Blockchain has developed a reputation as one of the many elusive Web 3.0 terms that people out of the loop can’t quite wrap their heads around. Does anyone actually know what mining crypto means? Demystifying the NFT space means understanding terms like blockchain.
At its root, a blockchain is a system used to record transactions (for example, buying cryptocurrency on an exchange). Think of it as a bank statement that doesn’t just log and display your transactions, but also everyone else’s, and anyone can see that information.
The transactions are validated or confirmed to be correct by computers on the network called validators, or miners. Continuing with the bank statement analogy, as a validator, you could check that an account isn’t trying to send more money than is available in the account. You would do something like this:
- Check all the past transactions of a user. If in their lifetime the account has received $20, paid $10, received $50, and paid $5, you can calculate that they now own exactly $55.
- If they are trying to send $55 or less – great! You validate the transaction. Otherwise, you reject it.
This application is one of the reasons Blockchain is considered to be such a transparent and robust system. Validation is done through a voting system between all validators, and anyone can become a validator. It’s very difficult, almost impossible to falsify, attack or mutate the data in the system because you’d need a lot of validators (over 50% of the whole network) to “agree” with your transaction.
Because validating a transaction on the blockchain is something which requires computational power, you need to incentivise miners with a fee for the electricity required to validate your transaction. This is usually referred to as the gas fee.
With every transaction, a new “block” of data is added to the “chain”. This new block of data is connected to previous blocks and will be connected to blocks made from future transactions. These blocks include information such as who made the transaction, where and when it was made, and how it was made. When a new block is added to a chain and linked with a block from a previous transaction, it can’t be tampered with – this is immutability. This gives blockchain technology a key advantage: with the addition of every new block, the verification of the entire blockchain is strengthened, as there is more data to validate on.
As Web3.0 marches forward and NFTs continue to rise in popularity, blockchain technology enables true ownership. Any given token, whether it’s a photograph, video, song, film script, or signature can only be owned by one person at a time. No two NFTs are digitally the same, and their unique identifier (such as the smart contract hosting their data) can be traced using blockchain technology.
Its decentralized nature means anyone can verify ownership of an asset without relying on a single centralized governing body. In doing so, it removes the need for third parties to audit and record the ownership trail.
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