An intro to blockchain and the technology that’s powering Web3
Today, most websites, apps, and other online services are hosted on servers rented from big corporations. A server is like the physical location where an app or website “lives.” When a website is responsible for its own servers, we refer to that as “centralized.”
Netflix, for example, has servers whirring away in warehouses; when you log in to Netflix to stream a show, your device (your phone, tablet, or computer) communicates with those servers, sending data back and forth. Ultimately, Netflix has complete control over those servers. Netflix alone chooses what content is available, what streaming speeds are supported, and who can access their servers and how.
There’s nothing too out of the ordinary here—most of the modern Internet works the same way. It’s the current version of the Web we all know, the version referred to as “Web 2.0.” Web3, by contrast, is the decentralized Web, and it aims to do things a bit differently—especially when it comes to servers and how you access things online.
For example, on Web 2.0 you need a separate username and password for every service (or you use an authentication service like “Sign in with Google”). On Web3 you really only need one username and password for everything. Sounds nice, right?
The decentralized Web is made possible thanks to several new technologies, which replace older, Web 2.0 tech like centralized servers and logins. These new technologies are:
- Crypto wallets
If any (or all) of this sounds new and weird, don’t worry. In this article, we’ll define these core terms, and scratch the surface of decentralized Web3 tech.
What is blockchain technology?
A blockchain network is a revolutionary new type of network that’s capable of being decentralized. With blockchain, it’s possible for a website or app to “live” across many different servers—with each one being independently owned and operated so that no individual or company retains complete control over the network. Blockchain is what makes the new Web3 model possible.
At its core, a blockchain is made up of many individual computers or servers that maintain one shared record of data, despite being remotely located all over the world. This shared record is commonly referred to as a “ledger,” and it functions much like a traditional ledger used in accounting. The data on these shared ledgers could be anything, but it’s most commonly a record of cryptocurrency transactions (more on that later).
What are blocks in a blockchain?
The data is grouped together into “blocks” and strung together sequentially like a chain (where each link supports the next). As new blocks of data are processed, they’re appended to the end of the chain. Each block of data is crucial to the integrity of the overall chain—if one were to “break,” it would disrupt the entire chain.
Once a set of transactions are grouped together into a block, the sum of all that data goes through a cryptographic method called “hashing,” where all of the inputs (transactions) produce one unique output (the transaction ID hash). This transaction ID hash is a hexadecimal value (that just means 0–9 or a–f) that people can use to verify any given block is valid. If someone tried to manipulate even the smallest piece of a block’s transaction data, or add a false transaction, the block’s transaction ID hash would also become altered, other network participants would recognize it, and the entire block would get rejected.
Where do new blocks in a chain come from?
New blocks come from people interacting with a blockchain network. Most often this means trading crypto, buying NFTs, or playing Web3 games—but really it could be anything. What matters isn’t so much the activity, but the basics of what’s happening beneath it: users trying to complete transactions on the blockchain results in new blocks needing to be added to the ledger.
Crucially, there’s no company, IT guy, or CEO that exercises control over a blockchain. Instead, individual network participants (each user who stores a copy of the shared ledger of data) must come together as peers to reach consensus about the state of the network. The state of the network includes things like who owns which assets, and who sent cryptocurrency to who.
In the world of blockchain, we refer to these network participants as “nodes”—they’re essentially the individual computers connecting to the blockchain network. They must communicate with one another about new transactions, or blocks of data, and verify their authenticity. Then they must work together to add new blocks to the blockchain.
How do nodes add new blocks to the blockchain?
Given that each of the thousands of nodes that make up a blockchain network are operated by individual people, coming to agreement is no small feat. You can imagine that one of them may get greedy and be tempted to try to sneak an extra payout to themselves into a block of transactions. What happens then?
To facilitate the process of adding new blocks and keeping nodes honest, blockchains rely on “consensus mechanisms.” These are carefully devised frameworks and sets of rules for settling disputes and making sure that only valid transactions get approved. The original blockchain consensus mechanism was pioneered by the Bitcoin network, and it’s called Proof of Work (PoW).
Under PoW, one node is chosen to compile all the most recent transactions into a block and add it to the chain. Nodes compete against each other for this privilege by participating in a numerical puzzle; the first to solve it gets to “mine” the block, compiling its transactions and ensuring all the data is authentic. Then they broadcast the block to the rest of the network nodes, asking them to verify it. In traditional PoW blockchains like Bitcoin, 51% of network nodes need to agree that a block is valid before it gets added to the chain.
Note: Though PoW came first, today there are numerous other consensus mechanisms—with different designs—that do things like produce blocks more quickly, decrease transaction fees, and more.
How nodes ensure blocks are authentic
If a node broadcasts a block with manipulated transactions, it will be obvious to the other nodes, who will reject the block. A large population of nodes participates to decentralize the network, and these nodes are financially incentivized to maintain the integrity of the chain. While a handful of nodes might try to confirm manipulated transactions, it’s almost impossible that 51% of them will do so. (This is especially true on widely-used, reputable chains like Bitcoin or Ethereum; with blockchain, the more network participants there are, the more decentralized the network becomes, and the more difficult it is to manipulate the chain.)
Contrast this with traditional finance where only one node operated by a bank (the bank’s central server) needs to be manipulated rather than thousands of independent nodes (as you find in blockchain). You can see how much more secure a shared ledger can be than a central database.
