Lesson №2. Blockchain Basics, Ethereum и EVM.

Firstly, blockchain in the world of financial transactions allows you to send money directly, bypassing traditional financial intermediaries. Imagine you want to give your friend money, but instead of going to the bank, you simply hand him the cash across the table. Simple and without unnecessary witnesses.

In addition, blockchain reduces commissions, making them almost invisible. What about speed? It is worth noting that already today some blockchains allow more transactions per second than Visa and Mastercard combined. The blockchain processes transactions so quickly that if this were a race, he would already be crossing the finish line while everyone else is finishing their hookah before the race.

Don't forget about global access. Blockchain opens the door to anyone with an internet connection, regardless of location. Once we were glad that we could contact anyone by telegraph, then - the creation of mobile communications, the Internet, which also made it possible to store information. TV headlines blared that we could download all the information in the world and get it from anywhere in the world. It’s hard to even imagine how life used to be when there was no most common means of communication and information collection. True, at the moment more and more resources are subject to blocking and sanctions... unlike the blockchain.

In general, blockchain in financial transactions is not just the next step, it is a whole leap forward, making finance convenient, fast and, most importantly, accessible to everyone.

Imagine that Bitcoin is like a good old convertible: simple, reliable and everyone knows what it is for - to ride with the breeze and feel freedom. But then Ethereum appears - and it is no longer just a machine, but a whole cruise ship with many functions.

Ethereum adds smart contracts to the game that fulfill your wishes, but only if you formulate the conditions correctly. For example, you want to sell a bike, but you are afraid that the buyer will leave and not pay. On Ethereum, you can create a smart contract that says: “As soon as the money arrives in the account, the keys to the bike are automatically transferred to the buyer.”

By the way, Ethereum is not just about exchanging money. You can create decentralized applications (dApps), which, for example, allow you to vote for candidates in elections without fear of fraud - transparently and honestly. Jayden would be shocked that this is possible, and it would make his life much easier if he worked with Ethereum rather than Bitcoin.

Let's go through the most unobvious differences at first glance:

Now let’s switch to Ethereum and its newfangled “Proof of Stake” system (it’s worth clarifying that initially Ethereum worked on the “Proof of Work” mechanism, but in 2022 it completely switched to “Proof of Stake”). Everything here is like in an elite club: in order to take part in decision-making, you need to make a deposit in ether (Ethereum currency). The higher the pledge, the higher the chances of being selected to add a new block. It's a bit like the lottery, but your chances of winning depend on how much you contribute. The main advantage is much lower energy consumption compared to Bitcoin. There is no need for an army of power-hungry computers.

So, the impact on energy efficiency is obvious: Bitcoin is a coal-fired locomotive, and Ethereum is Tesla (not an advertisement, Elon Musk, how do you like that?). And speaking of scalability, the Ethereum system potentially allows you to process transactions faster and more efficiently, which is important when you have a party for the whole planet, and not an evening drinking session alone after a hard day at work.

In general, if Bitcoin is cryptocurrency 1.0, then Ethereum is already 2.0, with bells and whistles that we could only dream of before. Fasten your seat belts, we are taking off into the world of smart contracts and blockchain magic!

Ethereum is the second most popular blockchain project in the world. He became a pioneer in the field of blockchain, as he was the first to use a “smart contract”.

Let’s explain it “officially,” otherwise the Internet geeks will definitely grind it into powder (then it will be explained easier):

Simply put, a smart contract is like an automatic contract in the digital world. You programmatically set conditions (for example, “if I receive the goods, then the payment will be transferred”). By contract we mean a transaction that is built according to the “if... then...” template. Once these conditions are met, the contract itself carries out an action (for example, transferring money). This reduces the risk of fraud and speeds up the transaction process.

Let's think about why a smart contract is needed:

There are two parties involved in any transaction. One party is conditionally the applicant of the transaction, the second is the executor of the transaction. Both parties enter into an agreement that details all the criteria that both parties must comply with. If the parties violate such an agreement, the transaction may be considered void. It seems that everything is simple... but.

