The Complete Beginner’s Guide to Blockchain, NFTs, Metaverse and Web3

A blockchain is like a ledger (or digital database) shared amongst the users of a peer to peer (P2P) network allowing any computer to connect, read and write records to this ledger. These computers (called nodes) continuously exchange the latest information stored on this ledger with each other - where updating or adding records requires a 51% consensus of nodes. Some examples are Bitcoin and Ethereum blockchains.

A node is a computer running the set of instructions used in adding new records and validating transactions on a blockchain network – referred to as blockchain protocols.

There are basically two types of nodes as described below:

Full nodes have a copy of the blockchain history, including all records created. It helps in maintaining the integrity of data across the blockchain network. They also validate transactions by solving mathematical operations that often require good computational power. That means the processing power of these computers determines the number of transactions they can validate for a given period. They are commonly known as miners.

And Lightweight nodes, who depend on the full nodes to communicate with the blockchain. They fetch the latest block from the full nodes and broadcast transactions for processing. These computers do not require a lot of processing power to connect and interact with the blockchain.

A blockchain collects information into groups called blocks which we have been referring to as records. Each block has a specific storage capacity, a timestamp and a link to the previous block.

Once they get filled, incoming data is saved in a new block and chained (linked) together with the previous block in chronological order. The blocks are linked using specialized (cryptographic) algorithms that encrypt and produce unique signatures for each block.

This growing linkage of blocks forms a chain of blocks hence the Blockchain.

Simply put, a blockchain is a chain of blocks.

The blockchain was first proposed as a research project in 1991 by Stuart Haber and W. Scott Stornetta, to allow digital information to be recorded, distributed, and not altered.

A blockchain works like a ledger system, where recorded transactions can not be altered or deleted. All transactions are verified and validated by the blockchain network nodes before recording them.

Data verification uses public-private key cryptography that involves the creation of a key pair (a private key and its corresponding public key) for each user on the network.

The public key is your unique identifier used by other users to find you – just like your email or Twitter username. On the other hand, your private key is confidential and is used to encrypt or perform actions on the blockchain. The private key is like a signature used in verifying or validating your transactions.

Let us assume John Doe wants to perform a transaction with Mary Doe. This transaction can be of any type, for example, money transfer, ownership transfer or anything that needs to be recorded transparently for easy referencing.

The overall process of the transaction is summarized below:

• Firstly, John Doe will ask for Mary Doe’s unique identifier (public key).
• He will enter the public key into a recipient address form, and his computer will sign the transaction with his private key.
• The signing process produces a unique digital signature for the transaction. If anyone tries to modify the transaction, the resulting digital signature will never be the same as the previously obtained signature.
• His computer then broadcasts the transaction to the verifying nodes that use consensus algorithms to validate the transaction.
• The transaction is valid only if at least 51% of the network’s nodes approves it.
• Once validated, the transaction is being recorded on the digital ledger with a timestamp and unique ID to secure it further from any modification.
• The newly created block is linked-up with the previous block on the ledger.
• This transaction can be referenced at any time using the unique ID.

Therefore, the digital ledger records transactions in a fast and efficient way.

NB: If someone tries to submit a modified version of the transaction, the verifying nodes will automatically discard it because the modified transaction will always have a different digital signature.

Here, we are going to discuss the main features (benefits) of blockchain that makes it so appealing:

Immutable

Information on the blockchain can not be changed or altered. Yeah, you got me right, but how is this possible?

Blockchain technology consists of a peer-to-peer network of nodes, with every node having a copy of the digital ledger. The nodes verify each transaction and record it only if the majority approves it.

Furthermore, it is difficult to go back and edit or delete a block; because the process requires at least 51% of the network's computational power. Theoretically, this is possible even though the cost of performing such action outweighs the profits, and such a venture might end up fruitless.

Decentralized

In a blockchain, there is no central authority that governs or takes decisions on the behalf of the users implying that you can use it to store any digital information including files and cryptocurrencies. You have full control of your information since they are signed using your private key. All transactions are visible and easily auditable by anyone on the network, making it more concrete.

Additionally, it is highly fault-tolerant since there is no single point of failure. If one node goes down, the network will continue to operate i.e no loss of information or downtime. This also makes it very easy to survive malicious attacks.

Secured

In addition to decentralization, transactions recorded to a blockchain are encrypted using cryptography which makes it quite difficult to alter. Each block has a unique ID that is produced during the signing process [ Link above ] after performing a series of complex mathematical operations.

NB:

The unique ID is an identification of every data stored.

Every block on the blockchain stores the ID of the previous block, which forms a continuous link (chain). If the content of a block is modified, its ID changes which break the chain. The reconstruction of the chain requires a phenomenal amount of computational power. This extra layer of protection makes a blockchain secure and nearly impossible to modify stored data.

Consensus

The consensus algorithm of a blockchain is a set of instructions used for validating transactions on the blockchain. The nodes of the blockchain follow these instructions to arrive at a common agreement about the state of the distributed ledger.

The consensus algorithm is at the core of a blockchain architecture as this is what brings about decentralization. You can read more about the consensus algorithm here.

The blockchain has cool and irresistible features but lets us discover why there are some mixed feelings towards this technology:

Environmental Effects

The act of mining new blocks (validating transactions) on a Blockchain usually requires a tremendous amount of computational power to solve the complex mathematical puzzles involved because the verifying nodes compete to be the first to solve the puzzle and record the new block. The first node that solves the puzzle gets rewarded in cryptocurrency.

This process (Proof of Work) requires an exorbitant amount of electricity to keep the nodes running 24/7 and ready to solve the next puzzle.

