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Understanding Blockchain: The Basics of NFTs, DAOs, Cryptocurrency, and More

Updated: Jan 25

This blog is for informational purposes only and is not intended to serve as financial, legal, or investment advice or as an endorsement for any cryptocurrency. We strongly recommend you consult with a qualified financial advisor before making any financial or investment decisions.


What is a blockchain, blockchain technology and crytpcurrency
Blockchains and Crytocurrency - What are they and how do they differ?

What is a Blockchain? How do Blockchains Differ from Digital Ledgers?


Click on the links below to view more great resources about blockchains and crytocurrency



Imagine you and your friends love trading sports cards. You start writing down who traded what card with whom on pieces of paper. But what if someone tries to cheat or someone loses the paper? Enter blockchain, a digital way to keep these trading records safe and honest. Instead of one piece of paper held by one person, you and your friends each have a copy of this 'digital notebook'. Every time someone makes a trade, everyone's notebook gets updated with this new information.



Easy-to-Understand Examples of Blockchain Technology


A blockchain is like a series of digital "notebooks," or ledgers, that everyone can see, but ideally that one can alter dishonestly. Whenever a new trade occurs, this information gets recorded into a new 'page' (block). When this page is full, it gets sealed and a new page starts. All the pages are connected in a 'chain,' forming a blockchain.


Real-World and Potential Use Cases of Blockchain Technology


Blockcahin technology has many real-world and potential applications:

  • Supply Chain Management: Keeping track of a product's journey from factory to store.

  • Healthcare: Securing everyone's personal health records.

  • Intellectual Property: Verifying the ownership of digital assets, like NFTs (Non-Fungible Tokens).

  • NFTs, or Non-Fungible Tokens, are unique digital assets that have taken the worlds of art, collectibles, and online transactions by storm. NFTs have distinct characteristics that make them one-of-a-kind. Think of them as digital collectibles with a unique signature, verified on a blockchain, to prove ownership and authenticity. Whether it's a digital painting or a song, NFTs have opened new possibilities for creators to monetize their work and for collectors to own a piece of the digital realm.

  • Voting: Making sure votes in an election are secure and tamper-resistant

  • Future Possibilities: Decentralized energy grids, automated public transport, and more.

Pseudonymous, Not Anonymous


Even though everyone can see the trades in the notebook, they don't know who made them unless the person reveals their identity. This is what we mean when we say blockchain transactions are 'pseudonymous' rather than anonymous.


Types of Blockchains: Public vs. Private


Blockchains can be categorized as either 'public' or 'private.' Public blockchains are open to anyone who wishes to participate. Private blockchains, on the other hand, restrict access to a select group.


How are Blockchains Created? What is Consensus?


When a blockchain begins, the first block is known as the 'genesis block.' New blocks are then added through a process called 'consensus.'


What is Consensus?


Consensus is an agreement among the network participants about the validity of transactions. It's the process through which a majority of participants agree that a transaction is legitimate and can be added to the block.


Cryptocurrencies: The First Popular Use of Blockchain and the Cryptocurrency Trilemma


Cryptocurrencies like Bitcoin, Ethereum, and Algorand are built on blockchains. Each has its own unique features and benefits.


The Blockchain Trilemma

The trilemma in blockchain technology refers to the challenge of achieving scalability, security, and decentralization all at once. Different cryptocurrencies prioritize these features differently.


Bitcoin: The Pioneer


Bitcoin, created by an unknown person or group of people using the pseudonym Satoshi Nakamoto, was the first cryptocurrency and remains the most widely used.


Ethereum: Smart Contracts and Beyond


Created by Vitalik Buterin, Ethereum introduced the concept of 'smart contracts,' self-executing contracts with the terms of the agreement written into lines of code.


Algorand: Speed and Efficiency


Founded by Silvio Micali, a Turing Award-winning cryptographer, Algorand aims to solve the blockchain trilemma by offering fast transaction speeds without sacrificing security.


