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blockchain basics

Welcome to No Bad Questions, a series that helps answer some basic questions about blockchain, crypto, and web3.

For the last several years, you’ve probably heard quite a bit about the blockchain… but it’s very easy to get lost. It can sound a lot like people are speaking another language!

If you’re here, welcome — you’re taking the first step towards learning. This guide will help you learn some of the basic blockchain concepts so you can start participating in the future of the internet.

What exactly IS the blockchain?

At its core, the blockchain is a ledger — a series of records and data points, like a spreadsheet or old accounting book.

Unlike spreadsheets or old books, though, the blockchain is decentralized — instead of it being stored in one place, it’s stored across different computers across a network and around the world. Essentially, there’s no single book that can be easily lost or updated. Instead, the data is verified by checking the blocks (or bundles of transactions) across different validator nodes.

There are a few different blockchain protocols that people can use, such as Solana, Bitcoin, and many, many others. People can use blockchain technology as a way to store data, value, and — in the case of Solana and certain other protocols, run programs.

How does that relate to cryptocurrency?

Well, let’s start with some definitions first. Cryptography is the art of keeping things secure. You’ve probably encountered this before, through encrypted data and passwords.

Cryptocurrency, then, is a type of currency that is based on cryptography. Rather than the ledger being centralized, transactions are decentralized — there’s no single authority validating everything — and as secure as other encrypted data. The translation? It’s a very safe way of storing data and value with no choke points or central points of failure and which is very difficult to manipulate.

So what exactly is a coin? What is a token? What’s the difference between coins and tokens?

All blockchain protocols have coins that represent value and can be traded. On Solana, this coin is called SOL.

Tokens, meanwhile, are built by individual projects on top of a base blockchain protocol. All blockchain projects are “tokenized,” and the Solana protocol is open for anyone to build their own tokens on top of it. Tokens are used to actually do stuff on the blockchain through trading, including executing “smart contracts.”

Okay, wait. What is a smart contract?

A smart contract is a contract that is written into the code of a blockchain and executed automatically when terms are met. It’s something that Solana and certain other protocols can do, but some other blockchains — most notably Bitcoin — cannot.

Think of a regular contract like a housing lease agreement. You pay rent; in exchange, you have a place to live. If you no longer have a place to live, you no longer pay rent; if you don’t pay rent, you’ll be kicked out. In a regular contract, the execution depends on the humans. A tenant fulfills their obligations of the lease and monitors that a landlord fulfills theirs, and vice versa.

With a smart contract, however, that execution is hardcoded in software, and software determines when conditions are met. That allows people to build some really cool functionality and dApps.

DApps? What are dApps?

A dApp is a decentralized application, or app that uses smart contracts. Any crypto program — like a marketplace, blockchain game, or tool used for DAO governance — is a dApp.

DApps are the tools you use to do things on the blockchain, whether that’s buying some art, voting in your decentralized organization, paying without intermediaries, or participating in decentralized finance.

And what is web3?

Web3 is the next iteration of the internet. Each iteration of the internet has been based on specific ideas: If web 1.0 was static websites and hyperlinking (like AOL or GeoCities) and web2 was social media (like Twitter, Facebook, and so on), web3 is built around the idea of decentralization.

Instead of an internet controlled by a handful of powerful, large platforms, web3 is built around the idea of a diffuse internet that anyone can support and control. Think of it as a return to early internet values — web3 is an era that removes gatekeepers and centralized “news feed” silliness.

It’s a world that can be built on the blockchain, using smart contracts.

Oooookay, so I think I’m starting to get this. So what exactly is the advantage of all this decentralization?

When the network isn’t controlled by a single entity, that means…

  • People who traditionally haven’t had access to banking have the ability to participate in the financial system.
  • You can pay for your favorite coffee without any fees or intermediaries.
  • Networks can’t be compromised or shut down due to one large controlling entity, like a nation state or powerful platform.
  • Users themselves can easily have a stake or buy into the platforms they are using, voting on the future of a video game metaverse.
  • And much more.

That’s the really exciting part of all this. It’s all extremely early in the web3 revolution, and you can watch it all happen and be a part of it — because web3 is all about community and participation. All these use cases are being built right now by developers around the world and you can help out by joining in.

Why Solana?

This is the cool part — Solana is engineered for widespread, mainstream use by being energy efficient, lightning fast, and extremely inexpensive.

Many of the core Solana builders, like co-founder Anatoly Yakavenko, have a background in building cell phone networks. That means that they are singularly focused on building for scalability (the ability to grow) and efficiency (the ability to get the most information across with the least amount of resources). They believe that in order for people to build the projects that will get the public using blockchain technology, you need to make it as easy and painless as possible for people to experiment and use the technology as possible.

Some of the current leading blockchain technologies use energy-hogging, time-consuming mining — or solving very complex calculations — to validate security, and have fees that can range into the hundreds of dollars per transaction. Solana uses what’s called proof of stake to validate information — there’s no mining involved — and a special innovation called proof of history on top of that that allows it to validate even quicker. That makes it extremely efficient, using energy at the same scale as a few Google searches and significantly less energy than other regular household uses like running your refrigerator. Transaction fees, which are used to maintain blockchain networks and have ballooned elsewhere, are a fraction of a cent on Solana.

All of that translates into projects and tools built on Solana that can be as frictionless and easy to use as the rest of the internet, for both developers and users.

Want to learn more? Keep reading!

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