Below is a draft of a book that i have started writing. It will be the first book released from the Macrohard hub and will begin the process of enhancing the curriculum of ‘legitimate illiteracy’, the basis of an entire school that i have created, that everyone can school in.
By means of this book, i will incorporate ‘legitimate illiteracy’ with ‘cryptocurrency’, introducing is mix among participants of the Macrohard hub. Where copies of the books are sold, it will intimate the world about ‘cryptocurrency’ in a legitimate illiteracy way and proceeds from sales will go towards the evolution and sustenance of the Macrohard hub. The Macrohard hub is currently located in the Philippines.
I am trying to recover a bit from the passing of my dad. I didn’t play my role as son enough and it haunts me. This book will be dedicated to my parents. By its means, may i make them proud a bit and heal in turn.
Your boy Terry
Chapter 3 – Blockchain, DAPP And Cryptocurrency.
Blockchain – A ‘chain of blocks’.
Cryptocurrency – A ‘digital currency’.
DAPP – A ‘decentralized application’.
That simple? Yes.
Even technologically, each of the aforementioned luxury tools can’t be complex to create. Each is premised by the same paradigms that guard conventional technologies e.g ‘code is law’. Each is created by ‘humans’. As tools, each is built by humans to cater to humans.
As highlighted in chapter two and three, a clearer understanding of ‘life and humans’ will help you understand the niche of ‘cryptocurrency’ with ease.
The niche of ‘cryptocurrency’ typically consists of ‘Blockchain > Cryptocurrency > DAPP’.
In this chapter, we will introduce you to the aforementioned luxury tools, explaining each tool in a simplified manner. Let’s dispel the notion that the niche of cryptocurrency is complex.
‘A chain of blocks’.
Let us take a quick look at the relationship between blocks and chain. A block is a collection of data pertaining to transactions.
A transaction can take different forms. For example, the Bitcoin blockchain was built primarily to cater to the industry of ‘financial services’. Hence, the ‘blocks’ that make up the Bitcoin blockchain store data pertaining to ‘financial transactions’ e.g date, time, transaction-amount, sender, recipient etc.
On the other hand, the Hive blockchain (i.e ‘https://hive.io’) was built primarily to cater to the industry of ‘social media’. As such, the ‘blocks’ that make up the Hive blockchain store data pertaining to ‘social transactions’ such as likes, replies, dislikes etc.
While the Bitcoin blockchain may be a perfect fit for ‘E-bay’ (an e-commerce platform), it may fail to perform well, if used for ‘Instagram’ (a social media platform). The Hive blockchain on the other hand, may be a good fit for both E-bay and Instagram because though it was built primarily to support ‘social transactions’, a financial transaction has a social element.
A chain in this context refers to a system of documenting ‘blocks’ in a chain-like manner i.e a new block is always appended to the end of the latest block.
Blocks also have timestamps, giving each block its unique age and position on the chain.
Each block has information that distinguishes it from other blocks, a unique identifier called a ‘hash’. Yet, this hash is used to link one block to the next, strengthening the chain.
Why ‘blocks’ and why ‘chain’?
Let us reiterate that a block stores pieces of data associated with transactions. For instance, a block sized at ‘1 Megabyte’, may contain data associated with thousands of transactions.
Within the scope of this segment, we will focus on ‘financial transactions’. Typical ‘data’ associated with financial transactions are ‘date, time, sender, recipient etc’.
On a blockchain, transactions aren’t recorded directly. Transactions are inserted into a block instead. Once validated, this block is appended to the latest block on the chain, maintaining a blockchain.
e.g Block 653553 > Block 653554 > Block 653555
As such, besides data pertaining to ‘transactions’, a block also stores information about the block preceding it, in the form of a ‘hash’; i.e the hash of the block preceding it!
A ‘hash’ (typically represented by a string of alpha-numeric characters) is a ‘unique identifier’ used to distinguish one block from the next. Alas, a hash is also used to connect one block on the chain, to the next block.
But there is more…
Did we mention that ‘transactions’ on a blockchain are identified by their own hashes too?
Well, each transaction has its own hash. Each transaction contained inside a block is represented by its respective hash.
Now containing many transactions (each transaction represented by its own hash), a block can derive its own unique hash (also called a root hash); a hash that sufficiently represents it.
A block’s root hash is derived from a ‘mathematical semi-permutation’ (encryption) of all the hashes associated with the various transactions that constitute it.
What are we hinting at?
On a blockchain, for a block to prove itself as ‘valid’, enough to be inserted into the chain, it needs to submit its root hash to the blockchain network.
For now, let us describe a ‘root hash’ as ‘that password that each block needs to submit to the blockchain network to validate its insertion onto the chain’.
Un-technically, we can also describe a ‘root hash’ as ‘that password that the blockchain needs to decrypt data associated with the transactions contained in a block’.
To understand these scenarios better, kindly visit ‘https://www.blockchain.com/explorer‘. This URL will lead you to an interface containing the ‘Bitcoin blockchain explorer’. Next, paste the hash ‘000000000000000000089c84e1528034d960366dec7a7b65425e53749ff89f6e’ into the search-box, located at the top-right segment of the page.
What are you shown? ‘A page containing data associated with all the transactions contained in ‘Block 653554’ of the Bitcoin blockchain’.
In impractical terms, you geniusly provided the Bitcoin blockchain with ‘the very password’ (hash) that it will need to decrypt or access the data associated with the Bitcoin transactions contained in ‘Block 653554’ of the Bitcoin blockchain.
It is obvious that a blockchain prefers to record ‘hashes’.
On the one hand, recording ‘hashes’ instead of ‘transactions’ constitutes its ‘encryption/security’ mechanism.
On the other hand, recording ‘hashes’ instead of bulky ‘transactions’ keeps a blockchain ‘light-weight’, allowing it to scale as we will see later!
A blockchain was innovated to be tamper-proof, publicly-accessible, decentralized and un-delete-able. A transaction that successfully executes via a blockchain is also irreversible.
So far, we have been looking at the model behind the ‘Bitcoin blockchain’, a blockchain innovated to cater to the sector of ‘financial services’. As we discussed in chapter 2, the sector of ‘financial services’ is a delicate sector, requiring ‘trust’.
As ‘1 BTC’ today ranges around ‘13,000$’ in price, any tamper to the Bitcoin blockchain translates into huge financial losses.
Do you better-understand why the ‘BTC’ cryptocurrency incorporates a blockchain or ‘a chain of blocks’?
“The ‘current block’ (i.e Block 653554) keeps a record of the hash of the ‘previous block’ (i.e Block 653553) and delivers its hash to the ‘next block’ (i.e Block 653555), strengthening the chain”.
This cryptographic-chain method of storing data is the general basis for a blockchain’s unique security-mechanism.
However, there is another salient reason why the BTC cryptocurrency makes use of ‘blockchain technology’. Since financial transactions on the Bitcoin network happen in a peer-to-peer fashion, a financial transaction between two parties should succeed without authorization from a third-party. This is made possible by ‘blockchain technology’.
In the later part of this chapter, we will discuss the role of ‘blockchain technology’ in ensuring that transactions can settle ‘peer-to-peer’.
For now, let us develop a playful scenario below, to help you understand how difficult it is to hack or tamper a blockchain…
A blockchain is extremely hard to tamper or hack. Being a chain, made up of interconnected blocks, to tamper data associated with a particular transaction for instance, a hacker will need to hack ‘the particular block that contains the targeted data’ first, which in itself is hard. How so?
Upon entering this block, in search of this ‘target data’, he is met with ‘an encrypted hash’ (i.e the block’s hash) instead, which he will need to decrypt/reverse/de-permutate to arrive at the particular hash associated with the ‘transaction’ that he wants to tamper; a hash that he needs to decrypt too!
Note: He has to accomplish these hacks without alerting the blockchain network.
Recall that a blockchain transaction is irreversible? Well, the thing is, if the hacker eventually manages to tamper/change the data associated with his ‘target transaction’, contained in ‘Block 653554’ (which was recorded a month ago), his action will tamper the original hash of ‘Block 653554′ as well, giving it a new hash.
To complete his hack, the hacker practically breaks the chain, alerting the blockchain network of a hack, because he will have had to tamper the hash of every other block making up the chain.
Computationally, to tamper each block on the chain, he will need all the computers in existence.
Note also that, all along, the hacker has mostly attacked one copy of the blockchain.
There are other copies!
In all eventuality, the hacker’s attempt fails because there are copies of the blockchain, each in its original state, stored on various ‘nodes’ (i.e servers) that are distributed across random locations.
It is timely to conclude that typical ‘blockchain records’ are irreversible or permanent, meaning that each transaction documented on a blockchain can’t be deleted.
As more blocks are added to the chain, the blockchain grows taller and older, improving its security.
Yes, a blockchain has a height and an age, which only extends. Each ‘new state’ of the chain is instantaneously communicated and registered to every node that holds a copy of the blockchain, maintaining each copy ‘up-to-date’.
As such, a blockchain remains public and decentralized.
Ideally, a blockchain doesn’t remain ‘a blockchain’, if it fails to maintain up-to-date copies of itself on ‘random servers’ (i.e nodes) distributed across various locations. As such, these distributed nodes making up the blockchain network should be capable of communicating among one another as part of the process for ‘validating transactions’.
We are arriving at another important element of a blockchain; a ‘consensus’ mechanism.
Different blockchains make use of different ‘blockchain protocols’! Thus, each blockchain has its own ‘consensus’ mechanism as we will explain later.
For a transaction to settle, distributed nodes that up the blockchain network, need to agree that a certain ‘transaction is valid’ (i.e insertable into a block).
For instance, if you were to send me a payment of ‘500 BTC’, a parameter that will be checked by the nodes of the Bitcoin network in the process of validating your transaction, is whether you have up to ‘500 BTC’ in your wallet. Basically, the nodes verify according to their copy of the blockchain, whether your balance is greater than ‘500 BTC’, communicating their establishments with the other nodes and once it is established across the network that your transaction is valid, your transaction obtains the right to be inserted into a block, preparing it for its insertion into the blockchain.
An invalid transaction is rejected.
It is becoming obvious so far that ‘blockchain technologies’ constitute ‘softwares with computing capabilities’!
The terminology ‘blockchain’ may refer to an ‘immutable ledger of data’. Contextually however, the terminology ‘blockchain’ covers ‘the technologies, models, concepts, algorithms, software’ involved in generating and maintaining an ‘immutable ledger of data’.
Having broadened the scope for the terminology ‘blockchain’, it is now easier to understand how a transaction can occur between two parties via a blockchain, in a peer-to-peer fashion, without the permission or authorization of ‘third-parties’, like banks, government or legal-systems.
In a financial system based on virtual ‘cryptocurrency’, where transactions happen in a peer-to-peer fashion, data needs to be held on a ledger that is tamper-free, immutable and decentralized.
Now, let us take a quick general look at how a transaction executes on a blockchain. This will give you further insight into the value of ‘blockchain technology’ in the scheme of things.
On a blockchain, a typical financial transaction occurs between two parties, in a peer-to-peer fashion. If a sender wants to send a payment to a recipient, all he needs is the recipient’s wallet-address. Not much else is needed for a transaction to complete.
On the Bitcoin blockchain (i.e ‘https://bitcoin.org’) for instance, a new ‘BTC wallet address’ is generated anytime a user initiates the ‘creation of a Bitcoin wallet’.
A BTC wallet address is an ‘alpha-numeric string of characters’ that look like this: ‘bc1qa0e24rdvnc2aszdm5dnt4nfj3zs2u0se5j2sa9’.
This ‘unique identifier’ (similar to a ‘username’), is used to distinguish one ‘bitcoin wallet’ from another.
A user is also provided with a ‘private key’ (i.e a randomly generated password) in the process of creating their Bitcoin wallet.
Alas, a BTC wallet address (e.g ‘bc1qa0e24rdvnc2aszdm5dnt4nfj3zs2u0se5j2sa9’) also constitutes an ‘entire Bitcoin wallet’, accessible by a respective ‘private key’.
To initiate a ‘transfer’ operation, the owner of a Bitcoin wallet must log into his wallet using his ‘private key’, proving to the network that he owns his wallet. Inside his wallet, he can begin the process of transferring his ‘BTC’ to another wallet address, in a transaction that is irreversible.
His transaction will require a minimum of ‘10 mins’ to settle. Each BTC transaction has an associated fee!
On the other hand, to receive ‘BTC’, he needs to provide his public wallet-address to the sender.
This means that this BTC wallet address ‘bc1qa0e24rdvnc2aszdm5dnt4nfj3zs2u0se5j2sa9’, used in our example earlier, is a ‘recipient/deposit’ address associated with a ‘bitcoin wallet’ and it can transfer or store ‘BTC’.
Being a public address, a BTC-holder may transfer BTC to ‘bc1qa0e24rdvnc2aszdm5dnt4nfj3zs2u0se5j2sa9′ even inadvertently, with success. Alas, a Bitcoin transaction is irreversible!
At this stage, let us establish that the general model behind a variety of ‘blockchain technologies’ is similar.
Let us take a quick look at another blockchain called ‘Hive’ (i.e ‘https://hive.io’)
On the ‘Hive blockchain’, it being a blockchain built for the sector of ‘social-media’, wallets are identified by ‘conventional usernames’ e.g ‘surpassinggoogle’.
To send ‘5,000,000 HIVE’ to ‘@surpassinggoogle’, simply log in to your ‘Hive blockchain wallet’ (i.e ‘https://wallet.hive.blog’), using your ‘private-key’, initiate a transfer and approve it.
A financial transaction on the Hive blockchain settles in ‘3 seconds’ and costs ‘zero fees’. This transaction is irreversible.
Have you noticed that on both ‘blockchains’ i.e ‘Hive and Bitcoin’, transactions can complete without extra permission from a third-party?
‘Blockchain’ improves the way contracts are administered, allowing for transactions between two parties to settle without the need for a third-party.
Now, let us compare our earlier scenario with that of ‘a traditional/centralized financial system’.
In a traditional financial system, say you simply wanted to send someone a micro-payment of ‘0.2$’; there will be several third-parties involved.
Does this matter?
Let us use PayPal in our scenario. Let us assume that ‘PayPal’ (a third-party) is the payment-processor for your transaction, involving a payment of ‘0.2$’ to a certain PayPal user of the username ‘[email protected]’.
