Let us continue our crash course in blockchain technology concepts and terms!
Overview: Ethereum | Smart Contracts | ERC20 | ERC721 | NFT | Tokenomics
Introduction: What is Ethereum?
Ethereum is a decentralized platform that runs smart contracts. Smart contracts are applications that run exactly as programmed with no downtime.
Ethereum is an open-source, public blockchain-based distributed computing platform featuring smart contract functionality–Providing a decentralized virtual machine that can execute scripts using an international network of public nodes.
Ethereum also provides a cryptocurrency token called “ether,” which can be transferred between accounts and used to compensate participant nodes for computations performed. “Gas” is an internal transaction pricing mechanism used to mitigate spam, fuel the movement of smart contracts, and allocate resources proportionally between nodes.
What are Smart Contracts?
Smart contracts are computer protocols intended to digitally facilitate, verify, or enforce the negotiation or performance of a “contract.”
Smart contracts have the potential to revolutionize the way we do business. Society can use smart contracts for everything from voting and crowdfunding to financial derivatives and insurance. In the future, nearly everything will run on a blockchain with smart contract functionality.
Ethereum is best known for being the original platform for smart contracts. Ethereum was also the first significant cryptocurrency to support a Turing-complete programming language, allowing developers to create new smart contracts and self-sustaining decentralized apps.
A smart contract protocol is a code to create a trustless and open solution, so there are no controversies about what was agreed on.
ERC Tokens explained
ERC tokens can be viewed as rules to standardize the token creation process. Making it possible for exchange between multiple parties who have never met each other; used to purchase and sell items in the Ethereum network.
ERC-20 is the technical standard for cryptocurrency tokens. It defines a set of rules that all tokens must follow, which includes how tokens can be transferred and how they can be created.
So before anyone can utilize the ERC-20 token on a smart contract, it must adhere to the standard.
The standards of an ERC20 token include:
- Token name
- Decimal (up to 18)
These are all very important, but the transfer functionalities are not optional. A token must have a transfer function. This function is how a token owner can send tokens to another owner’s address on Ethereum.
The Non-fungible ERC721 token or NFT
NFTs or Non-fungible tokens are unique in that they can hold data about themselves, such as their name and attributes. This functionality makes them have a unique value over other types of tokens.
Where Cryptocurrency tokens ( ERC20 Tokens ) are fungible and interchangeable from one to another, NFTs ( ERC721 Tokens ) are individually unique in identifiers such as an item in a game or a physical asset like artwork.
Use Cases for NFTs
The most common use case currently for NFTs is gaming, where they can give items outside or within the game value.
For example, Crypto Kitties is a game where players collect and breed digital cats. The cats can be traded between players and sold on third-party marketplaces for real money.
Another example is in art. A physical artwork can be represented by the ownership of an NFT token on the Ethereum blockchain, thereby enabling artists to sell their works online without an intermediary.
NFTs have many other potential use cases, including Collectibles ( physical and digital ), Digital assets that augment real-world objects, data rights, housing deeds, personal identification, car titles, and ticketing. The list is indeed flooded with use cases.
OpenSea is a popular decentralized marketplace for trading collectible and digital assets. They allow users to trade collectible digital items, for example, from popular games such as “Magic: the Gathering,” “Pokemon,” and others, without needing to own any physical pieces. Any user in possession of digital items can list them for sale on the platform, and any other interested party can purchase them.
What is tokenomics, and why it’s important?
Tokenomics is the study of the token economy. It’s a combination between economics and cryptography. Tokenomics helps us understand how tokens are created, distributed, and used.
Tokens are digital assets representing anything from a virtual object to an investment share to a voting right. Tokens can be created and distributed in many ways, but all tokens have one thing in common – they’re used to provide value for something else.
Tokenomics helps us understand how tokens work and what the token economy is.
*An in-depth article on Tokenomics will be coming in the future!
Conclusion: Ethereum, the Future of Digital Reality
Ethereum is a blockchain-based decentralized platform that enables smart contracts and Distributed (commonly called Decentralized) Applications or DApps to be built and run without any downtime.
The Ethereum Virtual Machine (EVM) is the runtime environment for smart contracts in Ethereum. EVM runs on top of the Ethereum blockchain. The EVM sandbox and its code are executed within each node, meaning that there is no single point of failure for the whole system.
A full node is a program that stores and verifies the entire blockchain. It does this by downloading a full copy of the blockchain, ensuring that no data is lost or altered. This system makes it so that any program on it can access the blockchain without any third-party involvement. It can also perform any function requested by a program that runs on it, such as making payments and sending transactions.
Smart Contracts and Their Various Use Cases – Key Takeaways
Smart contracts are a new and emerging technology that can revolutionize the way people transact, do business, and interact with one another.
The use of smart contracts is not limited to just digital assets. Smart contracts are applied to property law, voting systems, and even traditional financial systems.
A smart contract is a computer protocol intended to digitally facilitate the exchange of goods or services between parties without the need for human intervention or a centralized authority. Code defines the rules by which an agreement is executed, so there are no disputes about what was agreed upon when it comes time to execute it on both sides.
That’s all for this one, I look forward to expanding on these articles and helping you through the weeds!
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