A cryptocurrency is a currency which uses cryptography to verify ownership and process / store information.

Cryptocurrencies are designed so that transactions are performed and validated by a large network of computers.

This network of computers also store the Blockchain, a database which contains all transactional information.

Cyptocurrencies are an alternative to traditional currency where ownership and transactions are managed by a government or bank.

They are appealing to individuals who wish to avoid transacting with, or placing trust with, traditional financial institutions.

References

• Binance - What is Cryptocurrency?

Cryptography is used to:

• Validate ownership of crypto currencies or NFTs using a wallets private key
• Verify that a miner has generated the correct sequence of characters to earn mining rewards

An everyday user of cryptocurrency can use it to:

• Transfer funds worldwide without paying taxes or bank fees. Instead there are transactions fees that are paid to process the transfer of currency.
• Invest in a range of different cryptocurrencies.
• Purchase NFTs.
• Participate in online gambling.

Cryptocurrencies can be traded for traditional currency at crypto exchanges.

There are hundreds of crypto exchanges worldwide.

To access a crypto exchange you must first register on their website.

When registering you typically need to provide:

• Proof of age
• A government issued photo ID
• A mobile phone number
• A payment method which could include:
  • Debit cards
  • Bank accounts
  • Paypal
  • Google / Apple pay

After making an exchange, the cryptocurrency received can be transferred to any crypto wallet.

References

• Create a Coinbase account

A crypto wallet contains a set of keys which can be used to prove ownership of cryptocurrencies and NFTs.

A key is a long sequence of characters and they are different for each crypto wallet. Below is an example of what a key could look like.

MFswDQYJKoZIhvcNAQEBBQADSgAwRwJAUDq5rcESSPSXE8

One of the keys stored in the wallet is kept private, only known by the owner of the wallet. This is called the Private Key and is used to prove ownership of cryptocurrencies and NFTs.

The other key is made public, allowing others to transfer ownership of cryptocurrency or NFTs to a wallet.

Crypto wallets do not store cryptocurrency or NFTs, they can simply be used prove ownership of cryptocurrency or NFTs.

If the owner loses access to their wallet, then they will be unable to prove ownership and will no longer be able to access any cryptocurrencies or NFTs owned by the wallet.

There are many types of crypto wallets, each with a different method of storing the keys.

The type of crypto wallet used depends who the owner is willing to trust with their keys.

References

• Binance Academy - Wallet

All cryptocurrency and NFT transfers are tied to crypto wallets.

These transactions are all publicly available and can be viewed using tools like blockchain.com or etherscan.io.

If the owner of a crypto wallet is unknown to the public, then all of their transactions are anonymous to the public.

However, if a crypto wallet is associated with a crypto exchange then their transactions are not anonymous to the exchange or any government authorities the exchange deals with.

This means maintaining absolute anonymity is not simple and may require complicating transactions or interacting with less reputable crypto exchanges.

Today, cryptocurrencies depend on a range of different technology and infrastructure.

It is not possible to state that a cryptocurrency as a whole is decentralized as each aspect must be considered separately.

The below aspects of cryptocurrencies are decentralized:

• The database which stores all transactions (the Blockchain)
• The process of validating transactions and executing contracts
• Web 3.0 services which communicate directly with a networks Nodes

The below aspects of cryptocurrencies are not decentralized:

• Crypto exchanges such as Coinbase, Binance, etc.
• Web 3.0 services which communicate with Blockchains via centralized companies like Infura including:
  • Software wallets such as Metamask, MyEtherWallet, etc.
  • Crypto Gambling websites
  • NFT websites like Opensea
• Games

References

• Infura General Information
• Opensea API

There is no simple answer to this question. There are many ways to measure efficiency, and each cryptocurrency network works differently. The below answers focus on Energy Consumption, Storage and Speed.

Energy

Networks which utilize Proof of Work are significantly less energy efficient when compared to traditional centralized financial services.

This is due to the large amounts of power consumed by the miners. The energy consumed in this case has been compared to the energy consumption of an entire country.

Networks which utilize Proof of Stake are more comparable with traditional centralized services. The bulk of the energy consumed by Proof of Stake network is consumed by the Nodes within network. The energy consumption is high as all Nodes within the network must perform the same transactions to assure the Blockchain is consistent.