PayPal decides that it will take a small fee of ‘0.02$’ for processing your transaction but you have exactly ‘0.2$’ in your PayPal wallet; can you complete your payment?
Now, what if this recipient was located in ‘USA’‘, where the currency is ‘USD’ and you are located in ‘the Philippines’, where the currency is ‘PHP’ and there is additional ‘foreign-exchange fee’, involving other ‘third-parties’ e.g banks; doesn’t your transaction further-fail?
This entire process of ‘sending a payment’ was initiated when you created your PayPal wallet, a wallet that you must have funded with ‘0.2$’.
In the process of setting up a fully-functional PayPal wallet, you must have gone through a ‘know your customer’ procedure, which involved parting with some personal information. This procedure applies, even though your transaction involves just ‘0.2$’.
In some cases, PayPal may require additional verification to decide whether you are eligible for a PayPal wallet, a wallet that is supposed to hold your money. Who knows, they may need a copy of your passport at this stage.
Against all odds, you completed your payment; does it mean that the transaction has settled? Not entirely!
Further assuming, let us say that this recipient has successfully registered a PayPal account, to receive a payment of ‘0.2$’, having surmounted similar odds as you; he now sees the said amount in his wallet but he is ‘unbanked’. Has the transaction settled yet?
The bank (another third-party) has deemed him ‘ineligible for opening a bank account’, even after he has parted with his entire identity.
Assuming he eventually got ‘banked’, what if PayPal decides to take withdrawal fees?
You have ‘an unsettled transaction and many third-parties involved’!
Amidst all the hassle, what if the government (another third-party) comes in and decides to tax this ‘0.2$’?
You have ‘more third-parties; a bit more fees’!
Yes, for ‘0.2$’ both parties may have compromised their privacy and perhaps sold their identities to third-parties.
Also, “you have just gone public”; your entire ledger distributed freely among these ‘third-parties’.
They can hold you accountable, they can influence you!
PayPal for instance can upsell you. You can’t upsell them in turn as ‘their ledger’ is private.
Now, there are advantages to ‘centralized financial systems’ but there are ‘alternatives’ too, referring to ‘financial systems that are decentralized in nature’ and knowledge of these alternatives is empowering at least.
As seen with our PayPal example, ‘transactions’ within a ‘centralized financial system’ can turn out slow. Each third-party involved in the transaction maintains a ledger but each one’s ledger is private or centralized.
PayPal, in certain cases, can’t allow your transaction to settle, without being able to verify via the ‘bank’s ledger’ that ‘you are banked’, nor do they have access to ‘your ID’ (your ledger), to ascertain who you are.
While ‘identifying you’ is a tangible security-mechanism; for better-business sake, it favors PayPal and any other third-party involved to know ‘who you are’, that they can targetedly upsell you.
Speaking of security, in our PayPal scenario, being that there are several third-parties involved, there is a network of ‘known paths’ from which to intercept funds during a transaction; favorable to hackers.
Being centralized, it isn’t out of the question either that PayPal can be hacked and ‘your funds transferred’ or shut-down and ‘your funds lost’. Who says a bank can’t declare bankruptcy and ‘your funds lost’?
Now, someone with your PayPal details, may automatically have your bank details and your entire identity too.
A tangible question thus is, ‘is it entirely necessary that humans compromise their privacy to transact financially’? Should humans be able exercise a right to interact financially, without interference? Why has society become so predictive of ‘humans’ as ‘potential crimesters’? Are ‘centralized financial systems’ free of crime? Has there been a financial system in the past that was ‘peer-to-peer’? Has there been a financial system in the past that was ‘trust-less’?
Today, ‘blockchain’ (and the financial system it provides) is considered ‘unconventional’ but is it really?
If it is ‘unconventional’, is it a tangible alternative? Can it evolve into an ideal financial system? Can centralized financial systems incorporate a layer of decentralization?
As we have seen so far, having looked at two different blockchains i.e ‘Hive and Bitcoin’, blockchain provides its users a certain level of anonymity or privacy. Does this hamper a user’s ability to financially or socially transact on it reputably? The answer is not far-fetched!
Users of these blockchains only need their digital signatures to transact or interact. Once they have successfully accessed their wallets using their private key, they prove ownership of their wallet. This they can accomplish whether they are ‘private or public figures’ and without extra permission or authorization from a third-party.
Within their wallets, they can fully-access their funds too!
When a user initiates and authorizes a transaction, the blockchain technology comes into play, to validate and record the transaction. It validates and documents this transaction by means of a decentralized ‘consensus’ mechanism, leaving us a publicly-accessible ledger, that anyone can audit.
The blockchain is always accessible because there are copies of it stored on various ‘nodes’ (i.e servers) hosted on individual servers distributed across different geographical locations. Even if one server is offline, there are other servers online.
Once an offline node regains its internet connection, it restores communication with other nodes of the blockchain network, updating its redundant copy of the blockchain to the latest one.
What have we established?
On a blockchain, on a decentralized ‘financial system’, a user can choose to be public or anonymous, without any effect on his/her ability to transact or interact.
On the Hive blockchain for instance, a user can decide to affiliate his username with his social identity but this is optional. Similarly, someone may decide to share a post-update on his public Twitter, containing his ‘BTC wallet-address’, automatically associating a once anonymous BTC wallet-address to his identity.
Now, are there ‘reputable people’ on a blockchain network? Very much so!
This is underlyingly obtainable by virtue of a blockchain’s public and permanent nature. Users of blockchain adopt a measure of accountability and responsibility in their blockchain interactions, knowing that any data associated with their person, recorded on the blockchain, is public and permanent.
For instance, if a public figure like Mark Zuckerberg was to transact whether socially or financially on a blockchain-based application like ‘Hive’ (i.e ‘https://hive.blog’), he would be wearier of his behavior than on ‘Facebook’, which database he controls.
Too, many blockchains are modeled with a ‘reward-distribution mechanism’ usually powered by a ‘cryptocurrency’, to incentivize and reward ‘reputability’.
Starting with the ‘nodes’, which hold copies of the blockchain, there has to be an element of ‘reputability’. How so?
‘Nodes’ (typically ‘server infrastructure’), are backed by ‘humans’.
Whether it is a ‘Bitcoin node’ or a ‘Hive witness’ (i.e a ‘Hive node’), there are humans in charge of maintaining blockchain ‘nodes’ and these humans are expected to be reputable.
Being ‘custodians’ of the blockchain which secure transactions involving many users, ‘node-operators’ are expected to be trustworthy.
As much as we have established that a blockchain can’t be hacked, it can be hacked internally. If its custodians are not reputable, they can collude to take control of the blockchain and tamper its state.
Typically, the larger the blockchain ‘network’ (referring to ‘the number of consensus nodes’), the more ‘distributed the network’ (referring to ‘the geographical-distribution span of consensus nodes’), the harder it becomes to reach a consensus that is detrimental to the blockchain network.
Do you better understand why ‘blockchains’ make use of decentralized ‘consensus’ mechanism(s) to validate ‘transactions’ and document ‘blocks’?
Most blockchains are modeled to maintain a decentralized ‘consensus’ mechanism, in a bid to discourage a centralized ‘consensus’ mechanism. To accomplish this, many blockchains implement a ‘reward distribution’ mechanism, powered by a native ‘cryptocurrency’; birthing a secondary utility for ‘cryptocurrencies’ called ‘rewards’.
By means of this cryptocurrency, an economy erupts that steers ‘governance’, another profound ‘utility’ for ‘cryptocurrencies’..
By virtue of ‘cryptocurrency’, users of the blockchain are incentivized to participate more in the governance of the blockchain, directly or indirectly, altogether strengthening the blockchain network; while ‘node-operators’ are rewarded for ensuring that the blockchain stays alive and that it behaves like a blockchain.
‘Node-operators’ and ‘the average user’ alike are incentivized to maintain ‘reputability’.
Being that a blockchain is decentralized in nature, anyone can participate in the governance of the blockchain directly or indirectly. Typically each blockchain maintains a ‘reward distribution’ mechanism that rewards eligible participation. As such, most blockchains have a native cryptocurrency and their respective protocols for what constitutes ‘governance’.
On the Bitcoin blockchain for instance, each transaction has a corresponding fee (priced in ‘BTC’). Whenever a ‘miner’ (referring to a powerful computational microchip designed for Bitcoin) succeeds in ‘producing a block’, he is paid out the ‘accumulative fee’ (i.e ‘miner-fee’) associated with all the transactions contained in that block.
Along with ‘miner-fees’, there is an associated ‘mining-reward’ paid to the miner, currently 6.2 BTC.
‘100% of the BTC’ minted by the Bitcoin network per day, is paid out to ‘miners’ as miner-rewards and miner-fee.
The above is ‘Bitcoin’s ‘reward distribution’ mechanism’.
On the Hive blockchain, instead of ‘miners’ there are ‘witnesses’. Similar to the Bitcoin blockchain, ‘witnesses’ are rewarded in ‘HIVE’ (i.e the native cryptocurrency of the Hive blockchain) as an incentive for ‘producing blocks’. Let us call these rewards ‘block-rewards’.
Unlike the Bitcoin blockchain however, ‘transactions’ on the Hive blockchain are ‘free’. As such, ‘witnesses’ (i.e ‘block-producers’) do not earn ‘block-fee’.
Paying out only ‘10%’ of its daily ‘rewards’ allocation to ‘witnesses’ (i.e ‘block-producers’), the Hive blockchain extends its ‘reward distribution’ mechanism beyond just ‘block-producers’ in favor of rewarding its average user, allowing members of its ecosystem to earn HIVE rewards without having to set up a ‘node’ (i.e ‘witness’) as we will see later.
Generally speaking, with a giant and ever-growing blockchain network, it eventually becomes unprofitable for ‘block-producers or nodes’ maintaining the blockchain to be ‘disreputable’. While such a competitive economy seems to encourage ‘collusion’, the ever-decentralizing nature of these cryptocurrency-economies discourages ‘collusion’.
Assuming you are able to compete in this crypto-sphere as a ‘node-operator’ (i.e ‘custodians of the blockchain’) and you are able to climb the ‘ranks’ (referring to ‘your influence on the consensus that governs a blockchain’), in a bid to collude with other high-rankers (i.e other ‘consensus-eligible’ nodes) on a mission of disreputability, the network which has continued to grow, continues to grow and alas, ‘a random person’ (‘likely reputable’) who wants to compete as a ‘node-operator’ in a ‘consensus’ capacity enters the mix.
Let us explain this further!
Recall that ‘a blockchain’, being ‘decentralized in nature’ and modeled to incentivized participation via a ‘reward-distribution mechanism’ that pays out cryptocurrency ‘rewards’, anyone can desire to participate in the governance of a blockchain network and its economy?
This resaid, to continue to participate profitably in the governance of a blockchain, whether you like it or not, your reputability manages to grow, even obliviously.
For instance, on the Bitcoin blockchain, as the network grows, to stay relevant ‘earning ‘BTC’ rewards as a miner’, you will need to continue upgrading your infrastructure to meet the demands of the network. If you can’t maintain that ‘reputation’ others can because unlike ‘centralized systems’, where one’s tentacles can be chopped off at will, anyone can participate on a blockchain.
“Blockchain is a more potent tool when used as a ‘mentality-adjuster’, than when used as a ‘reward-distributor’.” @surpassinggoogle
All along, we have been hinting on a subject that we haven’t explained, a very important element in the formulation of ‘blockchain technologies and cryptocurrencies’ and essential to their survival. It is called the ‘consensus mechanism’.
To prepare you for understanding it better, we began a discussion on the ‘reward-distribution mechanism’. We also touched on the terminology ‘blockchain governance’.
Let us proceed by touching on two popular ‘consensus’ mechanisms used by various ‘blockchain technologies’ i.e ‘Proof Of Work’ (used by the Bitcoin blockchain) and ‘Proof of Stake’ (used by the Hive blockchain).
Understanding these ‘consensus’ models’ now, will be relevant in chapters 4 & 5, where we will begin discussions on how you can formulate and create your own ‘blockchain and cryptocurrency’. To a broader context, this knowledge will help you understand the relationship between the ‘real world’ and the ‘cryptocurrency world’, leaving you with more insight into the ‘true state of the world’; which in turn will enable you to better differentiate between the ‘real world’ and the ‘painted world’.
Proof Of Work (POW)
‘Proof of work’ is the ‘consensus’ mechanism used by the Bitcoin blockchain to validate transactions and inserting corresponding ‘blocks’ into the blockchain. The Bitcoin blockchain quite introduced this consensus ‘validation’ model and its technology, which has been adopted by other blockchain(s), such as ‘Ethereum’ (https://ethereum.org).
When you hear ‘proof of work’, it is indicative of ‘physical computing infrastructure’. Well, it is also indicative of ‘work’ in the form of mining.
Since ‘consensus’ constitutes ‘decision-making’, what is being decided upon and who participates in this decision-making?
In answering the above questions, we will use the Bitcoin blockchain, which makes use of the POW in our scenario.
On the Bitcoin blockchain, there are many transactions, many of which are ‘financial transactions’. At an estimated ‘10 mins’ interval, a new block is added to the Bitcoin blockchain. This new block will contain data associated with hundreds or thousands of validated transactions. A basic example of a transaction on the Bitcoin blockchain is a ‘transfer BTC’ action.
Who plays the role of preparing the next block? On the Bitcoin blockchain, these ones are called ‘Miners’. Backed by human operators, ‘miners’ typically refer to ‘special infrastructure possessing ‘powerful computing capabilities’ necessary in performing complex hashing operations’. (For better understanding, let us describe ‘miners’ as ‘supercomputers’ modeled specially for ‘Bitcoin’).
Yes, across the Bitcoin blockchain network, ‘miners’ play the role of ‘producing blocks’.
In preparation for ‘producing the next block’, ‘miners’ begin looking for valid transactions to fit into their block. A typical Bitcoin block has a maximum size of ‘1 Megabyte’.
Each ‘miner’ decides on the best approach or most efficient approach for selecting ‘valid transactions’ and organizing them into their block. For instance, a ‘miner’ may decide to target ‘transactions’ that are associated with higher fees to fill his block with, desiring higher ‘miner-fees’.
Irrespective of their approach, they must fill their block with ‘valid transactions’, which is a computational task in itself.