In fact, there are three parties involved in such an agreement. It’s just that we never think about a third party when we enter into an agreement. The third party in the real world is always a notary who will certify your contract. The judiciary may also act as a third party if their assistance is required. So, a third party in any agreement is an extra expense. Agree that when you go to five for bread, you don’t want to pay the cashier a paw to certify your purchase of bread (lol, but you could have paid). Seriously, buying bread is an insignificant expense, but what if the question is about selling a car or an apartment? This is where it will be difficult without a notary.

What is the benefit for a notary to become a third party? -It’s simple: their participation comes down to a stamp on the document, which assures that anyone who violates the agreement will be hit on the butt, and for such a stamp the notary charges a fee (no need to choke, everyone understands that this is a more complicated process, but that’s the essence ). This is how you can earn money by placing stamps. It doesn’t matter what the parties do—violate or not—it’s a matter of chance, but the seal gives each party a guarantee.

And this is exactly the kind of notary that was invented on Ethereum. The blockchain is a notary, and the agreement is a smart contract. A smart contract can be anything, and most of them even have a standard, so that each user does not produce hundreds of different smart contracts with the same meaning.

He goes with her to the pawnshop to fulfill his dream (well, not Bitcoin, but at least something). At the pawnshop, Jayden is informed that this box turns out to be worth a lot of money, since it used to belong to the Rockefeller family (what did you think? Jayden is a golden baby - all coincidences are random).

Naturally, Jayden is not so simple as to simply take it and sell it in uptown pawnshop at midnight. He comes up with a great plan to get the most out of it. He decides to sell it to everyone at once, but at the same time, keep it at home. You ask: how is this so? Jayden explains:

In this example, the main aspect was not the idea itself, or even the expensive box, but the smart contract in the blockchain, which allowed:

• create tokens that are strictly tied to the artwork
• upload not just text to the blockchain, but an entire file with a box
• provide a guarantee that if the box participates in exhibitions, the owner must earn money from it (transaction format: if... then...)
• provide a guarantee of ownership of a real-world asset using a virtual token.

As you probably understand, Jayden’s earning potential has increased many times over.

We won’t tell you how Jayden’s apartment was taken away when he pulled off such a scheme to make money through tokenization. Jayden did not think that someone would be able to buy all the tokens at the same time, but the cunning John had enough of those debts that he managed to erase from Jayden’s board to buy the entire apartment. Now Jayden is Home-Jaydenless

Once payment is received, the smart contract automatically updates the data on the blockchain to reflect the transfer of ownership to the buyer. This ensures the legal validity of the transaction without the need for the intervention of third parties such as notaries or registration services. Once ownership has transferred, the smart contract automatically transfers funds to the seller. And also, to this example it is worth adding that all this can be for tokens that are created by any Jayden.

Anyone can create their own token, which will be guaranteed to fulfill all the conditions specified in it, like:

• this token can be stored indefinitely
• there will be a million of these tokens in total
• this token can be exchanged
• this token can be received, etc.

The cost of such a token will be regulated by many factors, ranging from the total number of such tokens to supply and demand.

As a result, you have just made a trade. And there were only 2 parties to this transaction - you and DEX. The third party in your transaction is a soulless machine that ensures that both parties fulfill all the terms of the transaction. Such a machine requires practically nothing from you:

• no boring queues
• no signing of contracts
• no fees (excluding commission - you still have to pay a commission, but it is too small to compare with a notary)
• no risks
• there is no need to go to any courts, because there is no option in which something in the contract is not fully spelled out

Understanding Ethereum is challenging due to its interconnected structure, unlike Bitcoin's simpler architecture. In Ethereum, smart contracts have a number of limitations due to the capabilities of the blockchain

Let's start by understanding smart contracts and then move on to the features of the modified Ethereum blockchain and other complex aspects. It will be interesting.

We have already given an example in which we considered a smart contract as some kind of legal agreement. This is a good example for understanding the operation, but poor for actual application. Smart contracts are best thought of not as legal contracts, but as automatically executing codes. These contracts are actually just code, the results of which are recorded on the blockchain forever.