Below is a rough comparison between Paypal and three popular Proof of Stake networks. The per transaction energy consumption of the selected networks ranges from roughly 20 to 2500 times Paypal's 2020 energy consumption.

Table: Comparison between 2020 Paypal statistics^1,2 and the 2021 statistics of 3 Proof of Stake networks³ (USD).

Storage

In general, the storage space required by a an individual Node within a cryptocurrencies network is comparable with traditional databases used in centralized services.

The amount of storage space required depends on the design of the network's Blockchain and additional databases.

For example, networks like Ethereum keep separate copies of the information stored in the Blockchain to improve search performance. Such a design substantially increases overall storage requirements, but is still comparable with traditional databases.

However, cryptocurrency networks consist of thousands of Nodes, each with a separate copy of the networks database. As a result, the storage space consumed by the network can be thousands of times larger than a traditional centralized service.

Speed

The time it takes to search through an individual Blockchain for a particular transaction, contract or account balance depends on how the Blockchain is designed.

In general, the speed of performing transactions on an individual Blockchain is comparable with traditional databases.

In the context of cryptocurrencies, Blockchain's are decentralized. This requires an identical copy of a Blockchain is stored and maintained across a large network of independent computers. When a new transaction is added, or a contract called, it must be processed separately by every computer on the network.

In contrast, a centralized service like Paypal only needs to process a transaction once.

References

1. BusnessofApps - Paypal Statistics
2. Paypal - CDP
3. Carbon Ratings - Proof of Stake
4. AWS - Decentralization in Blockchain
5. Etherscan - Chain data size
6. Blockchair - Cumulative Ethereum Transactions
7. YCharts - Bitcoin Blockchain Size
8. Nasdaq - Cumulative Bitcoin Transactions

A Blockchain is a type of database.

The data stored in a Blockchain is split into many of small sections, or blocks.

Each block contains the data associated with a set of transactions along with a unique identifier, or hash, which connects it to the previous block.

When a block is complete a unique identifier is generated for it, based on the data it contains.

This unique identifier will be stored in the next block to establish a connection between the two blocks.

Since the unique identifiers are generated based on the data stored in a block, altering any information within a block will change its unique identifier. As a result, the connection between an altered and the next block will be broken, damaging the database.

Image: Visualization of a Blockchain - IG.com.

References

• Binance - Blockchain
• IG - What is blockchain technology

The motivation for cryptocurrency is to provide an alternative to traditional banking, where no individual entity is trusted.

A consequence of this is that transactions need to be managed over a large network of computers, where no single computer is trusted.

Blockchains are used as they:

• can be consistently distributed across many computers
• essentially prevent tampering of historical transactions
• allow any participant to add a transaction
• can manage disagreements with transactions without trusting an individual computer.

Blockchains can be used to store any type of information. However, there is typically a limit to how much information can be stored within an individual Block.

In the context of cryptocurrencies, a Blockchain typically stores information regarding the transfer of currency between wallets or the execution of Smart Contracts.

It is possible to store small images or videos within a Blockchain, however, it is discouraged by large GAS fees.

Large GAS fees can be avoided by storing images, videos or other files using either a centralized service or a distributed file storage system such as IPFS. This reduces the amount of information stored on the Blockchain as it will simply store a URL to the file.

Each block within the Blockchain contains a unique identifier, or hash, which links it to the previous block.

If any information changes within a block, it's hash will change, invalidating the entire chain.

For this reason, the information stored within a Blockchain is considered to be permanent.

References IG.com - What is Blockchain Technology.

A Centralized service is one which is controlled by an individual entity, organization or person.

For example, a large portion of the internet is considered centralized as it depends on services provided by Google, Amazon, Microsoft or Cloudflare. If one of these companies went offline it would cause a considerable outage across the world.

References

• Binance - Centralized

Proof of Work refers to the ability to prove that a particular computer has performed a certain number of computations.

In the context of cryptocurrencies, it is used to determine whether a Block of transactions should be added to the Blockchain.

Each Block contains a set of transactions along with a unique number, called a nonce. For a Block to be added to the Blockchain, it's hash must have a particular property.