In the process of organizing their block, a miner practically has to solves a complex mathematical puzzle, in a process referred to as ‘hashing’, on a mission to obtain a singular ‘hash’ that uniquely identifies it; one that sufficiently represents it and ‘all the transactions it contains’.
Subsequently, it submits its resulting hash to the ‘Bitcoin network’ (referring to the ‘Bitcoin nodes’), which plays the role of ‘consensus’ validators in deciding which miner ‘proved the most work’, in terms of ‘efficiency, accuracy and speed’.
The entire network of distributed nodes running the Bitcoin software should be in synchronization as to the winning ‘miner’. This ‘miner’ attains the eligibility of having ‘produced the block’ and the associated ‘BTC rewards’ paid out to the miner as ‘miner-fees and miner-rewards’.
At this stage, the ‘produced block’ is allowed insertion into the blockchain, ‘lengthening the blockchain’ and each node making up the Bitcoin network is communicated about the ‘new state of the blockchain’, that they can attain synchronization per the current state of the chain.
The entire scenario covered above occurs in minutes. The shortest interval between one Bitcoin block and the next is ‘10 minutes’.
Now, in proving this work, there isn’t a social element involved. Simply having tangible infrastructure, whoever you are, irrespective of your location and you can operate a Bitcoin miner. Depending on how sophisticated your miner is, in comparison to other Bitcoin miners, your miner can begin to produce blocks, earning BTC rewards whenever it successfully mines a block.
These days, it costs thousands of dollars to run a profitable Bitcoin miner.
As we have hinted just earlier, ‘nodes’ hold copies of the Bitcoin blockchain and run a version of the Bitcoin software, enabling them to participate in the consensus process that validates transactions and insert blocks into the blockchain.
When a transaction is initiated, say you wanted to transfer ‘BTC’ from your wallet to another, capable nodes of the Bitcoin network begin the process of validating your transaction through a consensus. Basically, your transaction has to match the definition of a ‘valid transaction’ according to a protocol agreed to by all the nodes of the Bitcoin network, on the basis of the version of the Bitcoin software that they run.
In turn, they broadcast the existence of a pending ‘valid transaction’ to the entire Bitcoin network.
The ‘miners’ come in to ‘prove their work’ by competing to produce the next block.
Next, all the nodes in the Bitcoin network have to consent to the ‘winning miner’ and validate the corresponding block to ensure that it is valid, before it is inserted into the blockchain.
The ‘new state of the blockchain’ is then communicated across the Bitcoin network to ensure that each node stores the latest or true copy of the Bitcoin blockchain.
Being a chain, the ‘truest copy of the blockchain’ is usually the ‘lengthiest copy’.
As the size of the Bitcoin blockchain grows (referring to the number of financial transactions on the Bitcoin blockchain), it grows difficult to ‘mine blocks’.
‘Miners’ that upgrade their infrastructure with the more efficient/faster supercomputers, have a better chance at mining blocks than others.
These days considering the size of the Bitcoin network, companies with large budgets are better positioned to ‘produce blocks’.
Being that Bitcoin is decentralized, anyone can set up a mining rig. However, your infrastructural setup will have to be solid, to be successful at mining Bitcoin profitably.
As a-said, besides ‘mining-rewards’, miners are compensated with ‘miner-fees’. Each transaction on the Bitcoin network has an associated cost, paid by the user. This fee is priced in ‘BTC’.
Most Bitcoin wallets are optimized to designate a default ‘fee’ to ‘transactions’, fees which can fluctuate depending on the congestion of the network. A user may customize how much they pay in fees, in a bid to speed up the completion of their transactions.
Even so, a Bitcoin transaction can’t complete instantly. This is because the Bitcoin protocol is designed with ‘block-intervals’ of ‘10 minutes’ to avoid congestion and double-spending.
The ‘consensus’ for validating Bitcoin transactions requires participation from the entire network of Bitcoin nodes. Each node running the Bitcoin software contains the consensus protocol that defines ‘a valid transaction’.
Radical changes to the Bitcoin blockchain (e.g adjustments to consensus protocol that validates transactions, changes to reward-distribution, software-iterations etc) require a form of ‘consensus’ too; a different type of consensus from that used in ‘producing blocks’ but the logic is relatively similar.
The Bitcoin source-code being public and open-source, anyone can audit it and its iterations. (You can find the Bitcoin source-code on ‘https://github.com/bitcoin/bitcoin’)
As such, anyone can propose changes to the Bitcoin blockchain through a proposal system.
Where your proposal is accepted by the Bitcoin community at large, your proposed change is implemented into the code by Bitcoin’s core-programmers and a new version of the Bitcoin software becomes available.
Nevertheless, additional consensus must be reached by the entire Bitcoin network, referring to ‘all the nodes running the Bitcoin software’.
For the now ‘new version of Bitcoin’ to become established and widely-accepted even by the average user, the nodes that make up the Bitcoin network have to update their Bitcoin software to the new version.
Radical changes that have been accepted into the Blockchain source-code are incorporated into a blockchain network through a process known as a ‘fork’.
Depending on the extent of the ‘proposed change’, there are generally two types of ‘forks’; a soft fork and a hard fork.
A ‘soft fork’ is ‘soft’, meaning that nodes running the ‘updated version of the blockchain software’ (i.e ‘the version now containing the proposed changes’) remain compatible with nodes running ‘the older version of the blockchain software’.
In the case of the Bitcoin blockchain, ‘consensus’ is needed from ‘95% of the nodes making up the Bitcoin network’ for a soft fork to take effect across the network. Where such consensus is attained the ‘updated version of the Bitcoin software’ becomes ‘the latest version of Bitcoin’.
Alternatively, ‘hard forks’ are ‘hard’. Used to implement more radical changes to the Blockchain network than those implementable by means of a ‘soft fork’, changes that may alter the dynamics of the blockchain at large, a ‘hard fork’ requires a more distributed consensus than a ‘soft fork’.
If the ‘consensus’ required for a ‘hard fork’ to be implemented into the blockchain isn’t attained, the blockchain splits, forming another chain.
‘Nodes’ maintaining the older version of the blockchain software, can no longer validate blocks from the ‘new chain’ (which now runs a different version of the blockchain software) and vice versa.
In the case of Bitcoin, a hard fork requires consensus from the entire network, meaning that if one node refuses to adopt the newly proposed version of the Bitcoin software, the chain splits in two, creating another blockchain and the ‘new chain’ births ‘a new cryptocurrency’.
One blockchain, that resulted from the aforementioned scenario is ‘Bitcoin Cash’; a blockchain that resulted from a split of the Bitcoin blockchain, when a proposed hard fork of the Bitcoin blockchain wasn’t accepted by the entire Bitcoin network.
In the aftermath of ‘a typical blockchain split’, the result is ‘two different blockchains’ i.e the original blockchain and a new blockchain
Let us refer to the ‘original blockchain’ as ‘the parent’ and the ‘new blockchain’ resulting from the split as ‘the child’.
Do you still recall the primary essence of a ‘hard fork’? ‘To institute a new version of the blockchain software, one that implements profound changes to a blockchain’s technology’ as the latest version..
Being that ‘a blockchain’ is ‘decentralized in nature’, the decision to implement such drastic changes into a blockchain should be widely-accepted ‘across the network’, in accordance with a blockchain’s ‘consensus’ protocol.
Typically, for a node to participate in the consensus that validates a ‘hard fork’, a ‘node’ has to run ‘the newly proposed version of the blockchain software’.
Ofcourse, different blockchains have their unique ‘consensus’ protocol with respect to a ‘hard fork’.
For instance, a blockchain’s ‘consensus’ protocol may require consensus from the ‘entire blockchain network’ for a proposed ‘hard fork’ to attain completion. If such is the case, at the time designated to the execution of the ‘hard fork’, if ‘every node of the blockchain’s network is running the newly proposed version of the Blockchain software’, the ‘hard fork’ completes and this new version becomes established and accepted as the ‘latest version of the blockchain software’.
Otherwise, there is a split and a new blockchain is formed. How so?
Let us assume that 50 ‘nodes’ dissented the aforementioned ‘hard fork’ and they maintained the original version of the blockchain software. They remain nodes with the original blockchain. The other 50 ‘nodes’ that supported the newly proposed version, had begun running the new software, setting into motion ‘a new blockchain’, one that inherits the transactional history of the original blockchain but now possessing its own standards, identity and cryptocurrency.
We now left with two quite similar blockchains that are incompatible. After the split, either blockchain begins to maintain its own transactional history, independent of the other.
Let us use an imperfect analogy to break this down a bit further.
Assuming the latest ‘Iphone’ is ‘Iphone 5’ and its latest operating system is ‘IOS v5’.
You currently make use of an ‘Iphone 5’ which allows you to enjoy your favorite cryptocurrency application but it is not compatible with ‘Netflix’, which you wish it had.
‘Apple Inc.’ announces that on a particular date, it will release a ‘new IOS version’ called ‘IOS v6’, which is a supposed upgrade to ‘IOS v5’.
According to Apple Inc., v6 is posed to improve v5 by preventing the ‘installation of any cryptocurrency application’. As part of the upgrade however, users will now be able to install their favorite ‘Netflix app’.
Typically, Apple inc being a centralized incorporation doesn’t need your consent to implement ‘IOS v6’.
After assessing either IOS version, you may prefer to stick with ‘v5’ to maintain access to your preferred cryptocurrency application since ‘v6’ isn’t compatible with ‘cryptocurrency applications’ or you may decide to upgrade your IOS device to ‘v6’ in favor of ‘Netflix’, which isn’t compatible with ‘v5’.
In eventuality, ‘Apple Inc.’ may ascertain that ‘v6’ has been widely-adopted and they may begin to relegate their support for ‘v5’ till it becomes redundant.
At times, the intent of a ‘hard fork’ is to ‘split the chain and create a new one’! This may happen if the community behind a blockchain becomes divided in their ideals pertaining to the standards guarding the blockchain.
Once again, being that blockchains are ‘decentralized in nature’, a hard fork is implemented, that the community can decide in public. Alas, they can choose either or both versions too!
Didn’t we mention that in the event of a split, the child blockchain inherits the transactional history of its parent blockchain?
In an ideal situation this is the case! Typically, when the new blockchain is created, a new ‘asset’ (i.e ‘cryptocurrency’) is created too. ‘Account holders’ on the parent blockchain’ maintain their accounts and inherit a ‘replica account on the child blockchain’.
Their ‘replica account on the child blockchain’ can be accessed with the ‘same login-credentials used to access ‘their accounts on the parent blockchain’.
If they possess the native cryptocurrency of the parent chain, they will receive an equal amount to their holdings ‘in the native cryptocurrency of the new chain’, which they can access too.
After the split that resulted in the ‘Bitcoin Cash’ blockchain, a corresponding ‘Bitcoin Cash’ blockchain account was designated to each user of the Bitcoin blockchain. A new cryptocurrency was formed too called ‘BCH’, native to the ‘Bitcoin Cash’ blockchain.
Upon the inception of the ‘Bitcoin Cash’ blockchain, each holder of ‘Bitcoin (BTC)’ prior to the split, was deposited a synonymous amount to their holdings, in ‘BCH’.
Alas, that was how I got my first piece of the ‘BCH’ cryptocurrency. I didn’t purchase it!
At the time, I had decided to purchase ‘0.2 BTC’, based on news of an ‘impending Bitcoin split’. In turn, I inherited ‘0.2 BCH’, leaving me with ‘0.2 BTC’ and ‘0.2 BCH’.
I earned this ‘0.2 BCH’ without purchasing it and ‘BCH’ became popular, attaining an all-time-high of ‘$3,717’.
It is easy to see why blockchains in general are ‘decentralized in nature’ and the impact of decentralization in their formation and success.
Too, you can begin to understand how cryptocurrencies (e.g ‘BTC’) attain intrinsic value.
Modeled around a ‘proof of work’ consensus (& reward-distribution) mechanism, the ‘BTC’ cryptocurrency is backed by ‘expensive infrastructure’.
Today, copies of the Bitcoin blockchain are hosted on some ‘100,000 nodes’, each node participating in the process of validating ‘BTC’ transactions.
There are some ‘1,000,000’ individual Bitcoin miners too, sharing in the responsibility of ‘producing Bitcoin blocks’.
‘Nodes and miners’ alike are maintained by humans, who invest in maintaining and upgrading these infrastructure.
By virtue of ‘proof of work’, the Bitcoin blockchain can sustain and scale its ‘decentralized nature; ‘decentralization’ being its uniquest value-proposition. Subject to this very unique ‘proof of work’ consensus model, it can continue to provide a cryptocurrency in the form of ‘BTC’ that infers trust and privacy.
Along with curing the inflationary-limitation that ‘traditional money’ possesses, by maintaining ‘a maximum supply of 21,000,000 BTC’ and a defined ‘inflationary rate’ (consisting of ‘6.25 BTC per block’, at an estimated ‘144 blocks per day’), it is no coincidence that ‘BTC’ is gaining popularity as a tangible ‘store of value’, currently valued at some ‘13,000$ each’.
Did we not hint at ‘proof of work’ being an underlying ‘reward-distribution’ mechanism?
‘Proof of work’ sets the rules that define how ‘rewards’ (referring to ‘BTC’) are distributed and these defined ‘set of rules’ (i.e a ‘reward-distribution’ mechanism) is ‘public’.
For instance, it is public knowledge that the Bitcoin blockchain currently distributes ‘BTC’ at a rate of ‘6.25 BTC per block’, has distributed some ‘18,527,131 BTC’ of its maximum ‘21,000,000 BTC’ and that there is an average of 144 blocks mined each day. It is also public knowledge that ‘100% of the new BTC created’ is allocated to ‘block producers’ (i.e ‘miners’).
Knowledge of this ‘reward-distribution model’ (put into effect by Bitcoin’s ‘proof of work’), further invites participation from users into a ‘decentralized economy’ based on BTC, which in turn incentivizes the maintenance of a decentralized Bitcoin blockchain.
Miners are sure that they will receive rewards and holders of BTC can better predict the value of BTC as a financial asset..
Participation continues to grow across the Bitcoin network and the Bitcoin blockchain stays decentralized.
Yes, ‘BTC’ isn’t just another currency valued entirely on the basis of its financial strength. It has an underlying blockchain technology that is revolutionary; formulated to continuously decentralize.