Understanding Blockchain Governance: A Need for Evolutionary Protocols

Blockchain governance is essential for the long-term viability and integrity of any blockchain network. Governance structures can be formal or informal and are designed to make consensus decisions about code changes, network upgrades, and other critical issues. Understanding these governance models is crucial for anyone considering entering the blockchain space.


Known Risks and Vulnerabilities: Understanding the Limitations of Blockchains and Cryptocurrencies


While blockchains are considered relatively secure, they are not immune to risks. Types of vulnerabilities include:

  • 51% Attacks: When a single entity gains control of more than half of the network's computational power, potentially manipulating the blockchain.

  • Smart Contract Bugs: Coding errors can sometimes lead to exploitable loopholes.

  • A description of all known and potential vulnerabilities of cryptocurrencies is beyond the scope of this article. However, you might want to consider reading the book below.


Examples of Hacks

  • The DAO Hack: In 2016, a coding error in Ethereum's DAO (Decentralized Autonomous Organization) was exploited, resulting in the loss of around $60 million.

  • Mt. Gox Hack: Bitcoin exchange Mt. Gox was hacked in 2014, leading to the loss of 850,000 Bitcoins.

Deciphering Blockchain’s Core Purpose


The primary objective of blockchain is to offer a transparent, secure, and efficient means for conducting transactions and recording data.


Cryptocurrency vs. Blockchain: Understanding the Difference


Cryptocurrencies are just one application of blockchain technology, which has a much wider scope.Decoding Decentralized Autonomous Organizations (DAOs)


What is a DAO and How Does It Work?


A DAO or Decentralized Autonomous Organization is unique because it operates without centralized control. Governed by smart contracts and consensus among its members, a DAO represents a new form of organizational structure.


Financial Considerations: How Much Does It Cost to Start a DAO?


Starting a DAO isn't necessarily expensive but depends largely on your choice of blockchain platform. On Ethereum, for example, you'll need to cover gas fees for smart contract deployment, which can vary widely.


Profit-Making Strategies in DAOs


DAOs have the potential for various revenue streams, like investment activities, transaction fees, or the delivery of decentralized services. Profit distribution among token holders typically follows the smart contract rules set up by the DAO.


DAO Start-Up Guide: Steps to Launching a DAO


From research and choosing a blockchain to drafting rules and developing smart contracts, launching a DAO involves several crucial steps. Once all components are in place, your DAO can go live, entering the management and growth phase.


Case Studies: Popular Examples of DAOs


Notable DAOs like Maker DAO, which allows users to issue stable coins, and Aragon, a framework for creating and managing DAOs, demonstrate the technology's potential.


Resources for Blockchain Enthusiasts


If you're eager to delve deeper, numerous resources, including books, online courses, and specialized websites, offer a wealth of information. Upcoming conferences and webinars offer a chance to learn from experts and network with like-minded individuals

  • Consensus- Consensus is one of the world's largest, longest-running and most influential gathering that brings together all sides of the cryptocurrency, blockchain and Web3 community. Held in Austin, Texas this is a great meeting to learn about what's new in blockchain and cryptocurrency and also for networking.

  • Blockchain Expo- Blockchain Expo World Series is made up of 3 conferences throughout the year, Global, Europe and North America. Also one of the world's largest Blockchain Conferences and Exhibitions focus on the future of enterprise technology. Two days of top-level content from leading brands, embracing and developing cutting edge blockchain technologies.

  • Blockchain Research Institute - A global community of research professionals that brings deep blockchain knowledge to industry and governments. Provides members with tools to navigate the changing world of the blockchain revolution

  • Enterprise Ethereum Alliance - The EEA is a global community of blockchain leaders, adopters, innovators, developers and businesses.

  • Hyperledger - They are a member-driven, not-for-profit organization fostering global collaboration in the advancement and adoption of enterprise-grade technologies.

  • Local Blockchain Meetup Groups


Conclusion:


Blockchain technology offers endless possibilities, from decentralized organizations to a variety of sector-specific applications. This blog is intended to be a launching pad for your educational journey into the intriguing world of blockchain. However, the technology is advancing at a rapid pace and we encourage you to continue reading about this technology and its potential to change the way we record data and perform transactions in the future.



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