Every miners goal is to find a nonce that gives the Block's hash the desired property.

Miners do this by continually guessing numbers and re-hashing the Block. Each time the nonce changes, the hash changes too.

When they find a valid number, the number itself is the Proof of Work.

The process is designed to required large number of guesses to reach a hash with the desired property.

The miners on the Bitcoin network generate roughly 200 Trillion hashes per second, producing 1 new Block every 10 minutes.

The miners on the Ethereum network generated roughly 900 Trillion hashes per second, producing 1 new Block every 13 seconds. Note that Ethereum now uses Proof of Stake.

The large energy costs are due to enormous number of hashes required.

References

• Ethereum - Proof of work
• Blockchain - Hash Rate
• Etherscan - Hash Rate
• Etherscan - Block Time
• BitInfoCharts - Bitcoin Block Time

Proof of Stake consists of a network of validators.

Validators are individuals which have deposited, or staked, cryptocurrency and run a specifically designed program to process transactions. They are typically discouraged from withdrawing their stake or taking their program offline with financial penalties.

Each network which relies on Proof of Stake has their own set of requirements for validators. These requirements can include:

• A minimum stake (2000 AVAX, 32 ETH, ~$50,000 USD)
• A minimum uptime (80% on Avalanche)
• 1 to 2 TB SSD Storage
• 16 to 128 GB of RAM

When a Block of transactions is full, the network selects a validator to the re-execute the transactions and validate the Block so it can be added to the Blockchain.

The selection process for validators depends on the network, they can be selected randomly, or based on the how large their stake is.

The Nodes within the network are responsible for selecting the validators. This all Nodes must be capable of randomly selecting the same validator. One way this is achieved is by having the Nodes use the same Random Seed, such as the hash of the previous Block.

References

• Avalanche - What is Staking
• Solana - Validator Requirements
• Ethereum - Proof of Stake
• ethos.dev - Beacon Chain
• Vitalik - PoS FAQS

A Decentralized service is one which is not controlled by an individual entity, organization or person.

In the context of Cryptocurrency this means the service is distributed across a large network of computers. Each computer in this network is called a Node.

To ensure the network is decentralized, the Nodes must be able to run independently, without the need to trust information provided by other Nodes in the network.

This means each Node must store and maintain an identical copy of a Blockchain.

It also means that each Node must follow a strict set of rules when adding new transactions or when dealing with inconsistencies.

Amazon provides a comparison between centralized, distributed and decentralized services here.

A Node is a computer which is running a program specifically designed for a cryptocurrencies network. The program communicates with miners and other Nodes on the network to verify, process and store transactions.

There are several types of Nodes, the most common include:

• Archive Node - stores the entire Blockchain
• Full Node - contains a recent portion of the Blockchain
• Light Node - contains enough information to verify data received from other Nodes
• Mining Node - a Node which also participates in mining

There is no direct financial incentive for hosting a Node. The main incentive is to avoid placing trust in Nodes hosted by others. Trust is important as Nodes can be modified to misbehave.

Nodes are typically hosted by:

• Miners
• Developers
• Community Members / Enthusiasts
• Centralized services such as Infura, OpenSea, etc

References

• bitpanda - What is a Bitcoin Node
• Bitcoin - Running a Full Node?
• Ethereum - Nodes and Clients
• Github - go-ethereum

The information stored within the Nodes of a cryptocurrencies network depends on how the network is designed.

All cryptocurrencies require that the Nodes within its network store a Blockchain. The Blockchain is what is responsible for storing the transactions which are processed on the network.

Networks similar to Ethereum are designed such that the Nodes store additional information, separate from the Blockchain to help improve performance. The Nodes within the Ethereum network store what is referred to as the world state or global state.

Global State

The global state contains information about all wallets and contracts (referred to as Accounts) which exist on the network at a given time. It is constantly updated in accordance with the transactions processed by the network.

Each Account stored within the global state contains:

• nonce - the number of transactions sent by the account
• balance - the amount of Ether owned by the account
• storageRoot - a reference to the location where additional information is stored for the account, such as contract data
• codeHash - the hash of a Smart Contract's code (empty for wallets)

References

• Ethereum - State Trie
• Polygon - Ethereum State
• Github - go-ethereum/core/blockchain.go
• Github - go-ethereum/core/statedb.go

Transactions represent requests which are made by the users of a cryptocurrency and are actioned by the Nodes within the network. When actioned they cause the Blockchain to grow and the global state to be updated.