Next, let us talk about ‘Proof of stake’.
Proof Of Stake (POS)
‘Proof of stake’ is different from ‘proof of work’. It is another type of ‘consensus; model used by many blockchains today, to establish how blocks are produced. Underlyingly, ‘proof of stake’ also plays the role of a ‘reward-distribution’ mechanism.
Having understood ‘proof of work’, you are better-positioned to understand ‘proof of stake’. Consequently, understanding ‘proof of stake’ better-positions you to understand ‘blockchain technology’ in general.
By now, you may have begun to establish another utility for ‘cryptocurrency’, besides its popular use as a ‘store of value’ (i.e as ‘money’). Cryptocurrency can be utilized on a blockchain as a tool of governance, something you will understand better as we explain ‘proof of stake’.
For a blockchain to maintain its ‘decentralized’ nature, it needs a measure of governance; one based on ‘decentralized consensus’.
To sustain its level of ‘decentralization’, it needs a directional ‘decentralized’ economy (one that is modeled to invite ‘participation’) and such a decentralized economy needs a decentralized currency to power itself; its very own ‘cryptocurrency’.
Now, when we referred to ‘decentralized consensus’ earlier (in reference to how a ‘decentralized blockchain’ should run), that simply meant that ‘anyone should be able to participate in the ‘consensus’ process that governs a blockchain, without requiring permission from a central authority‘.
Revisiting Bitcoin’s ‘proof of work’ for instance, it established that anyone can set up a Bitcoin miner by investing in ‘computing infrastructure’.
Now that we have established the above, let us establish the impact of a ‘decentralized cryptocurrency’ in the successful running of a ‘decentralized blockchain’ by posing the subsequent question:
Does the existence of the ‘BTC’ cryptocurrency have any impact on how many Bitcoin miners run today?
Well, miners are incentivized to participate in producing the blocks that formulate the Bitcoin blockchain, knowing that they can receive ‘miner-rewards and miner-fees’, distributed by a decentralized Bitcoin protocol that functions automatically without the interference or permission of a central authority. These rewards are paid out in ‘BTC’, the native cryptocurrency of the Bitcoin blockchain.
In many cases, by virtue of these ‘BTC’ rewards, miners can continue to upgrade their ‘infrastructure’, continuing their role in maintaining a decentralized Bitcoin blockchain.
Quite indirectly, we can begin to see the value, perhaps ‘economic value’ of BTC in the governance of the Bitcoin blockchain.
More tangibly, we have begun to see the role of ‘cryptocurrencies’ in the survival of ‘blockchain technologies’.
Now, let us begin to pinpoint how the ‘proof of stake’ consensus model (used by many blockchains today) differs from ‘proof of work’. In the process, we will begin to identify its advantages and disadvantages in comparison to the ‘proof of work’ consensus model (used by the likes of Bitcoin and Ethereum), giving us balanced insight into the formulation of cryptocurrencies and blockchains.
This knowledge will come in handy in eventuality and when we attempt to take you through the journey of creating your own ‘cryptocurrency & blockchain’, in chapters ‘4 & 5’.
To start, let us conclude that a user’s level of participation in the governance of a blockchain like ‘Bitcoin’, which makes use of a ‘proof of work’ consensus-model, isn’t entirely reliant on ‘how much cryptocurrency they hold’.
A user with ‘0 BTC’ holdings can set up a Bitcoin miner, contribute to keeping the Bitcoin blockchain ‘decentralized’, mine blocks and earn BTC rewards.
With the ‘proof of stake’ consensus model (used by many blockchains today), ‘how much cryptocurrency you hold or control’ (referring to one’s ‘stake’) is a key requirement. In this model, even if your node is hosted on the best infrastructure, it may not be eligible to ‘produce blocks’ for the blockchain. How so?
According to the ‘proof of stake’ consensus model, ‘block producers’ of the blockchain are selected on the basis of ‘who has more stake’ (i.e ‘who holds more cryptocurrency’).
The more cryptocurrency a ‘node-operator’ stakes, the more ‘block-producing power’ his node has in comparison to other nodes across the blockchain network.
The process of ‘staking cryptocurrency’ is similar to ‘locking it’ within the blockchain network, instead of ‘spending’ it.
Ofcourse, ‘block producers’ are rewarded in the native cryptocurrency of the blockchain for their activity in ‘maintaining the blockchain’, creating an incentive for anyone to setup a node and for ‘node operators to accumulate more stake’ to compete against other nodes for better ‘block-rewards’.
‘Accumulating more stake’ in this context refers to ‘staking one’s cryptocurrency-earnings or purchasing more cryptocurrency to stake’.
The process of ‘staking cryptocurrency’ is similar to ‘locking it’ with the blockchain network, instead of ‘spending’ it.
In many cases, you can un-stake your cryptocurrency too, making it ‘liquid’ and ready to spend but with a negative impact on the ‘block producing power’ of your node.
This simply to say that ‘there is a ranking system among ‘block producing’ nodes, which is stake-weighted.
In effect, ‘nodes with higher stake’ rank higher ‘produce more blocks’ (i.e earn higher ‘block-rewards’) than those ranking lower and generally have higher influence in the decisions governing the blockchain.
Based on ‘how much cryptocurrency’ a node-operator is willing to stake as opposed to ‘spend’, he can prove to the entire network his vestment in the success of the blockchain, consequently proving his eligibility as a ‘rightful custodian’ of the blockchain.
Inversely, ‘proof of stake’ disincentives ‘disreputability’ among node operators. How so?
Since a node-operator’s influence on the governance of the blockchain is only proportional to the size of his ‘stake’ (referring to ‘how much cryptocurrency’ he has locked within the blockchain), even in the event of a ‘collusion attempt’ to take over the blockchain and tamper it’s state or alter its behavior, the entities involved will have needed to accumulate a significant amount of collective ‘stake’ (i.e significantly ‘more stake’ than ‘the rest of the network’), which typically involves buying more ‘cryptocurrency’ off the markets. Such endeavors would continuously deflate the circulating supply of this cryptocurrency, stirring a market action that leads to a continuous surge in its price. The collusion attempt becomes too expensive to be profitable.
Did we mention that most blockchains that make use of a ‘proof of stake’ consensus model have a protective mechanism called ‘an un-staking period’? Well, if we too see ‘stake’ as ‘collateral’, there are some damages incurred by the ‘un-staker’ in the event of an ‘abrupt un-staking’. In many cases, this ‘damage’ takes the form of ‘lost time’, put into effect by an ‘un-staking period’ that takes time to complete, in accordance with the blockchain’s standards.
During this ‘time’, typically ‘days’ (i.e ‘the un-staking period’), the ‘node’ involved loses the ‘block-producing power’ associated with its ‘un-staking stake’.
In the event that the ‘collusion attempt’ in our earlier scenario succeeds, the entities involved are left with so much ‘stake’ (i.e ‘vested cryptocurrency’), which they will need to un-stake, to get ‘liquid cryptocurrency’ (i.e ‘spendable cryptocurrency’) but there is an ‘un-staking period’ (likely ‘days’).
In this period, the independent users of this cryptocurrency have become aware of the hack and have begun selling their holdings in a haste, wrecking its price.
In this period, the rest of the blockchain network, made up of ‘reputable node-operators’, may have concluded that a hard fork solves the situation, where they start up a new blockchain, retain the identity and vision of the original blockchain, leaving the ‘bad actors’ on the now tampered and unregarded blockchain.
The bad actors finally unstaked their ‘cryptocurrency holdings’ and loads of it but ‘a now worthless cryptocurrency’.
In creating and tackling the ‘imperfect scenario’ above, our aim is mostly to give you general insight into how blockchains work, irrespective of their ‘type of technology’ (i.e whether POW or POS) and to highlight that the general logic behind their innerworkings and formulation are similar.
As a legitimate illiterate, let me reiterate that most of my insight here is derived from the ‘down-to-earth spaces of Mama Earth’ and an understanding of ‘life and humans’ as opposed to secular study. Looking at an so-called ‘complex niche’ from the perspective of ‘legitimate illiteracy’ and ‘everything’ is mostly as complex as ‘1, 2, 3’.
Speaking of POS, various blockchains that make use of ‘proof of stake’ to maintain a ‘decentralized nature’ (referring to ‘distributed consensus’) have their own unique ‘algorithms, models and variations’ to how they implement it, tackling tangible questions like ‘how much ‘minimum stake’ should a node-operator vest to be eligible to ‘produce blocks’ for the blockchain?’, how long should the ‘unstaking period’ be?’, ‘how much impact or punishment should irresponsible node-operators incur, when they refuse to ‘produce blocks?’ etc.
In general, each ‘blockchain innovator’ tries to answer the above questions, in the process of choosing a ‘blockchain technology’. Consequently, a blockchain’s technology can have a direct impact on the success of its native cryptocurrency.
For instance, didn’t we hint at how the ‘proof of stake’ plays the role of an underlying ‘deflationary’ mechanism, put into effect by its ‘reward-distribution model’? Based on ‘stake’ (associated with a ‘cryptocurrency’ possessing a ‘governance’ utility), a competitive decentralized economy is birthed that incites users to accumulate this cryptocurrency, creating a vibrant ‘demand’ for cryptocurrency that improves its financial value and stability.
Now, let us begin to focus on an interesting variation of ‘proof of stake’ called ‘delegated proof of stake’ (i.e ‘DPOS’). Why so?
Well, if you are new to the niche of ‘cryptocurrency’, understanding ‘delegated proof of stake’ will improve your general understanding of ‘proof of stake’.
‘DPOS’ invites participation from the ‘average user’ (referring to ‘non-node-operators’) in the governance of a blockchain as such it implements additional dynamics to the implementation of ‘POS’.
We want to emanate more ‘generation-fixers’ from this whole experience, ‘abating the rarity in the ‘great men/women’ industry’ in turn. Within the course of this book, we want to ‘bear a brother’s consequence’, removing ‘all barriers to entry’ from the
of ‘creating your own blockchain, cryptocurrency, to effect the dreams of many nations.
Let us take a look at the Hive blockchain. It makes use of the ‘delegated proof of stake’ (‘DPOS’) consensus model and it has a native cryptocurrency called ‘HIVE’.
While you can spend ‘HIVE’ as a financial asset, you can stake it to have a measure of influence on the governance of the Hive blockchain and on how the ‘HIVE’ cryptocurrency is distributed, as we will expatiate later!
Once again, on a ‘decentralized Hive blockchain’, anyone can setup a node that connects to the Hive blockchain network but a node’s level of participation in ‘block-production’ is reliant on ‘how much ‘stake’ (in ‘HIVE’) they control’, rather than on ‘how much work’ their node-infrastructure proves.
‘The more ‘stake’ (in ‘HIVE’) you control, the more influence you have on the decisions that impact the HIVE blockchain.’
Did you notice the emphasis on the word ‘control’ as opposed to ‘have’?
Well, did you already know that ‘Delegated proof of stake’ invites participation from the ‘average user’ (i.e ‘non-node-operator’) in the overall ‘consensus’ governing a blockchain, whether it is the ‘consensus’ required to ‘produce blocks’ or the ‘consensus’ required to effect a ‘fork’?
In the general logic of how the ‘proof of stake’ consensus model works, is a ‘voting’ element, used in the process of selecting the ‘rightful custodians of the blockchain’.
As a result, unlike ‘proof of work’ where ‘miners’ with the best ‘infrastructure’ win the right to ‘produce blocks’ for the blockchain, ‘delegated proof of stake’ incorporates a ‘social element’, where ‘each stake-holder of the blockchain’s cryptocurrency’ can participate in governance indirectly by voting in ‘rightful custodians of the blockchain’.
Each stake-holder’s vote is weighted according to the size of their stake.
‘Delegated proof of stake’ relegates the need for sophisticated ‘node-infrastructure’ as a requirement for running a ‘block-producing node’, a giant contrast from ‘proof of work’.
The above conclusion is indicative of the fact that ‘blockchains’ which make use of the ‘delegated proof of stake’ consensus model can generally maintain a decentralized network, on the basis of a ‘fewer nodes’ (each of ‘inexpensive infrastructure’), as the ‘average user’ now has relative influence over the ‘consensus’ proceedings that governs the blockchain, irrespective of whether he runs a node or not, by virtue of his ability to vote in ‘rightful custodians of the blockchain’ on the basis of his ‘stake’; another contrast from ‘proof of work’ where the ‘consensus’ process governing the blockchain is left entirely to the ‘nodes’ and ‘miners’ of blockchains.
You can already begin to imagine how a blockchain’s ‘consensus’ model impacts its survival.
Didn’t we highlight earlier that ‘Bitcoin’ needs ‘miners and nodes’ to maintain a ‘blockchain’; the ‘miners’ to ‘produce blocks’ and the ‘nodes’ to ensure that the blockchain is ‘true’ and ‘decentralized’?
To run a Bitcoin miner (POW), one that has the potential of ‘mining blocks’, it is very expensive! Today, it costs thousands of dollars to maintain a profitable miner.
Setting up a Bitcoin node on the other hand, isn’t too expensive but a Bitcoin node doesn’t earn ‘rewards’.
Ofcourse, one can contribute his financial resources to running a full Bitcoin node or a Bitcoin miner without the intention of earning rewards, simply to strengthen the Bitcoin network and have a measure of participation in its governance.
Whatever your intention is, whether you chose to set up a Bitcoin node or a Bitcoin miner, it requires some form of ‘computer infrastructure, an internet server and electricity’, which incurs a tangible expense.
For anyone to participate in the overall governance of ‘the Bitcoin network’, which is based on a ‘proof of work’ consensus model, they must run a Bitcoin node.
To run a HIVE node, which uses a variation of ‘proof of stake’ called ‘delegate proof of stake’, one with the potential of ‘producing blocks’ (i.e earning ‘block-rewards’), it may cost some ‘50$’ per month.
‘Nodes’ of the Hive blockchain don’t have to compete to ‘produce blocks’ on the basis of ‘infrastructure’. A Hive node running on ‘minimal infrastructure’ can still manage to ‘produce blocks’ and participate in the ‘consensus’ that governs the Hive blockchain. How so?
Stake-holders of the Hive blockchain, which includes the ‘average user’, can participate in the governance of the Hive blockchain indirectly, by voting in ‘nodes’ that should ‘produce blocks’ for the Hive blockchain.
