Blockchain, cryptocurrencies and NFTs, girlsplained.
Hello peeps,
Welcome to another issue of Girlsplaining, where I - a girl - explain things. I don't pretend to be an expert on these topics; in fact, I am not. But I'm a fast learner, and I can easily explain the basics to increase your chances of someday winning 'Who wants to be a millionaire?' with every article you read.
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Thanks to Jaime Sandoval, Bitcoin, cryptocurrency, and blockchain advisor, for helping me understand this universe.
Blockchain, cryptocurrencies, and NFTs seem to be the Internet's favorite words. There is not a day I'm on Twitter and don't read one of them. And I must say I have curated my timeline perfectly to be full of memes, comedians, and an occasional photo of a shirtless Avenger.
Today I'll explain what each of these concepts means in the way I managed to understand them.
What is Blockchain?
According to the Euromoney blog, "It's a system of recording information in a way that makes it difficult or impossible to change, hack, or cheat the system."
IBM explains it this way, "Blockchain is a shared, immutable ledger that facilitates the process of recording transactions and tracking assets in a business network."
Me, your trusted girlsplainer, explains it to you in much more understandable words.
As I have explained in previous emails, the Internet is full of information - generated and stored by us -, since it is hackable is also risky. Blockchain technology emerged to solve that problem.
What generally happens is that the databases of this and other types of information are stored on a single server. For example, your medical records are only kept by your doctor or the clinic you visit. If someone hacked and changed those files, your medical information would be changed forever since they're only stored there.
On the other hand, a blockchain is like a shared database, where each block has different information (in addition to a copy of the database file). Each block has 1) the information (for example, in a transaction, the block would store the info regarding the sender, receiver, amount, date), 2) the Hash - the identification number of each block, it is unique and unrepeatable, 3) the Hash of the previous block that allows them to connect to each other (building a chain).
What makes this system unhackable?
The Hash. In addition to it being a unique identification number that allows the blocks to be connected to each other, is also modified by the information inside each block.
If the block contains a database with the same information as the other blocks and a Hash #CC68263. If someone changes the data, the Hash will also change and no longer fit in the chain.
Since the blocks are interconnected, whenever a block doesn't fit into the chain anymore, it gets invalidated, making this system unhackable.
Every day more information enters these blocks, and more space is needed. The miners are the ones responsible for creating that space.
How do you create a block?
Miners create blocks by solving a mathematical equation that requires many processors to do so. The miners buy and enable these types of computers to solve the equation and make the blocks.
The last article I found says that these miners charge 6.25 BTC per block created.
What uses Blockchain?
The base for this system is really nothing new. It was created in 1991, but it was not used until 2009 when Satoshi Nakamoto (a pseudonym), the actual name of this person or group remains unknown, used the system to create the cryptocurrency we all know, Bitcoin.
But while cryptocurrencies are the most common use for blockchains, they're not the only ones that use this system.
The Blockchain is used to sign contracts, hold elections, make bank transfers, save medical records, and much more.
Let's talk about cryptocurrencies.
Now that I've explained what a blockchain is, we can talk about cryptocurrencies. They are so relevant because they allow the self-regulation of transactions without third parties, banks, governments, etc.
The Blockchain is like a big accounting book but without any supervision. The Blockchain simulates the anonymity of cash in the online world.
According to Santander Bank,"A cryptocurrency is a digital asset that uses cryptographic encryption to guarantee its ownership and ensure the integrity of transactions, and control the creation of additional units, that is, prevent someone from making copies as we would, for example, with a photo. These coins do not exist in physical form: they are stored in a digital wallet."
A cryptocurrency is a digital currency that does not exist in real life as something tangible, if not only as ones and zeros on a computer.
Each cryptocurrency has its own Blockchain and operates differently from others. Cryptocurrencies, like common money, are used to pay for services, commodities, etc. The limitation is not all businesses, services, or people accept this type of payment.
Although each has its own economic model, cryptos are regulated by the market and the primary supply and demand law. It is a mini free-market oasis in the internet world.
There are hundreds of cryptocurrencies. I am only going to explain Bitcoin.
Bitcoin - What is it? And why do people talk so much about this?
She's like the Britney of cryptocurrencies, the first one to shave her hair due to an existential crisis. (In this newsletter, we support the release of the pop princess #freeBritney).
Bitcoin was the first cryptocurrency. In fact, it was the one that brought to life the existence of blockchains.
As of the day I am writing this email, a Bitcoin is worth USD 50,098. A few days ago, it had reached sixty thousand dollars.
As part of their business model, Bitcoins simulate the behavior of gold.