Transactions can be used to:

• Transfer cryptocurrency between wallets
• Create Smart Contracts
• Execute Smart Contracts

On the Ethereum network, a transaction will include:

• "to" :
  • a wallet address when transferring cryptocurrency
  • Empty when creating a Smart Contract
  • a Smart Contract address when executing a Smart Contract
• "value" - the amount of Ether to send to the recipient
• "gasLimit" - the maximum amount of GAS set by the sender
• "maxPriorityFeePerGas" - the maximum tip amount to the miner set by the sender
• "maxFeePerGas" - the sum of a base fee (set by the network) and the maxPriorityFeePerGas
• "data" :
  • Optional when transferring cryptocurrency
  • Contains code to initialize the Smart Contract when creating a Smart Contract
  • Contains the requested method to execute when executing a Smart Contract

References

• Ethereum - Transactions

GAS refers to the fee a user must pay to add information to a Blockchain.

Miners typically compete to process the transactions which pay the largest amount of GAS.

The calculation of GAS depends on whether a user is:

• Adding a new transaction
• Using a wallet for the first time
• Creating a contract
• Executing a contract
• Attaching additional data

Users are typically shown the GAS amount before they choose to proceed with a transaction. They are also able to increase the GAS amount to attract miners and speed up their transaction time.

This means that cost of processing a transaction depends on how busy the network is. The more pending transactions, the more GAS is required, the more a transaction costs.

Users pay for GAS using the associated cryptocurrency. For example, on the Ethereum network, GAS is paid for using Ether.

GAS is typically described in terms of Satoshis or Wei. These represent the smallest amount of cryptocurrency that can be transferred between wallets. The below conversions help to illustrate their meaning:

• There are 100 cents within 1 dollar
• There are 100 million Satoshis within 1 Bitcoin
• There is 1 quintillion Wei in 1 Ether (quintillion means 10¹⁸)
• There is 1 billion Gwei in 1 Ether (Gwei means Giga Wei, or 10⁹ Wei)

References

• Github - go-ethereum/core/state_transition/IntrinsicGas
• Github - go-ethereum/params/protocol_params
• Etherscan - Gas Tracker

Transactions can fail for a variety of reasons, some of which charge GAS.

The most common reason for a transaction to fail and charge a user GAS is when the transaction requires more GAS than the user was willing to pay. This is referred to as an "Out of Gas" failure.

Another common cause of transaction failures is when a Smart Contract is faulty. In this case a user interacting with a faulty Smart Contract will be charged GAS, despite the failure.

References

• Etherscan - Reasons for Transaction Failure

There are several steps involved in adding a transaction to a Proof of Work Blockchain:

1. A user sends a transaction request to a Node on the network
2. The Node adds the request to a list of pending transaction stored in its memory (called the mempool)
3. The Node broadcasts the request to the rest of the network
4. Miners read the pending transactions from a Node's mempool
5. Miners select a pending transaction to process (usually higher value transactions are prioritized)
6. Miners process the transaction, involving Proof of Work
7. Miners send the transaction along with the proof to a Node
8. The Node verifies the transaction and accepts or declines it
9. If accepted, the users pays the miner a fee (called GAS)
10. If accepted, the transaction is added to the Nodes Blockchain
11. If accepted, the balance of the associated Accounts is updated within the Node's global state
12. If accepted, the verified transaction is broadcast to the rest of the network

In Proof of Stake networks steps 4 to 7 differ in that a miner (called a validator) is randomly selected by the network to validate the Block.

The average time taken to add a transaction ranges from seconds to hours, depending on the cryptocurrency network involved.

Transactions can also involve Smart Contracts, in which the transaction will store additional information that will be processed by the Smart Contract. This will typically require more GAS than a standard transaction.

• Bitcoin - How Transactions Work
• Ethereum - Transactions
• Coinmarketcap - How Long Does a Bitcoin Transaction Take
• Coindesk - How to Check your Ethereum Transaction

Mining is the process of validating a Block of transactions so that it will be accepted by the Nodes within a cryptocurrencies network and added to the Blockchain.