A stake-holder’s ‘vote’ is weighted according to the ‘size of his HIVE stake’.
‘Hive nodes’ (also called ‘witnesses’) are ranked on the basis of the ‘accumulative stake-weight support’ of the stake-holders voting on them.
For instance, a witness who has been voted on by ‘5,000 Hive stake-holders’ with a collective stake-size of ‘5,000 Hive’, will rank lower than a witness who has been voted on by ‘1,000 Hive stake-holders’ with a collective stake-size of ‘10,000 Hive’.
‘Witnesses’ that possess higher ranks have better chances at ‘producing blocks’ than those possessing lower ranks.
The ‘highest ranking witnesses across the entire Hive blockchain network’, referred to as ‘the top 20 witnesses’ are left the responsibility of participating in the ‘consensus’ required to implement ‘forks’, an ‘additional responsibility’ that other nodes don’t have.
Not everyone has to ‘run a Hive node’ (i.e become a ‘Hive witness’) to participate in the governance of the Hive blockchain. The average user can participate in governance on the basis of their stake, by voting in Hive witnesses.
Such is a luxury that the ‘proof of work’ consensus model in use by blockchains like ‘Bitcoin’ doesn’t possess.
What are we getting at?
If some day, it costs ‘500$ per month’ to ‘run a Bitcoin node’ and as a result there are only ‘two nodes’ left constituting the ‘entire Bitcoin network’, what fail-safe mechanism does ‘the Bitcoin network’ have against the potential centralization of the Bitcoin network, than to look for a certain ‘Terry Ajayi’, to convince him to set up a Bitcoin node, to re-strengthen the Bitcoin network and improve its ‘decentralization’ with a third node. Otherwise, Bitcoin begins to become too ‘centralized’ to be usable!
Now what if there are only ‘two Bitcoin miners’ left to ‘produce blocks’ for the Bitcoin blockchain because it has become too expensive to run a Bitcoin miner profitably (assuming it now costs ‘100,000$’ per month); what fail-safe mechanism does Bitcoin have against the likely congestion of the Bitcoin network than to look for a certain ‘Terry Ajayi’, to convince him to spend some ‘100,000$’ in setting up a tangible Bitcoin miner.
Bitcoin’s survival is entirely reliant on the ‘size of its infrastructure’, referring to ‘the number of ‘nodes’ and ‘miners’ in its network’.
To expatiate on ‘delegated proof of stake’ in comparison to ‘proof of work’, let use the ‘Hive blockchain’ in the same ‘2 nodes left’ scenario.
Would the Hive blockchain have experienced the same ordeal as ‘Bitcoin’?
First of all, let us mention that Hive’s ‘delegated proof of stake’ eliminates the need for ‘miners’ altogether, allowing a ‘node’ to play the role of ‘producing blocks’ in conjunction with its other roles in ‘maintaining a blockchain and its decentralized nature’.
In effect, if it eventually costs the sum of ‘100,500$ per month’ to run ‘a profitable Bitcoin miner’; ‘100,500$ per month’ may be sufficient in running ‘2,000 Hive nodes’.
We can already establish that if there are ‘two nodes left’ constituting the entire Hive blockchain network, potentially compromising its ‘decentralized state’, ‘average users of the Hive blockchain’ can collectively and proactively contribute their resources to setting up hundreds of Hive nodes at a cost of ‘50$ per month’ to restore a more decentralized state to the Hive network. Alas, the Hive blockchain can attain ‘decentralization’ on the basis of ‘20 nodes’ and we will discuss how this is possible later on. Considering also that ‘block-producing Hive nodes’ earn ‘block-rewards’ (i.e paid out in ‘HIVE’, you will need to seek out ‘a certain Terry Ajayi’ to save the day.
But there is more…as we are about to see!
Using a variation of ‘proof of stake’ (POS) called ‘delegated proof of stake’ (DPOS), the Hive blockchain was modeled from its outset with the capability of maintaining a ‘decentralized status’ even on the basis of a few selected ‘block-producing’ nodes.
It accomplishes that by allowing the ‘average user’ to participate in the overall consensus that governs the blockchain, without the need of running a node themselves.
As we hinted at earlier, by simply staking their ‘HIVE’ (i.e the native cryptocurrency of the Hive blockchain), anyone can vote in ‘Hive nodes’ (i.e ‘witnesses’) that they have deemed ‘reputable’ as custodians of the Hive blockchain.
‘Witnesses’ that accumulate more ‘collective stake’ support in the form of ‘votes from HIVE stake-holders’, climb the ranks and begin to have more influence in the governance of the Hive blockchain, whether in terms of ‘block-production’ or in the ‘consensus’ associated with ‘forks’.
‘https://wallet.hive.blog/~witnesses’ provides a simple interface, whereupon you can vote on Hive ‘witnesses’ by a simple vote action that completes in ‘3 seconds’ and all you need to be eligible to vote are ‘your Hive login-credentials and some staked HIVE’.
At this stage, let us tweak our ‘two nodes left’ scenario, to create another slightly imperfect ‘2 nodes left’ scenario!
In this scenario, there were ‘2 nodes’ & ‘2 miners’ left on the entire Bitcoin network and these ‘2 miners’ & ‘2 nodes’ are operated by ‘2 individuals’, each individual controlling ‘one miner’ and ‘one node’ and these ‘two individuals’ decided to collude to tamper the Bitcoin blockchain, by allowing two ‘bogus transactions’ from a newly-created ‘empty BTC wallet’ to execute, that transfers ‘5,000,000 BTC’ into their respective wallets.
Controlling the ‘nodes and miners’ of the entire Bitcoin network, these two individuals have agreed to allow these ‘bogus transactions’ to execute in the ‘next block’, some 10 minutes away; assured that they will succeed without interference.
What mitigation is there against the described situation, except a certain ‘Terry Ajayi’ decides to disrupt their attempt by supermaning out some ‘200,500$’ to set up ‘one Bitcoin node & one Bitcoin miner’, a ‘node’ to un-validate the ‘bogus transactions’ and a ‘miner’ that has a better chance (than their ‘combined chance’) at producing ‘the next block’, just incase they are able to super-duo their way into my node to infiltrate it.
Now, if these two super-duo decide to take the route of a ‘fork’, to alter their balances on blockchain itself by implementing a ‘hard fork’ and Terry Ajayi is now likely to fail in interrupting them, with an ‘infiltrated singular node’. Let us see if we can get ‘10 tech-savvy people’ to spend ‘$500 on infrastructure per month’, to maintain ‘10 full Bitcoin nodes’ without ‘rewards’. Anyone?
Then, the ‘super-duo’ returns again, to pay these ‘10 potential heroes’ the sum of ‘1000$ each’ to relinquish the ‘control of their nodes’ or ‘shut their nodes down’. Impossible? Think thrice!
In eventuality, let us assume that our ‘super-duo’ tire out from trying to alter the blockchain, considering that ‘Terry Ajayi’ has continuously ‘supermanned his way into the mix’ and they decided to focus on monopolizing ‘block production’ instead, assured that there is only ‘Terry Ajayi’ to contend with, and total of ‘three miners’ across the entire Bitcoin network, willing to continue competing for ‘the next block’ and its associated ‘BTC rewards’ (i.e ‘miner-rewards & miner-fees’). What if they decided to pool their resources to create one formidable ‘super-miner’ at an expense of ‘500,000$ per month’ to guarantee always beating ‘Terry Ajayi’ to ‘the next block’?
Ask me if i will continue on being ‘too lazy to quit’ via ‘[email protected]’ or you can visit the ‘Macrohard’ hub to ask me, currently located in Manila, Philippines.
Altogether, we have played with an imperfect scenario, imagined by a ‘legitimate illiterate’ but you get my gist.
You’ll get my gist even more as we now take a look at how ‘the Hive blockchain’ within the same scenario. Will it fare any differently or better, considering that it makes use of the ‘delegated proof of stake’ consensus model, one that relies on ‘stake’ rather than ‘work’?
Please recall once again that ‘delegated proof of stake’ eliminates the need for ‘miners’, allowing ‘nodes’ to take up the role of ‘nodes & miners’.
As we mentioned before, the Hive blockchain can maintain its decentralized state on the basis of a ‘few nodes’ (typically ‘20 nodes’). How is this possible?
‘Delegated Proof of stake’ involves the ‘average user’, affording an average user the capability of selecting ‘custodians of the blockchain’ i.e ‘Hive witnesses’ (who validate and produce blocks for the Hive blockchain), without the requirement of setting up a node.
Anyone who possesses ‘stake’ in the Hive currency, can participate in the selection of ‘Hive witnesses’, by voting.
Witnesses are ranked on the basis of the ‘accumulative stake-weighted support’ that they receive, in the form of ‘votes’ from ‘HIVE stake-holders’.
‘Top 20 witnesses’ constitute the ‘primary block-producers’ having the most influence over the Hive blockchain network, while other witnesses are considered backup ‘block-producers’ chosen at random to ‘produce blocks’, with higher-ranking backup ‘block-producers’ maintaining a better chance being picked at random, than lower-ranking ones.
Like with Bitcoin’s ‘proof of work’, which rewards ‘block-producing miners’ with ‘miner-rewards’, Hive’s ‘delegated proof of stake‘ mets out ‘rewards’ known as ‘block-rewards’ (priced in ‘HIVE’) to ‘block-producers’.
Unlike Bitcoin’s ‘proof of work’, where ‘miners’ are also paid ‘miner-fees’, considering that Bitcoin transactions are associated with fees, ‘block-producers’ on the Hive blockchain, do not earn ‘block-fees’, because transactions on the Hive blockchain are free.
All the above established, if there were ‘2 nodes left’, making up the entire Hive blockchain network and these ‘two witnesses’ decided to collude on a ‘mission of disreputability’,
50 random people and ‘Terry Ajayi’, may decide to spend some ‘50$’ each to set up 51 additional ‘Hive nodes’.
Then, without extra cost, thousands of stake-holders of the HIVE cryptocurrency may decide to visit ‘https://wallet.hive.blog/~witnesses’ to remove their votes from the ‘two disreputable witnesses’ to minimize their overall influence across the Hive network, spreading their votes among these other ‘51’ likely reputable witnesses, in a bid to restore ‘decentralization’ to the Hive blockchain network.
As difficult as ‘1, 2, 3!
It is easy to see that the Hive blockchain was modelled with ‘social’ in mind, hence it’s implementation of a variation of ‘proof of stake’ referred to ‘delegated proof of stake’, a variation that is better-fitting for ‘social’.
On the Hive blockchain, ‘nodes’ aren’t just ‘nodes’ (referring to ‘just infrastructure’), ‘nodes’ are ‘witnesses’, especially ‘reputable witness’. Well, these ‘reputable witnesses’ must have had to ‘proof their reputability’ to an entire community of Hive stake-holders to be selected into a ‘block-producing’ capacity. As such, a ‘witness’ can ‘produce blocks’ even on ‘minimal infrastructure’, via the collective support of others.
To climb the ‘witness-rankings’, improving their chances of producing blocks, witnesses have to constantly prove themselves ‘reputable’, even to average users of the blockchain, inviting further participation from the average user in the overall governance and decentralization of the blockchain.
To expand its scope of ‘decentralization’, the Hive blockchain allows users to delegate the ‘influence’ of their ‘stake’ to another user. In the same breath, a user can proxy his ability to ‘vote in or select Hive witness’ to another user.
It is important to note also that the Hive blockchain has simplified the process of accruing HIVE stake for the average user.
Not every stake-holder of the HIVE cryptocurrency has purchased their ‘HIVE’ off of the markets or earned HIVE by running a ‘Hive node’.
Some have simply earned it via ‘social activities’, like ‘ulogging, blogging, vlogging and other content-related activities’ offered on various Hive applications.
Do you recall that the Bitcoin blockchain, being a ‘proof of work’ blockchain, distributes ‘100% of its reward-pool’ to ‘block-producers’ (i.e ‘miners’)?
Well, on the Hive blockchain, the ‘average user’ can earn Hive ‘rewards’ without mining it (or ‘running a block-producing witness’) because only ‘10% of its reward-pool’ is allocated to ‘block-producers’.
We had mentioned that ‘delegated proof of stake’ is also a ‘reward-distribution mechanism’. Do you recall?
Having allocated just ‘10%’ of its daily ‘reward-pool’ (referring to ‘newly-created HIVE’) to ‘block-producers’, the Hive blockchain allocates the remaining ‘‘90%’ of this daily ‘reward-pool’ are awarded to ‘content-creators’, ‘content-curators’, ‘stake-holders of the Hive currency’, a decentralized-controlled treasury.
At this stage, let us mention that it is possible for a blockchain to switch from say a ‘proof of work’ consensus model, to one that is based on ‘proof of stake’ or to ‘delegated proof of stake’. This brings us once again to the subject of a ‘fork’, which we will not expatiate on much.
To conclude this segment, let us say that, ‘different blockchains have their own standards for ‘what constitutes a fork’ and in the case of the ‘Hive blockchain’ (hive.io), if only ‘17’ of the ‘top 20 witnesses’ are running the ‘newly-proposed version of the Hive blockchain software’ at the time designated to a ‘hard/soft fork’, a consensus is reach and the fork implements’.
Otherwise, only in the case of a ‘hard fork’, the chain splits and a new blockchain is formed and an associated ‘cryptocurrency’.
The Hive blockchain resulted from a split of the ‘Steem Blockchain’. As such, the HIVE cryptocurrency was born, a currency native to the Hive blockchain!
A ‘digital currency’.
In this segment, we will dissect the term ‘Cryptocurrency’, simplifying it to your understanding.
Well, we have begun the process by dissecting the term ‘Blockchain’.
Un-coincidentally, in our effort to explain ‘blockchain’, we mentioned ‘cryptocurrency’ many times.
Whether you want to create, interact or transact in cryptocurrency, let us establish that ‘it is as difficult as 1, 2, 3’.
Today, the average user associates ‘cryptocurrency’ to its ‘financial value’, without cognizance of its utilities or underlying ‘blockchain technology’.
You are no longer an average user though as you are on a journey to creating your own cryptocurrency.
Plus, you already know that ‘there is ‘Bitcoin or BTC’ (the cryptocurrency) and there is ‘Bitcoin’ (the blockchain)’.
