “smart contract”. food, clothing, and television (goods) to NFTs; e-commerce, retail stores and stock market (exchange mechanisms) to decentralized exchanges, auctions and order books operated by smart contracts; and government and central bank companies (institutions) to DAOs respectively, in the crypto economy.