The purpose of Mining to reduce the likelihood of fraudulent or malicious transactions. This is typically achieved using either Proof of Work or Proof of Stake, where individual miners work to validate a Block. Note that networks which utilize Proof of Stake refer to miners as 'validators'.

A miner is a computer running a program specifically designed to process transactions for a cryptocurrency network. Miners typically follow the process outlined above.

Miners are incentivized by cryptocurrency and GAS fees which are paid to them when they validate a Block. For example, on the Ethereum network Miners are rewarded with 2 Ether plus GAS.

On cryptocurrency networks which utilize Proof of Work, it is difficult for an individual miner to validate a Block and earn rewards. To increase the likelihood of earning rewards, miners often group together to form what are called Mining Pools. Here, a centralized service manages the miners and distributes any rewards earned amongst them. Pooling also exists on Proof of Stake networks where the likelihood of receiving a reward depends on the size of a miners deposit.

References

• Bitcoin - Mining
• Ethereum - Mining
• BTC
• Ethermine
• Binance - Staking Pool

Web 3.0 is commonly used to refer to:

• Centralized websites or applications which communicate with a Blockchain
• Decentralized Websites which are hosted on the Decentralized Web

A decentralized website is a website which has it's:

• files stored using a distributed file storage network such as IPFS
• name registered and resolved using the decentralized Ethereum Name Service (ENS)

Facts about decentralized websites:

• they cannot be edited directly, a new copy must be uploaded to IPFS
• older versions of websites may be stored on IPFS indefinitely
• GAS fees are paid when the website is updated as the Ethereum Blockchain must be updated
• annual registration fees are paid to ENS for the website's name
• websites are only decentralized when they are stored across many IPFS nodes
• most browsers do not yet support IPFS so centralized services are used to retrieve website files
• websites have long load times if they have not been visited recently
• centralized services such as fleek provide a platform which allows users to setup decentralized websites.

References

• IPFS - Single Page Websites
• IPFS - Decentralization and Participation
• IPFS - Registering a website name

Websites which communicate with a Blockchain are able to:

• View transaction information of a user
• Verify the users ownership of cryptocurrencies or NFTs
• Perform transactions on behalf of the user
• Execute Smart Contracts on behalf of the user

Websites which are stored on IPFS and resolved using the Ethereum Name Service can do almost everything a standard website does, but they are currently not supported by all internet browsers.

References

• web3.js

There are several ways that a website can connect to a Blockchain:

• Using a centralized service such as Infura
• Directly to a Node via HTTP, HTTPS or Websocket
  • The Node must have JSON-RPC enabled
  • The Node must be hosted or trusted by the developer
• Through an application which communicates with a Blockchain directly via IPC

Centralized services such as Infura are currently the most common option used by Web 3.0 websites use to communicate with a Blockchain. This approach is appealing to developers as they do not need host their own Nodes. The drawback to this approach is that their website / application will not communicate with a Blockchain directly so they must trust the centralized service.

References

• Go Ethereum - Getting Started
• Go Ethereum JSON-RPC
• web3.js
• Dapp University

The Interplanetary File System (IPFS) is a distributed file storage system.

IPFS consists of a network of computers, or Nodes, where each Node stores copies of the files on the network.

A file will exist on a IPFS server indefinitely, so long as it is "pinned", otherwise it may be collected by the IPFS Garbage Collector.

The IPFS network depends on the willingness of each Node's owner to participate in storing files.

To incentivize participation, Node owners sell storage space by "pinning" the files a customer uploads. Companies which sell storage space in this way are called Pinning Services.

Pinning services typically charge a monthly fee, but often allow free storage up to a threshold. Popular pinning services include:

• Infura
• Pinata
• Eternum
• Axel
• Temporal

References

• IPFS - What is IPFS
• IPFS - Pinning
• IPFS - Pinning Services

A Smart Contract is simply computer code which is stored and executed by the Nodes of a cryptocurrencies network. They are stored on the Nodes indefinitely, until they are deactivated.

The word "Smart" in "Smart Contract" refers to their ability to exist and function across all Nodes in a network independently. An alternative naming could be "Decentralized Program".