Starting out on the URL ‘coingecko.com’, a website that ranks cryptocurrencies based on their financial value, you’ll find a list containing ‘5,994 cryptocurrencies’. Each of these cryptocurrencies is a product of a blockchain.
To qualify as a cryptocurrency, a currency needs to possess the ‘cryptographic’ property of a blockchain. Its transactions need to be recorded too; on a blockchain!
As we reiterated in the earlier part of this chapter, a blockchain needs its own cryptocurrency to function properly.
For instance, the Bitcoin blockchain, which was created primarily to cater to the industry of financial services has a native cryptocurrency called Bitcoin (BTC), which is used to reward ‘miners’ for their work in producing blocks for the Bitcoin blockchain.
‘100%’ of the Bitcoin cryptocurrency in existence today was mined to reward these miners, either in the form of ‘miner-rewards’ or ‘miner-fees’.
Similarly, the Hive blockchain also has its native cryptocurrency called ‘HIVE’.
Modeled to cater to the industry of ‘social media’, 100% of the HIVE cryptocurrency in existence today, was minted to reward social transactions that occurred on the Hive blockchain.
To stamp this in, let us invent and play with another scenario. Let us assume that you are at an ‘online merchant’ and you are about to check-out i.e ‘pay for your fish’ which costs ’20$’.
The merchant allows you to pay in cryptocurrencies, in either ‘HIVE’ or ‘BTC’ and you have only ’20$’ worth of either cryptocurrency. Which cryptocurrency would you pay with?
Well, the Bitcoin blockchain says that ‘a BTC cryptocurrency transaction must have corresponding fee’, while the Hive blockchain says that ‘a HIVE cryptocurrency transaction can execute without fees’. What do you say? HIVE or BTC?
It is now easy to establish that cryptocurrencies generally inherit the characteristics of their parent blockchain.
Basically, cryptocurrencies operate within the premise of what their parent blockchain allows.
Why is the above information valuable?
Well, the ability to ‘create a cryptocurrency’ is another revolutionary feature offered by ‘blockchain’ but not every blockchain offers this feature.
For instance, you can’t ‘create a cryptocurrency’ on the Bitcoin blockchain but you can ‘create a cryptocurrency’ on the Ethereum blockchain.
The Ethereum blockchain, another old blockchain, arrived after ‘Bitcoin’ to innovate a blockchain that possesses computing capabilities. It accomplished this by adding a layer to its blockchain called ‘smart contracts’ (i.e ‘contracts that can self-execute according to a set of rules as programmed’.)
A result of this unique functionality is the ability for anyone to ‘create an Ethereum-based cryptocurrency’.
Too, using a ‘smart contract’, anyone can customize the functionality of their Ethereum-based cryptocurrency, making it unique.
Altogether, your Ethereum-based cryptocurrency is bound to retain some traits from its parent blockchain; the Ethereum blockchain.
As you will find out in chapter 5, when we tackle the subject of ‘creating your own cryptocurrency’; it is tangible to understand the characteristics of a variety of blockchains before choosing the blockchain to ‘create your cryptocurrency’ on.
Now that you have identified that each cryptocurrency needs a blockchain upon which to function, let’s talk about the ‘cryptocurrency wallet’.
Each cryptocurrency needs ‘storage’. Cryptocurrencies are quite finite. This means that ‘cryptocurrencies can be held’. It should be known ‘who holds what’.
For instance, you can determine how much of the HIVE cryptocurrency I currently hold by visiting ‘https://wallet.hive.blog/@surpassinggoogle’.
The afore-stated ‘URL’ avenues to my ‘HIVE wallet’.
Well, this ‘HIVE wallet’ is only mine when i can prove ownership of it and you can’t.
To prove ownership of this wallet, I simply need to login with the right ‘login-credentials’.
If I lose my ‘login-credentials’ to you, you can take ownership of my ‘HIVE wallet’.
The Hive cryptocurrency wallet is unique in its approach to ‘generating ‘login-credentials’ for its users’.
To enable you to prove ultimate ownership of your ‘HIVE wallet’, the Hive blockchain generates and provides you with ‘an ultimate password’, during the process of creating your wallet.
While you can log directly into your HIVE wallet using this ‘ultimate password’, accessing all aspects of your wallet, you can also use it to generate ‘extra keys’. One such key is a ‘private key’.
Your ‘private key’ is also sufficient for ‘logging into your HIVE wallet’, to access its ‘transactional functionalities’ such as ‘transfers’ but it does not have as much authority as your ‘ultimate password’. For instance, your ‘private key’ can’t generate ‘extra keys’.
As such, you can back-up your ‘ultimate password’ in safety, someplace offline, accessing your HIVE wallet with your ‘private key’ instead.
This luxury security feature offered by the Hive blockchain works!
Assuming that I lost my ‘private key’ to you and you are able to access my ‘HIVE wallet’, in a bid to tamper its funds, I can evoke my ‘ultimate password’ and use it to generate a new ‘private key’, interrupting your access to my HIVE wallet.
‘The sophistication of a cryptocurrency is very dependent on the general characteristics of its parent blockchain’.
Thus, in the process of creating a cryptocurrency, it is important to understand how its parent blockchain works.
Returning to the ‘Hive blockchain’, if i were to create a ‘Hive-based cryptocurrency’ called ‘ULOGS’ and customize it to my taste, each ‘ULOGS wallet’ would retain that luxury ‘security feature’ mentioned earlier, that allows users to access their Hive-based cryptocurrency wallets, using a ‘private key’.
Taking you to the ‘Ethereum blockchain’, if you were to create your cryptocurrency on the ‘Ethereum blockchain’ (a blockchain modeled to cater to the industry of ‘financial services’ and ‘smart contracts’), your cryptocurrency is likely to transact with fees. On the Ethereum blockchain, ‘transactions’ are associated with ‘fees’.
Semi-conclusively, if you intend to customize your cryptocurrency into ‘sophistication’, you may need to look for a blockchain that is not ‘overly sophisticated’. Un-ironically, you may need to research ‘a blockchain’ that welcomes ‘unconventionality, evolution and sophistication’.
At this stage, let us visit the cryptocurrency ‘BTC’ once again! Even though this cryptocurrency was created to cater to the industry of ‘financial services’; do you think you can formulate additional utilities for ‘BTC’, having considered its characteristics?
In trying to answer the above question, many more utilities have been discovered for ‘cryptocurrency’ today.
As highlighted in chapter 2, even as a currency, while cryptocurrency can replicate the tenets of traditional money, it doesn’t have the limitations of ‘money’.
As a form of ‘money’, a cryptocurrency can be customized and turned into ‘your very own money’!
Speaking of ‘the BTC cryptocurrency’, let us look at it once again, this time with a bit of ‘legitimate illiteracy’!
‘BTC’ can be interacted with by anyone, without interference; can’t it? While people may measure its value, in terms of ‘bulls or bears’ for instance, is it out of question that I or you added another dynamic into the ‘bulls or bears’ narrative, evolving a ‘hybrid index’ for analyzing ‘BTC’; one based on ‘humans’?
It is on this very ‘unconventionality’, that ‘cryptocurrencies’ and ‘BTC’, find even their superficial value and in-depth power. Being that ‘cryptocurrencies’ are generally ‘decentralized in nature’, anyone can interact with it in ‘a variety of ways’ and without interference.
As such, each cryptocurrency can begin to attain its own identity, one separate from that of ‘money’. One’s cryptocurrency can be shaped into ‘one’s own money’.
‘Traditional money’ is tied! Its very ‘dynamics’ is tight; modeled it was to ‘tie its users’.
It wasn’t modeled with ‘your face on it’! It didn’t take cognizance of ‘full-blown humans’. It’s very nature is ‘predictive of humans’; formulated it was to curb their ‘predicted behavior’.
They will scam, they will toil, they will spoil; let us capture them, cut their wings, lock them into a ‘rat race’. Let us sever their ‘human capabilities’! May they behave within the premise of a ‘boolean’; ‘bull or bears’.
‘Money’ was modeled to ‘tie its users’, why be tied by it when you can formulate ‘your own money’, with its very own dynamics.
It is no coincidence thus, that today, even though a cryptocurrency like ‘BTC’ is valued as ‘money’, it transcends the ‘limitations of money’ in its behaviour. Humans have room to flourish in their expenditure of ‘BTC’, their ‘human capabilities’ and ‘unconventional abilities’ intact.
Barter-likely, the price of ‘BTC’ may rise out of hand today, because some ‘BTC holder’ may decide to swallow away access to his wallet, to lock ‘500,000 BTC’ away from ‘BTC’s circulating supply’ forever, inciting a market action that or someone may decide to only give
Can you give away ‘5,000 BTC’? I can! If you didn’t know; you can too!
In 2010, someone exchanged ‘10,000 BTC’ for ‘2 PIZZA(s)’.
Kobo-less once (referring to a ‘once’ that was ‘years-long’), I had had a certain cryptocurrency called ‘STEEM’, ‘450,000$ worth of it’ and I had held it; I didn’t spend it!
Today, I have ‘less than 100$ worth of STEEM’ left as seen on ‘https://steemitwallet.com/@surpassinggoogle’.
Did I lose it? Did I lose?
Well, I had this same ‘STEEM’ once, when it was ‘$0.069192’ in value! So, have I lost?
I am here now, meeting ‘you’, a fellow human; a rendezvous of humans. I am in the spirit, you arrived here, you are tapped into my spirit and I am tapped into yours; the reflection of a Supreme Being!
Have I really lost?
Bottomline, once you can create it, yours of it; ‘money’ is naught.
Altogether, perceiving ‘cryptocurrencies’ as something different from ‘money’ and you may begin to interact with it in ‘unconventional ways’, uncovering unconventional and untold ‘revolutionary utilities’ for ‘cryptocurrency’.
In the process, your outlook of ‘money’ will adjust and well, your mentality too!
In a world filled with ‘full-blown humans’, money is the ‘smaller things’. @surpassinggoogle.
At this stage, let us also differentiate ‘a cryptocurrency’ from ‘a digital currency’.
While cryptocurrency falls in the category of a ‘digital currency’, it possesses tenets that makes it different; that makes it a ‘cryptocurrency’.
Ultimately, a cryptocurrency requires a blockchain to function and a blockchain is ‘cryptographically-modeled’.
Adopting properties of its parent blockchain, a cryptocurrency is typically ‘decentralized’ in nature.
The concept of ‘digital currency’ may have existed before the concept of ‘cryptocurrency’. For instance, some games have native ‘digital currencies’ which are exchangeable for ‘in-game gems’ (another digital item). In effect, a ‘digital currency’ may not be a ‘cryptocurrency’.
The term ‘digital’ in this context is mostly a generic term for ‘something that isn’t physical’.
Legitimate-illiteracy-wise, we can now say that ‘a cryptocurrency is quite digital but it can become ‘physical’ in course of ‘an exchange’.
Didn’t we say that cryptocurrencies are ‘decentralized’ in nature?
Among other things, this means that ‘anyone can possess a cryptocurrency’ and interact with it whether they are ‘banked or unbanked’. Doesn’t this suddenly mean that anyone can exchange or trade ‘cryptocurrencies’ without needing the authorization of a ‘central authority’ and without inference? It suddenly does!
In an open ‘barter-like’ market, a cryptocurrency-holder may decide to part with his ‘cryptocurrency-holdings’ in exchange for another ‘cryptocurrency’ or ‘FIAT’ (money). By extension, a cryptocurrency-holder, may decide to exchange his cryptocurrency for a physical item or a service.
Unlike ‘trade by barter’ though, where people had to constantly seek ‘who wants what’, these days there is a public blockchain containing verifiable evidence regarding ‘who holds what’ and a host of ‘decentralized applications’ (i.e ‘DAPPs’) that rendezvous people who want to barter in a ‘peer-to-peer’ fashion; simplifying matters!
Setting into motion another utility for cryptocurrencies; a gateway cryptocurrency!
Even an old and quite rigid cryptocurrency like ‘BTC’ possesses this utility.
For instance, today, people are readily willing to accept ‘BTC’ and give away their ‘FIAT’ in its stead; an ‘exchange’!
‘Give me your digital ‘BTC’ and I will give you my physical ‘money’ e.g ‘BTC/PHP’, ‘BTC/NGN’, ‘BTC/POUNDS’ etc.
On this same basis, ‘BTC’ has become a popular gateway into other cryptocurrencies too.
Give me your BTC and I will give you my other digital currencies too e.g ‘BTC/HIVE’, ‘BTC/LINK’, ‘BTC/POLKADOT’ etc.
As seen above, ‘BTC’ has become a popular pair with other ‘cryptocurrencies’ and against ‘FIAT’. Its popularity as a tangible ‘financial gateway’, constitutes a utility.
To further expatiate on this, let us invent a playful scenario…
‘Ajayi’s Kitchen’ only accepts ‘BTC’, catering to a demographic location made up of ‘customers who are unbanked’.
To purchase ‘oil-less Akara’ (a special delicacy that is only available in ‘Ajayi’s Kitchen’), a customer who has ‘NGN’ (i.e ‘Nigerian Naira’) has to purchase some ‘BTC’ first, enabling him to financially transact with ‘Ajayi’s Kitchen’.
On the other hand, a customer who only has ‘HIVE’ (another cryptocurrency) has to exchange his ‘HIVE’ for some ‘BTC’ first, enabling him to financially transact with ‘Ajayi’s Kitchen’.
In both cases, it is evident that ‘BTC’ had the utility of a ‘gateway’ cryptocurrency.
Another deduction from the above scenario is ‘an exchange between a cryptocurrency and another’ is easier than ‘an exchange between a cryptocurrency and FIAT’.
While the former can easily occur in a peer-to-peer fashion, the latter may involve a third-party!
Somehow today, ‘third-parties’ have begun to permeate the ‘cryptocurrency markets’ that can ideally function ‘peer-to-peer’.
The sector of ‘cryptocurrency’ is relatively young and not everyone accepts ‘cryptocurrencies’ as the perfect ‘store of value’. As such, ‘cryptocurrencies’ today are still valued in terms of their ‘FIAT’ equivalent.
For instance, ‘1 BTC’ today is priced at ‘15,569.88 USD’.
Alas, not everyone has enough ‘FIAT’ on their own, to sustain the demand for cryptocurrencies; leaving avenue for ‘central entities’ to come in to ‘fill the gap’.
These central entities can take the form of a ‘centralized cryptocurrency exchange’.