"It is estimated that each Bitcoin transaction uses around 2100 kilowatt-hours (kWh), which is roughly what an average US household consumes in 75 days. When this energy is supplied from non-renewable energy sources, cryptocurrencies like Bitcoin can generate exorbitant greenhouse gas emissions"

Greenhouse gases prevent heat from leaving the earth's atmosphere, leading to Global warming.

Storage Capacity

Due to the continuous increase in the number of transactions recorded, the size of blockchain databases will keep expanding exponentially. The problem of storage arises since most computers (nodes) will not be able to save an indefinite amount of data. Take a look at the growth of the Bitcoin blockchain from January 2009 to March 20, 2022.

Privacy

Even though the data stored on the blockchain is encrypted and anonymous with the help of key pair values [ link above ]. The data stored is transparent; hence it is possible to use transactional data to track down the identity of a user on the network. Therefore, the blockchain is not 100% secure.

The list of applications of Blockchain technology seems unlimited, with its application in any system that needs to store immutable records. Let us discuss some use cases:

Financial Transactions

The most popular application of blockchain is in cryptocurrencies like Bitcoin and Ethereum. Here, all user's transactions are recorded on the digital ledger. This is beneficial since the data stored is practically immutable and transparent. Also, transactions made are less expensive and faster than existing money transfer services. The consensus algorithm makes the whole process faster as it enables untrusted entities to agree without the need of a third party or middle man.

Real Estate

The acquisition of real estate requires a lot of paperwork in verifying the ownership details and the financial payments. The whole process takes a lot of time to complete the ownership transfer. The transactions involved in this process are recorded on a blockchain, making it easily verifiable and secured, thereby saving time.

Record Management

The main features of Blockchain make it easy to be used in any record Management system preventing fraudulent entries and free from fault.

Digital Asset Distribution

Digital assets like music, videos are recorded on the Blockchain with the ownership details. These records can be verified at any time, hence limiting the consumption of fake copies and the use of content delivery networks like YouTube. The artist keeps 100% ownership of their digital assets and gets all the credits deserved. An example is Eluvio which uses Blockchain technology for digital assets distribution.

Jack Dorsey, co-founder and CEO of Twitter, sold his first tweet for about $2.9 million. But how is that even possible?

To understand this, you need to know what are NFTs.
PS: here is the million-dollar tweet!

NFTs stand for Non-fungible tokens ( 😅 that does not make much sense to me either ).

Let us break it down:

A Fungible token is an item that can be traded or exchanged because each unit has the same value at any given moment.

Hence, an NFT can be any unique digital asset that can't be replaced with something else.

Recall: Each data recorded on a blockchain, has a unique ID

If we record the information of a file or digital asset (e.g image, video or gif) to a blockchain, it produces an immutable record. This record contains a unique ID, the owner's public key and other details like the name and description. The process is called minting and the digital asset is called an NFT.

The Blockchain has given rise to NFTs since it provides an immutable and transparent way to record the ownership of digital assets aka NFTs. The ownership is usually transferred between token holders for a reasonable amount of money.

Sample details of an NFT:

Owner: User's public key

Address: Unique ID for the NFT

A metaverse is a network of 3D virtual spaces where users can interact, collaborate or socialise using their avatars. It is also defined as a virtual world powered by blockchain technology that combines virtual and augmented reality with the real world.

In the metaverse, transactions are made using currencies called metaverse tokens whose transaction details will be recorded on a blockchain. Thanks to the Blockchain and NFTs, users can own digital assets in these virtual spaces and exchange them with the help of metaverse tokens.

Moreover, there will exist several virtual spaces from big companies like Meta ( formerly Facebook ), Microsoft etc. The Metaverse will arise or emerge from the interconnection of these virtual spaces. This means users will be able to use their NFTS in these virtual spaces. Hence, the types of NFTs you possess will influence your life or adventure in the metaverse like the communities you can access, exclusive perks, privileges and others.

Before explaining what web3 (web3.0) is, let us briefly discuss the first two generations of the web.

Web1.0 was mostly made of static pages connected by hyperlinks. Users could only search for information and read it.

Web 2.0 is the current iteration of the web, where users can interact with the web and create or generate their content just like you do when you write a Facebook post. Big tech companies like Google controls web2 due to its centralized nature. These companies store users' data on their databases and may or may not be effective at maintaining data security. This is one of the main factors that took us to the next iteration of the web.

Finally, Web3.0 is the next iteration of the web, focused on building a decentralized web where the data is stored on a decentralized ledger. There will also be the use of technologies like AI/ML (Artificial Intelligence and Machine Learning) used for computer interactions, and VR/AR (Virtual and Augmented Reality) used for creating virtual spaces that act as user interfaces. The virtual spaces of the metaverse will be used to interact with the web3 version of the internet.

Is Blockchain a Cryptocurrency?

No, blockchain is the technology used by cryptocurrencies to record transactions efficiently and securely.

Does the Metaverse already exist?

No, the metaverse consists of the interconnection of several virtual spaces which can communicate with each other using specialised protocols. These virtual worlds are still under development by tech companies like Meta (formerly Facebook).

Why should anyone pay a dime or consider creating an NFT, if it's possible to download for free?

Personally, the fact that there exists an immutable record to verify the ownership changes everything and introduces a new way of distributing digital assets.

How do I get started with NFTs?

If you are interested in getting an NFT, the first thing is to buy some cryptocurrencies ( Ether is mostly used ) and store them in a wallet e.g Metamask. Once that’s done, head over to an NFT marketplace and search for something that inspires you. The most popular include OpenSea, Rarible and SuperRare

What is a Metaverse token?

This is the currency used for transactions in the metaverse.