What is blockchain
Blockchain as a database
Fundamentally, blockchain is a kind of like a database made up of a series of consecutive blocks of data and transactions that is stored in a public network that does not require people to trust each other and still trust the technology.
Trustless transfer of value
This leads to one of the key values of blockchain which is the secure transfer of value and directly between parties that do not trust each other.
Efficient cost structure
This means that a lot of intermediary companies and services are no longer necessary. This in turn can reduce fees, transfer costs and increase speed of making many different types of transaction.
Transparency
Another key value of blockchain is that it is stored in plain sight for anyone to verify and validate. This means that there is absolute transparency.
Immutability
Data and transactions which are stored in the blockchain cannot be changed. Amounts can be adjusted but not without creating a new “block”.
Audit Trail
Finally, one of the most powerful characteristics of blockchain is that there is a permanent and unchangeable audit trail.
Different types of Blockchain
There are several different types of blockchain. Some are truly decentralized and completely public, such as Bitcoin, while others a closed to the public for privacy and security, but still have the advantages of blockchain.
Different types of token
- Security tokens (the token is considered to equivalent to a stock)
- Utility tokens (the token provides access to goods & services and can be used as a type of discount or for premium access)
- Governance token (the token allows holders to help shape the future of a protocol and influence decisions concerning the project)
- Cryptocurrency (a digital asset created as a medium of exchange)
Different types of financial ecosystems or protocols
First generation: trustless exchange of value
- Bitcoin was the first digital asset (pure cryptocurrency) and is synonymous with digital gold. It allows the trustless transfer of funds.
- Litecoin is a fork of Bitcoin and is a little bit faster. It is equivalent to Digital Silver.
- There were other digital currencies that sprouted up in the same vein but did not change the fundamental use case
Second generation: trustless exchange of value with smart contracts
- Ethereum added a programmable layer on top of the cryptocurrency layer.
- This allowed real world problems to be solved with digital currency through so called Dapps (Decentralized Applications).
Third generation: fast and secure exchange of value with a smart contract layer with centralized control (CeFi)
- This allowed the creation of simplified front-ends combined with a real company sitting behind the Dapp to fix things that went wrong.
- Examples are Robinhood, Block-Fi and Crypto.Com.
Fourth generation: trustless fast and secure exchange of value with a smart contract layer without centralized control (DeFi)
- This gets rid of centralization and makes finance trustless and transparent.
- The biggest problem is lack of adoption and that they are not easy to use.
- Examples are Aave, Compound, Uniswap and Balancer.