While being a ‘cryptocurrency exchange’, these exchanges are owned by individuals and exist as companies.
They may play the role of providing tools that simplifies that process of ‘exchanges’ among cryptocurrencies, also providing an easy gateway between ‘cryptocurrencies and FIAT’.
One such centralized exchange is Binance.com!
With the aforementioned comforts however, there are some limits! For instance, while you can exchange the entire ‘5,000 BTC’ seated in your personal cryptocurrency wallet into FIAT, without interference; a centralized exchange may require you to associate your identity with such a large transaction, in a process called ‘Know Your Customer’ and they can!
In actuality, whatever cryptocurrencies you hold on a ‘centralized exchange’ is no longer in your possession.
For comfort-sake, a centralized exchange designates a wallet to you, associated with your user-profile, for as many cryptocurrencies as you want; ‘wallets’ that they can access!
To complete an ‘exchange’ on ‘Binance.com’ (a centralized exchange), the process begins with ‘signing into Binance.com’ and making a deposit of your cryptocurrency into your Binance account.
Assuming that you wanted to trade ‘10 BTC’, desiring to take advantage of Binance’s ‘vibrant market action’ (i.e ‘market volume’), you will need to have transferred ‘10 BTC’ from your personal BTC wallet, to a BTC wallet-address that Binance provides you, making them part-custodians of your funds.
Consequently, to effect a transaction involving your ‘10 BTC’, now in the custody of ‘Binance’, you will need some form of permission from them, starting with the process of ‘signing into your Binance account’.
This is to say that ‘you can store or hold your cryptocurrencies in a personal wallet, one that only you can access’ or ‘you can store it on a centralized exchange, one that may require you ‘third-party authorization’ to access’.
Now that we have established that there are ‘centralized cryptocurrency exchanges’, are there ‘decentralized cryptocurrency exchanges’ too?
‘Binance’ has one on ‘https://www.binance.org‘.
Such an exchange needs a blockchain to run and the Binance company possesses a blockchain too! Well, their blockchain has a native cryptocurrency too, called ‘BNB’.
With all these extra layers, Binance can run a ‘centralized exchange’ in conjunction with a ‘decentralized exchange’ fulfilling all the needs of ‘cryptocurrency-traders’.
How about cryptocurrency-holders then? Where can they hold their cryptocurrencies safely? Well, there are ‘decentralized cryptocurrency wallets’ to cater to them.
These days, there are even mobile ‘DAPPs’ (i.e ‘decentralized applications’) optimized with ‘hundreds of cryptocurrency wallets’, enabling your store as many cryptocurrencies as you want. You can one here ‘https://www.binance.org’
Contextually or un-contextually, “HODL” is becoming another underlying ‘utility’ for cryptocurrency, especially in the case of more popular cryptocurrencies, like BTC, ETH, USDT etc.
Considering all the highlighted properties of BTC for instance, one may want to save their ‘FIAT’ in the form of ‘BTC’, for the sole reason that they consider ‘BTC’ safe, tamper-proof and private.
Aren’t there people today who still save their money in dug ‘holes’ or at home in the presence of ‘banks’? Far-fetched?
Now, if a person prefers to save their ‘FIAT’ in the form of ‘a cryptocurrency that is pegged to the USD’ and they convert their ‘USD’ into ‘USDT’ and store this ‘USDT’ in a personal ‘USDT’ cryptocurrency wallet that they control, rather than a ‘centralized’ bank; is that too bizarre?
At this stage, let us highlight that while cryptocurrencies are generally ‘decentralized’ in nature, they have to maintain their ‘decentralized’ nature.
Over the course of time, ‘Bitcoin (BTC)’ has grown more decentralized. As its blockchain grows, it becomes more complex to tamper. As ‘BTC’ reaches more hands, its ‘value’ becomes more complex to manipulate.
It is important to research each cryptocurrency that you choose and one direct way of doing this is by interacting with various cryptocurrencies.
As seen, cryptocurrencies are generally modeled to evolve and you have a role to play in that evolution based on how you interact with cryptocurrencies. Bringing us to an unpopular ‘utility’ for cryptocurrency; ‘its interact-ability’.
Some people access ‘cryptocurrencies’, simply to interact with it. I have! I constantly do!
Even where I have ascertained that a cryptocurrency is financially bound to crumble, I could purchase it, for the sole reason of interacting with it and its parent blockchain. Yes, some cryptocurrencies are that interesting to explore, irrespective of their financial value.
For instance, lately, how would i have known how to use a certain ‘cryptocurrency-related tool’ called ‘Uniswap’ (‘https://uniswap.org’)? I read about it? Doubt that thrice!
I purchased some of the ‘cryptocurrencies’ present on it, irrespective of their ‘financial dynamics’ and in the process of interacting with each of these cryptocurrencies, interacted with the ‘Uniswap tool’ respectively,
Once again, you may say that ‘i lost’ (in financial terms) but did i? By means of this ‘simple-looking tool’, I CCTV-ed further into the ‘true state of the world’, accessing ‘humans’ in a ‘peer-to-peer’ fashion; spiritual!
In turn, I became abler in formulating ‘cryptocurrencies and cryptocurrency-related projects’ modeled to ‘restore value to humans’.
Once recently, I formulated a ‘cryptocurrency-related project’ called ‘cryptoulogs’, which you can read about on ‘https://bit.ly/cryptoulogs’.
Altogether, did I really lose financially? Recently, the ‘Uniswap’ project created a ‘native cryptocurrency’ called ‘UNI’ and they decided to ‘airdrop’ this ‘UNI’ cryptocurrency among many users of the ‘Uniswap tool’.
I was deposited ‘400 UNI’ and the price of ‘UNI’ rose to an ‘all time high of 8$’.
Selling my ‘400 UNI’ during this period would have given me some ‘3,000$’ in turn. Did I sell my ‘UNI’ holdings?
It is currently valued at ‘2.33$’. Have I sold my ‘UNI’ holdings yet?
Money is the ‘smaller things’!
Expatiating further on the subject of ‘cryptocurrencies’ and ‘its utilities’, did you know that you can transfer ‘the influence’ associated with a certain cryptocurrency called ‘HIVE’, to another user, while keeping your ‘HIVE holdings’ intact?
Recall, when we mentioned that a holder of ‘the HIVE cryptocurrency’ can stake their ‘HIVE holdings’ (i.e ‘vest it into the Hive blockchain’) and that ‘staking their HIVE’ gives them some influence on the governance of the Hive blockchain e.g influence on the rankings of ‘block producers’ for the Hive blockchain?
Well, did you even know that staking one’s ‘HIVE holdings’ also gives a user a measure of ‘influence’ over the overall distribution of Hive’s daily ‘reward-pool’ (referring to ‘newly-created HIVE’), meaning that ‘proportional to the size of your HIVE stake’, you distribute ‘HIVE’ to other users, without actually spending your own ‘HIVE’?
Does this suddenly mean that you can pay for a service in the ‘HIVE’ cryptocurrency, without actually spending any portion of your HIVE-holdings?
Now, imagine being to transfer this ‘influence’ to others, allow others to make use of the influence associated with your ‘cryptocurrency’, while you keep your ‘cryptocurrency holdings’ intact.
Aren’t we still on the subject of cryptocurrency’s interact-ability? May I have found out these things about the ‘HIVE’ cryptocurrency by doing research or did I just un-tell these ‘HIVE’ attributes on the basis of ‘HIVE’s interact-ability’ and my interaction with it?
Isn’t it still shocking to you that I can help you earn your first ‘HIVE’ cryptocurrency, without actually transferring my ‘HIVE’ into your wallet?
Do you know that you can apply the ‘HIVE’ cryptocurrency to the above effects, independent of its ‘financial value’?
To shock you further, imagine building your dream project, without spending a dime, by simply spending your time!
Hasn’t the ‘traditional financial systems’ dispelled the narrative ‘time is dime’ today? Alas, ‘time re-became dime’!
Obtain your Hive blockchain account on ‘https://hive.blog’, log into ‘https://hive.blog’ constantly, begin to apply ‘your time’ (ensure that it is ‘your very own time’) on it by social interacting with others, earn ‘HIVE’ from these social activities involving ‘your time’, continually stake each ‘HIVE’ that you earn.
Are you ready to begin the process of building your ‘noble dream’? Does it cost a dime?
Well then, don’t spend your ‘HIVE’, pay with the ‘influence’ associated with ‘HIVE’ stake instead. You just paid with ‘your time’.
Did i mention earlier, that i had a cryptocurrency called ‘STEEM’ that rose to a value of ‘450,000$’? I had earned most of it! I didn’t purchase it.
To puzzle out the characteristics of certain cryptocurrencies and ascertain the extent of their functionality within the eco-sphere of their parent blockchain, you may need to access and interact with these cryptocurrencies. Some you can earn free, some you can be given free, some you may have to purchase.
Now, if losing out on ‘money’ (certainly not ‘your money’) in the process of interacting with ‘cryptocurrencies’ still scares you, it is time to begin interacting with ‘money’ in ‘unconventional’ ways e.g ‘stare at money till it loses its gaze and it will come to Papa’!
To use certain features of some blockchains, you need to own their native cryptocurrency. For instance, to avail of a feature of the Ethereum blockchain, that allows one to create ‘an Ethereum-based cryptocurrency’, you may need to pay some ‘fees’ (priced in ‘ETH’). This means that, even if you were willing to ‘100,000,000$’ to avail of this feature, the Ethereum blockchain says ‘you are not your money’.
Did we just further broaden the context for ‘decentralization’ within the world of cryptocurrency’. You may avail of a certain luxury in today’s painted world, if you can ‘show it the money’ but you can’t avail of certain luxuries across a cryptosphere by ‘showing it the money’. Isn’t ‘money’ unrealistically useless at times? Is the dynamics behind ‘generic money’ that great after all, if it isn’t functional across all interfaces?
Indeed, unlike ‘traditional money’, a cryptocurrency can continue to retain its intrinsic value, even when its financial value crashes.
As a legitimate illiterate, I played out various scenarios in this segment, to leave a hint at the fact that even though ‘cryptocurrency’ is quite revolutionary on its own, can only attain its ‘revolutionary’ status, by virtue of how humans interact with, else it can fade and become ordinary, like ‘technologies’ before it. This applies to ‘blockchain’ too!
Cryptocurrencies are quite underused till date. It favors me to implore you to undertake the understanding of it. Perhaps in the process of this undertaking, you will invent a cryptocurrency that further highlights the ‘unconventional properties’ of blockchain, improving its potency in ‘returning value to humans’, while relegating the role of ‘money’ in society to that of the ‘smaller things’; a cryptocurrency that succeeds whether ‘bulls or bears’ because humans are involved.
At this stage, assuming you still seek ‘money’ largely, let us answer your question before you ask it. Yes, you can make ‘billions of money’ in cryptocurrency’!
Indeed, whether you intend to make it ‘for free’, ‘earned’ or ‘in trades’, you can make ‘billions of money’ in cryptocurrency.
To answer that, let us quickly heighten the context for the concept of ‘decentralization’ (a fundamental concept in ‘cryptocurrency’) to a height of ‘6ft5’ and ask this you this question; ‘since humans are in fuller control of their human capabilities in the midst of a ‘cryptocurrency-barter’, is there an atom of possibility, that you are met with an exchange-proceeding that accepted your ‘50$’ for ‘150,000 BTC’?
Ofcourse, you can earn cryptocurrencies for free too. Way earlier, I had spoken of having earned ‘BCH’ for the first time. Way lately, I spoke of the ‘Uniswap’ example, in which I unexpectedly received an airdrop 400 ‘UNI’ tokens.
CEOSIM TO PAUPER
At the very least, you can create your very own cryptocurrency and become a billionaire in it and we are on a journey that will help you in the process of creating it.
I did create my own cryptocurrency. I have formulated most of its tenets and paradigms, each algorithm too as we will see in chapter 4.
To prepare you for chapter 4, let me say that the model behind my cryptocurrency is called ‘proof of tears’, to reward the art of ‘mining the human’.
Eventually, I will have one primary cryptocurrency called ‘TEARDROPS’.
Leading up to ‘TEARDROPS’ in the process of identifying a suitable blockchain for the ‘TEARDROPS’ cryptocurrency, I created a cryptocurrency called ‘MARLIANS’ on a blockchain called ‘STEEM’.
Evolving ‘MARLIANS’ and distributing it according to a ‘proof of tears’ reward-distribution mechanism, I am to enhance the eventual dynamics of ‘TEARDROPS’.
Since i haven’t created my own blockchain yet, i had to look for a blockchain that was specifically built to cater to the sector of ‘social media’, one upon which i could implement a reward-distribution mechanism based on ‘proof of tears’. The ‘STEEM’ blockchain offers a viable blockchain to experiment with. As such, the project ‘https://www.marlians.com’ started on the Steem blockchain.
Today, different blockchains can interoperate. This means that I can get the project ‘https://www.marlians.com’ (and its native cryptocurrency ‘MARLIANS’) to function on another blockchain or share features from two different blockchains.
In eventuality, I intend to move my cryptocurrency-related projects to the Hive blockchain as it is becoming the most suitable option for implementing a ‘reward-distribution’ mechanism based on ‘proof of tears’.
In the mix, even as a ‘legitimate illiterate’, I have begun the formulation of my very own blockchain.
Your boy ‘Terry Ajayi’, whether bulls or bears.
A ‘decentralized application’.
How do people access a blockchain? How does one interact or transact in cryptocurrency?
While it is possible to interact with a blockchain or cryptocurrency, without an actual user-interface or application, a ‘DAPP’ (constituting of an optimized user-interface) comes in handy.
For the regular internet user, you want an easy-to-use interface that allows you to interact with the blockchain. For instance, you wouldn’t want to download an entire blockchain onto your PC to access a blockchain feature such as your cryptocurrency wallet. You would prefer to visit a ‘URL’, via your browser, leading to a simple interface that you can access your wallet from. A mobile user would prefer to install a light-weight cryptocurrency wallet application, whether IOS or Android, that retrieves wallet-information from the blockchain.
This brings us to a very basic ‘DAPP’; a ‘cryptocurrency wallet’.
As we’ve seen all along, most blockchains have their ‘native cryptocurrency’ and to hold this cryptocurrency or transact in it, the blockchain avails you of a wallet, accessible only to you.
