Web3’s foundation is the blockchain, so let’s start Lesson #1 about the blockchain.
We’ll get to the making money part once you understand the fundamentals, else you’ll be confused as how wealth is created or multiplied using Web3 concepts.
Ok, let’s imagine that I have a PDF on my hard drive.
I can send this PDF to you.
I continue to have a copy of the same exact PDF on my hard drive.
This is all good, because a PDF isn’t an instrument of value.
It’s just a digital file containing information.
But imagine that I have an e-wallet containing USD1,000 in digital form.
I send you this entire USD1,000 over the Internet directly to your wallet.
You now have USD1,000.
But if things work like the PDF file, I will STILL have USD1,000.
We don’t mind that a PDF file has copies of itself.
But digital money should NEVER have copies of itself because otherwise it cannot function as money.
So if a digital dollar is sent to someone else, the sender should no longer have this digital dollar.
The blockchain, invented in 2009 with its first use case being digital money like bitcoin, finally solved this problem for the very first time afer a few failed attempts in the past.
A “blockchain” consists of the following:
1. A piece of software that makes the recording and verification of digital money over the Internet TRUE and VERIFIABLE so that we cannot spend the same money more than once.
2. Thousands of computers all over the world installing this free blockchain software into their hard drives.
– These computers are connected to the Internet 24/7, and they run this software 24/7.
– This software enables the computers to talk to each other all the time for them to update their data simultaneously.
3. This simultaneous updating of their data is one way the blockchain is made tamper proof.
– This is because a hacker may be able to hack into one computer to change the figures there — but there are thousands more computers all around the world that have data that don’t match the changed data on the lone computer that was hacked. If so, the data on the “rogue” computer will be ignored.
– It is extremely hard for a hacker to hack into multiple computers to change their data, at the same time. He must be able to do this with 51% of the connected computers to show the same “fake” data before he can succeed. This can be thousands, even hundreds of thousands, of computers in a blockchain.
– On top of this, there are multiple other safeguards in place that the hacker must overcome. I won’t describe them all here because they’re very technical.
– But put them all together and it’s literally impossible or at the very least, EXTREMELY unlikely that a blockchain can be hacked by anyone or any computer.
– Being tamper-proof is another fundamental requirement for digital money.
4. The owners of this network of computers that make up the blockchain can be anyone.
– It can be you and me.
– We don’t have to know each other.
– We just need to be willing to buy a computer or computers dedicated to this task, and spend the money on electricity to run it 24/7, put up with the heat they generate as their CPUs will be working to the max every single minute, to earn REWARDS in the form of the cryptocurrency that our computers are automatically tracking, verifying and validating.
– The rewards are automatically assigned to our computers by the blockchain software if our computers do our job properly.
5. Because of the rewards that our computers earn, our computers are called “miners”.
– They are “mining” for the cryptocurrency by tracking, validating and verifying its transactions among the different people or entities in the world.
6. Note that NEW bitcoins can only be issued as REWARDS to miners.
– In other words, new bitcoins can only be mined.
– About 900 new bitcoins are issued this way, everyday.
– New bitcoins cannot be issued any other way.
– Other cryptos can be issued in other ways, but not bitcoin.
7. Bitcoin mining is a 100% passive activity
– Our computers do all the work.
– We only need to set them up once and continue to pay the electricity bill to run them.
– When bitcoin was first launched, our low-powered laptops were more than capable to do the “mining” work.
– But nowadays, special, higher-power computers are required to do the work. They are more expensive and consume more power, hence they are more expensive to run.
8. The cryptocurrency that we earn has a value
– If it has no value, nobody would want to mine it.
– If its value is MORE than the cost of running our computers in the blockchain network, we earn a profit and we will continue to run it.
– If its value is LESS than our cost of running our computers, we will shut them down, or we won’t join the blockchain network in the first place.
9. Some cryptocurrencies like bitcoin can also appreciate significantly in value over time
– So if we have bitcoins our computers have mined a few years ago when bitcoin’s price was USD3,000 and it’s now USD30,000 — we have made a profit of 10x in a short period of time doing absolutely nothing after mining them.
That’s it for this lesson.
There are a lot more details that I have chosen to leave out at this time so as to not overwhelm you.
You’ll notice that even in describing a blockchain, it has taken quite a few words, so breaking down the explanations in “bite sized” pieces will help you to gain better clarity.
This first lesson is the start of everything that is Web3, so please understand the above fully so that you can follow the next lessons properly.