As long as the majority of nodes are good actors, then a blockchain is safe from this type of manipulation. In fact, blockchain networks tend to be much more insulated from manipulation than traditional, centrally managed databases that operate behind closed doors.
Incentivizing nodes to behave honestly
There’s also a financial element to incentivize honest behavior from nodes. Blockchains issue different types of “block rewards”—monetary compensation in the form of the chain’s associated cryptocurrency—to the node that successfully adds a new block. If a node behaves honestly, they stand to earn the block reward. If their block is rejected because they lied or included false data, then they lose out on the funds and may be flagged as a potentially bad actor. Honest nodes may begin to reject or ignore data broadcasted from nodes that prove to be malicious.
With a secure network structure, a proper consensus mechanism, and high network participation, blockchains are capable of something that’s never before been possible online: the ability to create transparent decentralized networks. Any user with a computer and Internet access can audit the entire history of network transactions. Rather than trusting an opaque central authority, blockchains enable a trustless decentralized network.
What does blockchain have to do with Web3?
As you’ve seen, blockchain is a novel system for generating consensus among network participants without a governing authority. Web3, meanwhile, is the decentralized web—where apps, online services, even finance—no longer need a centralized authority. How do they work together? Basically, blockchain technology facilitates the decentralization that Web3 needs.
Contrast this with Web 2.0.
In Web 2.0, everyone’s computer connects to a company’s central servers—say, Wells Fargo, or Facebook—to log in and do stuff. In Web3, blockchain networks become the replacement for traditional, centrally managed databases and applications that gate users’ access to content, and store and manage their data.
With blockchain, users no longer create a username and password on a centralized server that a central authority could lock them out of, shut down, or limit access to. Instead, users connect to sites and applications that have some or all of their components hosted on blockchain networks—making them partially or fully decentralized. These decentralized apps and sites on Web3 are often called “DApps.”
Users rely on crypto wallets (which we’ll explain shortly) in order to do things like validate their access to DApps, complete cryptocurrency transactions, post on some new Web3 social media platforms, or do nearly anything else on Web3. And all of this needs blockchain technology to run.
What’s cryptocurrency, and how is it used in Web3?
Earlier, we mentioned the need to align the incentives of independent blockchain network participants, or nodes, so that they can reach consensus about the network. This is where cryptocurrency comes into play.
Cryptocurrencies are digital assets that are linked to particular blockchain networks. Each blockchain typically has one cryptocurrency that is natively integrated with the network and its consensus mechanism. The Bitcoin network has bitcoin (BTC), the Ethereum network has ether (ETH), and so on.
These are the cryptocurrencies that make up the “block rewards” given out to nodes for adding or validating new blocks on the chain—basically the financial incentive for nodes to do their job well. Without crypto, node operators would have no reason to support blockchain networks other than their own good will.
With these native cryptocurrencies that represent digital value, blockchain networks are able to use consensus mechanisms to facilitate network operations like transferring assets or adding and validating new blocks. For example, sending bitcoin from one person to another will incur a transaction fee (sometimes called a “gas fee”) for using network resources like electricity and computing power.
Those transactions, batched into blocks, are added to the shared ledger by network nodes. Nodes are, in turn, compensated with cryptocurrency for their participation in the network.
Crypto wallets: store assets and connect to Web3
With all this crypto being exchanged to facilitate the operation of decentralized networks, people need a way to store their assets. Crypto wallets are designed to do just that. A crypto wallet is a way for Web3 users to store crypto, transfer it to others, pay transaction fees, and more.
Basically, if you’re interacting with Web3, you need a crypto wallet to do so. Why? Because Web3 relies on blockchain networks, blockchains rely on cryptocurrency to facilitate operations, and cryptocurrency needs crypto wallets to be stored in, sent from, and transacted with. Crypto wallets are like your passport to Web3. The only difference is that, unlike a travel passport, crypto wallets don’t have any central authority—like a government—managing them.
How do crypto wallets enable you to sign on to an app or website on Web3?
Crypto wallets use private keys to access public “addresses” that can replace traditional login credentials.
For example, a typical blockchain public address might look something like this:
That address is a unique wallet identifier. Think of it like a username. Now, when visiting an app or website on Web3, you’ll be asked to connect your wallet. To do so, you’ll need both your wallet address and your private key—sort of like a password—to authorize the connection.
What’s different here is that, while in the Web 2.0 world usernames and passwords only grant you access to one app, a wallet address and private key will grant you access to any app or website on Web3. They’re all integrated with blockchain, cryptocurrency, and crypto wallets, so your wallet address can be used in place of an email address and password, which may help to keep you pseudonymous to those supporting services.
That’s the beauty of decentralization: It’s built into the core of how people interact with Web3.
The foundations of Web3
Blockchain and cryptocurrency aren’t some weird, tangential part of the Web3 movement. They’re integral parts of the decentralization that makes Web3 possible. They’re the core ingredients of the whole system.
Without cryptocurrency, blockchains lack the incentive mechanism for network participation. Without crypto wallets, users would have no place to store that cryptocurrency (or any sort of passport to access Web3). And without blockchain networks, Web3 couldn’t exist.
All these technologies come together to enable the decentralized version of the Internet, this new thing called Web3. And the Brave Browser—with its built-in crypto wallet and native tie to the Basic Attention Token (BAT)—offers a secure and speedy gateway to connect to Web3 and start exploring.
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