They are typically used to automate transactions according to a fixed set of rules defined by the computer code. This set of rules is referred to as the "Contract". Users who choose to interact with a Smart Contract are agreeing to these rules.

Smart Contracts are allocated memory within all Nodes to store information such as wallet addresses, transaction counters, token ids or website links to metadata.

Common examples of where Smart Contracts are used include:

• When exchanging different types of cryptocurrencies
• When paying interest to investors
• When managing a Stablecoin
• When managing NFTs

Example Scenario

Consider you run a company which made a profit of $1,000. You need to share the profits with 10 individuals who invested in your company. This means you need to transfer each investor $100. Instead of creating the transactions one by one a Smart Contract can be used to generate the 10 transactions for you.

• Coinbase - What is a Smart Contract
• Github - go-ethereum/core/state/state_object

The computer code stored within a Smart Contract can not change.

The ability to update a Smart Contracts code is designed into Ethereum, however, there is currently no instruction to trigger this.

The information stored within the memory allocated to a Smart Contract can change. For example, when an NFT is purchased the memory associated to the NFT's Smart Contract must be updated to store the new owner.

References

• Github - go-ethereum/core/state/state_object
• Ethereum - opcodes

Smart Contracts can be created by any individual or entity by writing computer code in accordance with the specification of a cryptocurrencies network. The specifics around this process depends on the network, here the Ethereum network will be considered.

The Ethereum network allows contracts to be written in several languages, the most common is called Solidity. Ethereum also provides standards for contracts depending on the intended use. For example Smart Contracts which manage NFTs follow the EIP-721 standard.

Once a Smart Contract is designed and underlying code written it then must be stored within all the Nodes of the network. To do this a transaction must be generated which includes instructions on how the Smart Contract should be initialized.

The initialization process allocates memory for the Smart Contract within the global state of the Ethereum Nodes. This is the memory that is used to store the compiled Smart Contract along with any information declared within the Smart Contract. This process requires more GAS than a standard transaction, see here.

The transaction generated to create the Smart Contract will exist indefinitely within the Blockchain, however, the Smart Contract itself exists within the global state of the Nodes until the contract is destroyed.

References

• Solidity - Storage
• Ethereum - State Trie
• Polygon - Ethereum State
• Github - go-ethereum/core/state_transition/IntrinsicGas
• Github - go-ethereum/core/state/state_object
• Github - go-ethereum/core/state/statedb

Smart Contracts can be called by generating a transaction where the "to" address is the address of a Smart Contract, rather than a wallet.

When transacting with a Smart Contract additional information must be provide to specify which method is to be executed and any associated parameter data. The additional information is typically encoded in accordance with the Smart Contract's Application Binary Interface (ABI). In short, the ABI specifies the structure of all methods that can be executed within the Smart Contract.

For example an NFT owner can transfer their ownership to another individual by calling the transfer method from the corresponding NFT Smart Contract. To do this, the NFT owner will need to generate a transaction with:

• the "to" address set to address of the NFT Smart Contract
• the "data" field set to ABI encoded information which includes:
  • a call to the transfer method
  • the three parameters required by the transfer method
    • the "from" address (the current owner of the NFT)
    • the "to" address (the recipient of the NFT)
    • the token ID

Transactions involving Smart Contracts are processed in the same way as transactions between wallets but additionally require all Nodes within the network to independently execute the requested method.

References

• Bitcoin - How Transactions Work
• Ethereum - Transactions
• Solidity - ABI
• Github - OpenZeppelin ERC-721

An NFT is a piece of information which is stored and managed by a Smart Contract.

Each NFT refers to a different Token ID that is used to link the NFT to additional information within the Smart Contract.

NFT Smart Contracts typically link a Token ID to:

• A website link (URI) to metadata
• The Wallet Address of the owner
• The Address of a contract which is granted permission to control the NFT

The website link (URI) is how an NFT is associated to an image. When the website is visited further information is provided in JSON format. This information is called the NFT's metadata and is commonly stored using centralized services or IPFS.

Below is a simple example of NFT metadata.

{
  "image":"example.com/image.jpg",
  "name":"Example"
}

In summary, an NFT is a token stored in a Smart Contract which refers to a website link (URI) which refers to an image link.