How do you log into your ‘cryptocurrency wallet’? Via a DAPP!
You can find an example of a ‘DAPP’ on ‘https://wallet.hive.blog’. Typing this ‘https://wallet.hive.blog’ into your browser and you are met with what looks like a website that offers you the option of logging into your HIVE cryptocurrency wallet.
Once inside your ‘HIVE wallet’, you will be able to access all its functionalities, availed of blockchain ‘data’ relevant to your ‘HIVE holdings’.
Recall that cryptocurrency transactions are recorded on a blockchain?
Well, a ‘DAPP’ (now referring to your ‘HIVE wallet’) retrieves data from the ‘Hive blockchain’ relevant to ‘HIVE holdings’ and offers you the functionalities necessary to interact with this data.
A HIVE wallet also provides an easy-to-use interface for publishing data to the Hive blockchain. For instance, you may attempt to send ‘50 HIVE’ from your HIVE wallet to another HIVE wallet, owned by ‘@surpassinggoogle’.
If the HIVE blockchain validates your transaction and accepts it, data associated with your transaction is recorded to the Hive blockchain and it becomes retrievable by your HIVE wallet, displayed to the end-user as needed.
A DAPP is a ‘decentralized application’. A major element of a DAPP is ‘data’ (specifically data that is ‘blockchain-born’).
‘Data’ refers to tiny pieces of information associated with ‘transactions’.
An application needs data to function. It needs to be capable of retrieving data from a source and of interacting with this data in a variety of ways. Well, a typical application should be capable of receiving ‘data’ as input too!
A basic application e.g a ‘wallet explorer’, may be able to retrieve ‘data’ (associated with transactions) and display it in an organized way, based on the index ‘time’.
Such an explorer becomes more sophisticated, when it can begin to retrieve and display this ‘data’, based on a wider range of indices e.g age, demography, transaction-amounts etc.
It starts to be smart, when it can begin to respond accurately to ‘a user’s interaction’ (i.e ‘input’) e.g ‘it can retrieve and display data relevant to a search-query’.
It becomes smarter, when it can begin to predict the context and intent associated with a ‘search-query’ and retrieve/display relevant ‘data’ in turn.
Altogether, a DAPP’s operations are stored on a blockchain!
If this ‘wallet explorer’ in our example relies on a ‘decentralized blockchain’ for storing and retrieving ‘data’, it leaves the ranks of ‘an APP’ and becomes a DAPP.
An application can start out as ‘an APP’ and eventually become a ‘DAPP’.
For example, the ‘Facebook application’ may begin utilizing the Hive blockchain as its ‘data-storage & data-host’, replacing its current ‘traditional databases’. As such, it becomes a ‘DAPP’.
In many cases, ‘a DAPP’s code is open-source’. For example, you can find the code of the ‘HIVE wallet’ on ‘https://github.com/openhive-network/hive’.
This is hinting at the fact that not every DAPP is entirely decentralized. How so?
Let us return to our ‘HIVE wallet’ example! Let us assume that you wanted to send ‘500,000 HIVE’ from your wallet to a certain ‘HIVE wallet’ address called ‘@surpassinggoogle’.
You start by visiting the user-interface found on ‘https://wallet.hive.blog’ to log into your wallet. After you have provided your ‘username and private key’ as ‘input’ to the interface (DAPP), it relies on the underlying Hive blockchain to validate your digital signature and establish you as ‘the owner of the wallet’, after which you are granted control of your ‘HIVE wallet’.
Did you notice that in the midst of this inputational transaction, you have provided ‘credentials’ that only you should possess to a certain ‘user-interface’? Whether ‘https://wallet.hive.blog’ makes use of an underlying Hive blockchain to validate these credentials or not, you have offered your login-credentials to a certain user-interface or did you?
In the case of the ‘HIVE wallet’, didn’t we mention earlier that its code was open-source?
You can visit its code on ‘https://github.com/openhive-network/hive’ to audit it and gain insight into whether the ‘HIVE wallet’ user-interface stores your ‘login-credentials’ or not.
Many credible ‘DAPPs’ do store ‘login-credentials’ as these details which constitute ‘the key to your blockchain wallet and its content’, should be accessible by you only.
Considering that DAPPs rely on an underlying blockchain, which records user-data in permanence, ‘users’ may find more comfort in making use of a DAPP that is ‘entirely decentralized’.
As such, they may prefer DAPPs that have a ‘public source-code’, to those that have a ‘private source-code’.
We have deduced so far that a DAPP may be ‘partly decentralized’. In general, a DAPP may start out ‘partly decentralized’ before adopting ‘decentralization’ in totality.
A measure of ‘centralization’ has its advantages too!
‘https://leofinance.io’ falls in the category of a DAPP that isn’t ‘entirely decentralized’ in the sense that the source-code of its user-interface isn’t publicly accessible.
However, it relies on an underlying blockchain called ‘Hive’ to operate. This means that it inherits all the ‘decentralized’ features of its parent Hive blockchain, making quite as decentralized as the Hive blockchain.
Like the ‘HIVE wallet’, ‘LEOfinance’ is a Hive-based DAPP.
As a DAPP, Leofinance.io is more sophisticated than the ‘HIVE wallet’. It is an entire ‘social media’ platform, featuring the ‘wallet-functionalities’ of the ‘HIVE wallet’ and more.
Similar to a cryptocurrency, a DAPP inherits traits from its parent blockchain.
See anything else?
A blockchain can house ‘hundreds of DAPPs’ too but while some blockchains are modeled specifically to host ‘DAPPs’, others aren’t.
If ‘Facebook INC’ decided to turn its Facebook application into a DAPP, it simply needs to incorporate a blockchain but first it needs to identify a blockchain that fits its needs; for instance, a blockchain that is built to validate ‘social transactions’ (i.e specifically built for ‘social media’).
Choosing to incorporate the Hive blockchain, being that it was built to cater to the industry of ‘social media’; Facebook can customize its existing ‘application’ (which already accepts ‘social transactions’ as ‘input’) to publish these social transactions on the Hive blockchain.
Familiar with ‘social transactions’, the Hive blockchain takes up the mantle of validating these transactions, recording the resulting ‘data’ as ‘blocks’.
In turn, to display ‘data’ on its interface, ‘social data’ associated with its user-base, the Facebook application begins to retrieve relevant data from the Hive blockchain as needed.
Hurray, the Facebook application is becoming a DAPP!
Recall that the ‘Hive blockchain’ has a native cryptocurrency called ‘HIVE’?
Facebook can customize its user-interface further, in such a way that users of Facebook DAPP get rewarded in the cryptocurrency ‘HIVE’, whenever someone likes their post-updates.
Didn’t we also mention that a DAPP inherits traits from its parent blockchain? The Hive blockchain has a reward-distribution mechanism called ‘proof of brain’ that rewards ‘social activities’ like content-creation and content-curation in the HIVE cryptocurrency.
When Facebook decides to adopt Hive’s ‘reward-distribution mechanism’, it inherits Hive’s wallet feature in turn, now capable of providing its users with ‘fully-functional HIVE wallets’ to store the ‘HIVE’ rewards that they can now earn from ‘likes’.
Did you see something else?
Since the Hive blockchain data is publicly accessible, every DAPP can retrieve data from it or incorporate its technology. It is also evident that a typical DAPP inherits the native cryptocurrency of its parent blockchain, meaning that ‘DAPP users’ can earn cryptocurrency from their activities on a DAPP.
Assuming Facebook became a ‘Hive-based DAPP’, i will able to access ‘Facebook’ and interact with it, using the same ‘login-credentials’ as i use to access ‘https://hive.blog’ or ‘leofinance.io’, two other Hive-based DAPPs. Well, i am likely to earn the Hive cryptocurrency, whenever i receive likes on my Facebook posts updates too!
Yes, with one blockchain account, you can access hundreds of DAPPs as long as they share the same blockchain?
Talk of ‘decentralization’; being able to access the blockchain via ‘hundreds of distributed DAPPs’ and if each ‘DAPP’ has its ‘designated URL’, being able to access the blockchain via ‘hundreds of distributed URL(s)’
Are you better understanding the relationship among ‘a blockchain, a cryptocurrency and a DAPP’? Are you better understanding the revolutionary tenets of these ‘luxury tools’ and the revolutionary potency of ‘decentralization’?
Anyone can create an application, incorporate it with a blockchain, inherit the respective blockchain’s technology and its ‘native cryptocurrency, launch the resulting ‘DAPP’ for public-use, user-base by rewarding its users with ‘a cryptocurrency’, using the ‘reward-distribution mechanism’ of its parent blockchain.
“Dreams are equal-ler to reality now!”
There is more..
Do you recall that the Hive blockchain also offers a feature that allows anyone to ‘create a Hive-based cryptocurrency’? Consequently, some Hive DAPPs have a native ‘Hive-based cryptocurrency’.
On the Hive blockchain, a DAPP owner has the luxury of implementing his very own ‘cryptocurrency’, one that better identifies with his DAPP. In some cases, some DAPP owners may prefer to utilize their own unique ‘reward-distribution’ mechanism, one different from Hive’s ‘proof of brain’ and that can, so they ‘create their own Hive-based cryptocurrency’.
What does this mean for you?
Since you can access hundreds of Hive-based DAPPs with ‘one Hive blockchain account’, you can also interact and transact in ‘hundreds of Hive-based cryptocurrencies’ too.
In an earlier example, we mentioned ‘leofinance.io’ as an example of a ‘Hive-based DAPP’. Well, ‘leofinance.io’ is an entire ‘social media platform’, focused on the niche of ‘cryptocurrency’. Users visit ‘leofinance.io’ to create, curate, consume and promote cryptocurrency-related content.
To reward its users for the aforementioned activities, it has created a native ‘Hive-based cryptocurrency’ called ‘LEO’.
Now, let’s quickly take you through the process of earning your first ‘LEO’ tokens.
Have you got your Hive blockchain login-credentials ready?
This is all you will need to access ‘every Hive-based DAPP’, including ‘leofinance.io’.
Visit ‘https://leofinance.io’ and log in! Once in, consider creating and publishing your first cryptoulog! In it, write about your ‘legitimate illiterate’ journey to finding out about the ‘LEO’ cryptocurrency.
To conclude, let us task you a bit!
Can you already tell that ‘a DAPP’s level of sophistication’ is dependent on the level of sophistication of its creator?
Now that we have luxury tools like ‘blockchain & cryptocurrency’, what type of DAPP will you create?
It is typical or easy to replicate every existing innovation in the form of a DAPP, to make use of the reward-distribution protocol of a blockchain.
When you create your DAPP, what exactly would you build? What directional element would you add to the model of your DAPP to give it more testimonial essence among its users? What r
Perhaps the first question is ‘who are you’?
‘DAPP interaction’ is another under-told understudy tangible to the evolution of a DAPP and the discovery of its potentest potency. So, how do you interact with a DAPP? Are you limited to the premise of a ‘boolean’ once again, in your interactions with these ‘decentralized apps’?
It is possible to interact with ‘LEOfinance’ (a DAPP), just as you have with Facebook i.e scroll > scroll > scroll > ‘like/dislike’ but it is possible interact with these DAPPs in unconventional ways, uncovering more testimonial use-cases for such a luxury tool.
Else, the concept of ‘DAPP’ will fade once again, becoming statistical and generic.
Now that it is established that anyone can create a DAPP, did you know that you don’t have to build a DAPP afresh? Did you know that you can create a DAPP in 15 mins?
Stay tuned for chapter 5!
In the meantime, do you realize that we have started the process of helping your ‘create your own DAPP’? It all starts with ‘owning a blockchain account’. Well, not just any blockchain; a blockchain that fits the needs of your application.
Signing up for a ‘Hive blockchain account’ is a good start and you can get one in a matter of minutes on ‘https://signup.hive.io’. (If you are stuck, contact ‘[email protected]‘ or visit the Macrohard hub in Manila, Philippines)
Where you eventually create your DAPP however simplistic, more is told about ‘the use-cases for DAPPs’, more is told about the relevance of ‘blockchain and cryptocurrency’ in human society.
You become an owner too, perhaps, a ‘generation-fixer’ and this is key to world-adjustment.
To inspire you timely-ly, let me show you an example of an experimental DAPP that I (a legitimate illiterate) have created. Visit ‘https://marlians.com’.
It is an entire social media platform that incorporates the Steem blockchain, until it switches to the Hive blockchain. Yes, you can switch blockchains too!
I didn’t have to build it from the ground up. I had replicated an existing ‘source-code’ and used it as a base to build ‘https://marlians.com’ on. Even so, it incorporates my very own enterprise-model.
To reward users, I created a cryptocurrency called ‘MARLIANS’ (a Steem-based cryptocurrency) but instead of adopting Steem’s ‘reward-distribution mechanism’, which rewards ‘content-related activities’ in ‘STEEM’ based on its ‘proof of brain’ (referring to ‘quality’) element, I had incorporated my own ‘reward-distribution mechanism’ called ‘proof of tears’ to reward ‘content-related activities’ in ‘MARLIANS’ based on its ‘proof of tears’ (i.e ‘mining the human’) element.
‘https://www.marlians.com’ currently has more than ‘2000 users’, each user capable of accessing its functionalities using their Steem ‘login-credentials’.
Being a ‘DAPP’, it is not just another website. Its operations are recorded on the Steem blockchain.
Even though users have their user-profile, I can’t access or operate their accounts. The blockchain handles all that.
I gave 5 days to writing and publish this book but it is some 7 days already. My health just isn’t letting me. I am still struggling to complete chapter 3 or 10 chapters and gosh, i need to act fast. Almost 4 months of hub rent has gone past and i haven’t started the hub fully yet. I am struggling with quit notice, looking for a new house and my utilities owed is almost 1,000 USD owed. I am too lost but i will not quit and by Jehovah’s grace, i won’t drop. To sustain my inspiration, i have put out chapter 3 before i complete it. In will push hard to finish chapter 3 to 10 in two days.
I will soon resume fuller activity. I was able to bury my dad some 7 days ago, after 17 days past since he passed.
Join my Telegram: https://t.me/joinchat/GtfUvhoqQkW5U9EGboRGMw
Kind support the evolution of the Macrohard hub by purchasing a 15$ T-shirt.
Proceeds will go towards sustaining the hub: https://teespring.com/stores/surpassinggoogle