"Each of these currencies has its own economic behavior. For example, Bitcoin has an emission limit. Only 21 million Bitcoin can be created, and no more will be created after they've reached the emission limit," explained cryptocurrency, Blockchain, and Bitcoin advisor Jaime Sandoval.
18 million Bitcoins have been created, which means there are only three million left.
However, as this currency resembles gold, it will become more difficult to "mine" once it is scarce. Miners will need more technology and better processors to solve even more complex mathematical equations.
The idea of keeping it exclusive tends to suggest it will get more and more expensive. It's like Gucci clothes, you probably wouldn't wear many of their clothes, but you desire to have them only because few have access to them.
One of the hidden consequences of creating this type of currency is the amount of electricity required. It's generating a very high carbon print, which is leading to more contamination. I do not have space to expand much on this, so here’s an article that explains it.
Other intriguing cryptocurrencies to study are Ethereum, Dogecoin (the coin born from a meme), Tether, Polkadot, and Ripple.
We've already talked about Blockchain and crypto. Now we can enter the NFT world.
"Crypto", I feel like such an expert using that lingo! Spoiler alert: I am not.
NFT is a relatively new concept that stands for "non-fungible token."
Tokens are digital assets, similar to cryptocurrencies. But tokens are usually limited to a single blockchain network where they can be bought and sold.
To explain it in English, a token is like a credit from a mobile game. Candy Crush coins only work there. You cannot use them to buy weapons in Call of Duty. However, you could buy credits on each app and probably sell your somewhere on Reddit.
These tokens are not fungible because they are unique, they can be copied or replicated, but the original will have an identification number identifying it.
"An NFT is a unique digital file that can be bought and sold on blockchain networks," explains TreceBits.
What makes an NFT unique?
As I explained at the beginning of this email, blockchains allow you to know 100% of the information within them. The NFT file is stored in one of these blocks and registered under the owner's name with a unique code indicating it is original, unique.
The ID code cannot be changed or copied.
What can be an NFT?
A photo, a video, a song, a piece of writing, a joke, a tweet, this email. Any digital file is delivered or sold uniquely.
The market for NFTs is said to be seen as a digital art gallery, where artists and creators can auction off their original content.
Yes, you can have a copy of "Watermelon Sugar" by Harry Styles for free on your cell phone, but if that becomes an NFT, you could have the original song and not one of the infinite copies.
Let's reflect for a second. The way we consume art today is very similar to how we did it when BlockBuster was a thing. Unlike now, we don't have to go to a place to rent a physical movie. We rent it in a digital form.
For example, consuming music on Spotify and paying a monthly subscription to access the music, we're renting the content. The day we stop paying, we must return all downloaded songs.
Because we don't own the content, we consume. We rent it.
In a way, the "buying a movie on DVD" is now "buying an NFT."
Fun fact, Twitter creator Jack Dorsey sold his first tweet as an NFT at USD 2.9M.
What does this mean for the arts?
I actually hate the idea of the struggling artist. Where the artist needs to be poor and must sacrifice the material things and surrender to their artwork.
Like any other type of work, I believe that art has to guarantee a standard of living similar to its peers. Because in the end, art is as essential as a building. We all consume it in one way or another.
I think the NFTs open a massive door for that idea to end.
It is an opportunity to sell and consume tailor-made art for each type of platform that exists today.
NFTs are forcing us to understand a TikTok can have artistic value just like a meme, a Tweet, or an oil painting.
And if it has artistic value, it also has economic value.
Who knows if, in the future, artists will be able to make a living out of what they're passionate about and not on a corporate salary that pays for their dreams.
Look at all the things you learned today:
Blockchain technology is a network of interconnected blocks.
Blockchains contain 3 items: 1) the information; 2) a unique code (Hash), and 3) the Hash of the previous block.
Miners create blocks by solving math problems.
Bitcoin is given to miners as part of the payment.
Cryptocurrencies are digital currencies regulated by the Blockchain itself.
No institution intervenes in the purchase and sale of cryptocurrencies.
Cryptocurrencies simulate the anonymity of cash.
Bitcoin was the first cryptocurrency and the one that resurrected blockchain technology.
Currently, one Bitcoin exceeds USD 50,000.
Blockchain technology allows the existence of NFTs.
NFTs are non-fungible tokens, which are pieces of original digital files.
NFTs can be copied, but copies will never have the unique and irreplaceable code of the original.
NFTs can revolutionize the way we buy and sell art.
Thanks for reading. I hope you learned something. If so, please recommend it, leave a comment if you want me to explain any particular topic, or buy me a beer if you truly enjoyed it.
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