Hi, course participants!
It’s me again, Alina from CryptoRobotics.
I’m glad to see you on our second lesson of our course on cryptocurrencies. We named the second lesson «About the complicated blockchain in simple words.»
Let’s get to it.
Today we will learn:
- What is blockchain
- How it helps to quickly and easily send money from one person to another
- Why blockchain is more convenient than Swift
- And about the second cryptocurrency in the world — Ethereum and the technologies it provides
So, before we dive into what blockchain is, let’s look at why sending cryptocurrencies is called decentralized compared to sending money through a bank.
In the first example, we see a bank system, when client A wants to transfer money to client B. First, the money goes to the bank, the bank makes a decision whether to send such an amount to client B or not, and then sends the transfer to client B.
For example, if I make a large payment through the bank, the bank blocks this amount and calls to clarify if I made this transaction, and only then allows me to transfer the money.
Thus, the bank transfer is always centralized, and the center is the bank.
Now let’s try to send bitcoin in the blockchain.
We initiate two transfers from user A to users B and C. There is no supervisory authority that could allow or prohibit this transfer, there is only direct sending and receiving of these funds to wallets B and C.
This means that the system is decentralized because each of the users is a full participant in conducting transactions — and he is the only one who makes a decision about whom, when, and how much money can be sent.
On the slide with the bank, you saw the word Swift, I think that now almost everyone knows what this system is, but I will try to explain it by example.
If we make a transfer within the country, then the decision-making centers are banks that hold money, as we have discussed in previous schemes. If it is an international transfer, then the Swift system makes a decision about the transfer.
International transfers through Swift work like this:
For example, I want to transfer money from Turkey to Italy in the amount of 20,000 Turkish lira, when sending, the Swift system first converts my amount into US dollars, then into euro.
Thus, the exchange rate becomes less favorable than if I transferred the amount directly. And the system also charges fees for conversion and sending. For me, the commission through Swift when transferring to another country reached 12%.
The other disadvantages are also obvious, such as now Russians, for example, are blocked in this system, long transfer times and the fact that personal data is provided to foreign intelligence agencies.
At the same time, blockchain is a reliable and uncontrollable system, it is based on the fact that chains are formed from all users in this system, and each link, or block, in this chain is a full participant like any other.
If we give an example from life, it turns out to be such a medieval chain armor, seemingly soft and flexible, but it cannot be pierced because all links are tightly connected to each other.
In addition to reliability, transfers in the blockchain are usually instant and cannot be blocked by anyone. Commission amounts are not tied to transfer amounts, and millions of dollars can be transferred with a commission of a few cents.
Thus, blockchain technology provides the property of decentralization for crypto.
Another very important advantage of blockchain is that this system stores information about each transfer within the network, which means that it is the most transparent system. BUT, importantly, the system is anonymous.
And if a user in the blockchain transfers money to another account, information about this will be copied and available to each participant in the network, this information cannot be deleted.
Blockchain technology only allows the creation of information, but not its deletion within the network, and at any time I can see that a certain amount has been credited to a certain wallet at any time.
If this happens with a simple centralized system, and for example, a fraudster wants to delete his data from the database, then it is enough to delete the data from the fraudster’s device and the database, however in the blockchain, the deletion of data by one user is not possible, because the real information will be updated by all other users.
Thus, the blockchain network provides the property of transparency for cryptocurrencies, which we talked about in the first lesson. I will leave for you to independently study a detailed diagram of transfers in blockchain.
In order to receive and send cryptos, we need to work with transactions.
What is a transaction? It is the transfer of cryptocurrency from one wallet to another.
An example of a transaction report in everyday life is receipts from a store or statements from a bank account.
To distinguish one transaction from another, special identifiers are assigned to transactions — or Transaction Hashes.
They consist of letters and numbers, and each blockchain has a certain number of characters. For example, in the Ethereum network, there are 64 characters.
Having a transaction hash, you can easily find all the information about this transaction in an electronic receipt on the screen: the amount, the fee, which wallet the amount was transferred from and to, and other necessary parameters.
Above, we can see a screenshot of information about a transaction on the Ethereum network. Probably you have heard of it.
Ethereum can be called the next generation of cryptocurrencies after Bitcoin. If Bitcoin is only a currency and everything that backs that currency, then Ethereum, in addition to currency, represents a separate technology on which smart contracts are written in the Ethereum blockchain.
The fee in the Ethereum network is called GAS — in fact, it is fuel used to deliver cryptocurrencies, so it is not difficult to remember.
A smart contract is code that automates certain rules in the Ethereum blockchain. For example, you can create a new currency — a token or a decentralized application, which is very similar to a regular application.
A token differs from a coin in that a token is created on someone else’s blockchain, for example, on the Ethereum blockchain, while a coin can only be created on its own blockchain.
Let’s take an example of how a smart contract works — a smart contract is a guarantee that both parties to the contract will fulfill the terms of the agreement. For example, the supplier will send the goods, and the buyer will send the money. If one of the participants did not fulfill their condition and did not send the goods, then the other will receive their money or goods back.
In cryptocurrencies, a very simple condition can be an example — I send Bitcoin and want to receive USDT in exchange for Bitcoin, but no later than within 1 hour. I sent Bitcoin, and it is stored in the smart contract until the other participant sends USDT there. If USDT does not arrive on the contract within an hour, then the contract will return my Bitcoins.
Yes, and a little more useful, or not very useful, information about Ethereum — its founder is Vitalik Buterin, a young man and an enthusiastic programmer who strives to make this world a better place. The world actively talked about this coin in 2016, and perhaps it was the appearance of this coin and thanks to its technologies that the first cryptocurrency boom began in 2017, and the second DeFi boom has begun in 2020.
To know everything that is happening on the Ethereum network, a special service called Etherscan was created. It contains information about all contracts, tokens, and operations on the Ethereum blockchain. Here you can find out when the first transaction was made, what the largest amount transferred for the entire history was — direct access to a huge database of very wealthy people, only without names and personal data.
At the end of the lesson, a glossary of terms and a link to the useful resource Etherscan, homework, and a test under the video are provided for you.
And I invite you to the third lesson, where we will create our first crypto wallet together. When I created my first wallet for Ethereum, I thought, «This is some kind of magic.» And a little magic awaits us, as soon as we will immediately create a wallet for multiple cryptocurrencies.
It was Alina with you.
See you soon 🤝