References

• OpenZeppelin - ERC721

An NFT is stored within the memory allocated to a Smart Contract. This typically includes the token id, owners wallet address and website link to the metadata.

NFTs are not stored within the Blockchain, but within the global state of the each Node in the network.

Transactions involving NFTs are stored within the Blockchain.

The metadata associated to the website link (URI) is commonly stored using centralized services or IPFS.

References

• Ethereum - State Trie
• OpenZeppelin - ERC721

In general minting refers to making the first purchase of a token which is managed by an NFT Smart contract.

When an NFT is minted the Smart Contract will typically:

• Create a transaction on the Blockchain
• Add a reference between the owner and the token id within the Smart Contract's storage

Depending on how the Smart Contract is designed minting may also involve storing a website link to metadata within the Smart Contract. This is referred to as Lazy Minting and will require more GAS.

• Open Zeppelin - ERC721
• Ethereum EIP - EIP-721
• Opensea - Collection Manager

When you own an NFT you own the information related to that NFT which is stored within a Smart Contract. This information typically includes a link to a website that when visited displays further information about the NFT such as it's name and a link to an image.

Some NFTs such as Bored Ape Yacht Club state that ownership of the NFT gives the owner the copyright to the associated image.

• Bored Ape Yacht Club - Terms and Conditions

There are two ways that the image associated to an NFT can change:

• When the Smart Contract which manages the NFT allows for URI changes
• When the metadata associated with the URI changes

URI Changes

The information related to an NFT, such as the token id and a metadata URI, is stored within the memory allocated to an NFT Smart Contract.

Typically, Smart Contracts which manage NFTs do not allow NFT owners to change the metadata URI stored within the contract. Though, it is possible to design Smart Contracts which allow for the metadata URI to be changed.

Metadata Changes

The metadata URI is typically a website link which when visited displays information such as the NFT's name and associated image.

It is possible to alter this metadata so that the image associated with an NFT changes.

It is also possible that the website which stores the metadata is taken offline, which would mean the NFT is no longer associated to an image.

Metadata can be store more permanently using a distributed file storage system such as IPFS.

References

• Open Zeppelin - ERC721
• Opensea - Metadata standards

An NFT game is game which uses NFTs for purposes such as:

• Managing ownership of in-game items
• Managing player avatars

NFT games are typically centralized as they are developed and controlled by an individual entity.

The developers of an NFT game can remove support for an NFT within their game at any time. This means that the NFT will still exist within the associated NFT Smart Contract, but will not be available for use within the game.

Decentralized Autonomous Organization (DAO) refers to an organization in which decisions are decided by Smart Contracts.

Typically DAO Smart Contracts are designed to facilitate member voting on particular decisions the organization may make.

To become a memory of a DAO you must buy it's associated cryptocurrency. The more a member owns, the more votes they can submit.

A DAO may also offer members benefits, such as discounted services, or a share in profits.

References

• Kraken
• Consensys

Alt Coin

All cryptocurrencies except Bitcoin

Airdrop

The distribution of cryptocurrency to selected group.

Burn

A term used to describe removing a token or tokens so that can no longer be owned.

FOMO

Fear Of Missing Out, a term which refers to an impulse to invest.

FUD

Fear Uncertainty Doubt, a term used to label negative statements towards an investment.

Hash

A Hash is a representation of any form of data in a format which has consistent length.

For example, the Hash of the word "Hello" using the MD5 hashing algorithm is "8b1a9953c4611296a827abf8c47804d7". The MD5 hash of "What is a Hash?" is "0c93a1220ebd1af83e41b646a7f681f0".

HODL

Hold On for Dear Life, a term which refers to keeping an investment no matter what the circumstances are.

Immutable

Something which cannot be changed.

Stable Coin

A Smart Contract which manages tokens such that their value matches that of a traditional currency (USD).

To The Moon

A statement used to describe an investments value increasing drastically.

Utility

A term used to describe what a cryptocurrency can be used for.

References

• Learn Crypto - Glossary

• Ethereum Peer to Peer Networking Protocol
• Ethereum EVM Illustrated
• Ethereum Contract Input Data Decoder
• What Happens When You Send One DAI