Smart contracts have two implementation problems:

Total: everything is clear on the first point, the second point is too difficult to explain and is not as priority as the third. Therefore, let us dwell in more detail on the third point.

Let's imagine Jayden and Petya. Jayden wants to carry out some kind of transaction with Petya using a smart contract. For example, Petya has the key to the box, and Jayden wants to buy it back. Petya has already tokenized this key, which means Jayden will have to buy all the tokens from Petya in order to become the sole owner. To do this, Jayde initiates a transaction with Petya through a smart contract and pays for the execution of the smart contract from his pocket.

Since the cost of ETH is relatively high (as of December 1, 2023, it is $2082), fractional parts of ETH were invented to pay commissions to make it easier to understand the real price of the commission. Commissions are paid using Gas (just like in Russia).

Gas is a small piece of Ether (ETH) - the internal currency. Gas is used to pay for the miners' CPU, but real pennies go only to the person who finds the block - he includes them as his commission.

Let’s return to our example with the key to the box - such a smart contract is not just “take it from John, give it to Jaden,” such a smart contract specifies all possible outcomes and all possible further actions. Each action is conditionally one line of code. One line of code is the additional Gas board. Thus, the more is written in the smart contract, the more Jayden will pay. But Jayden, who is rich, can pay.

1 line of code costs, for example, 1 cent. The smart contract that Jayden and John use contains 20 lines of code. This means that Jayden must pledge 20 cents to complete his transaction as payment for the smart contract call, otherwise the smart contract call will not go through. Jayden does not need to know how many lines of code there are, because... when calling a smart contract, Jayden will be notified about the cost automatically.

Each line of code spends the Gas attached to the transaction. If it suddenly ends, execution stops and the transaction is canceled. If the code is successfully executed, but there is still Gas left, it is returned to the sender as excess. Everything is fair.

When we talked about the Bitcoin network, we did not touch on smart contracts. In fact, Bitcoin has smart contracts, but they are not used by users. The smart contract in Bitcoin is used mostly for the operation of the network itself and is not available to ordinary (mortal) users. Therefore, in Bitcoin, all addresses are wallets.

In the Bitcoin ecosystem, smart contracts are used for basic functions such as multi-signature accounts, time locks, and transaction processing. They ensure the smooth operation of the network, but do not offer rich functionality for decentralized applications (DApps). This limitation of capabilities is a deliberate choice by developers who prioritize security and stability over flexibility.

In the world of Ethereum, there is a clear distinction between wallets and smart contracts. Wallets, like Bitcoin, are used to store and transact with the native cryptocurrency, Ether (ETH). But Ethereum wallets also interact with smart contracts, which are autonomous, self-executing contracts whose terms are written directly into the code.

Did you know that the Internet was created on October 29, 1969? It turns out that he recently turned 54 years old. Like humans, the Internet has gone through stages of maturation.

The first stage of the Internet can be described as adolescence. This stage of the Internet gave us the opportunity to access the very limited Internet. A couple of sites that had text literally printed from a newspaper. At first, there weren’t even pictures - it was a luxury. This stage is called WEB 1.0, and most likely, few of us have experienced this particular version of the Internet. Most likely, acquaintance with this world for most of us occurred at the next stage.

The next stage, the mature Internet, is the Internet WEB 2.0. We can say that it is at this stage that we are now, although with one foot we are already in the next stage. WEB 2.0 is the same WEB 1.0, but only the amount of information has increased millions of times. The availability of the Internet has grown significantly, and the technology has found its way into almost every home. With the help of WEB 2.0 we were able to create and share content. This truly was a revolution, since users could read the same users, and not official sources, like newspapers.

The last (at the moment), mature Internet of stage 2 is the Internet WEB 3.0. WEB 3.0 is a story about blockchain. Because Today, blockchain is only an integral part of the Internet; a full transition to WEB 3.0 has not yet occurred. WEB 3.0 allows users not only to share information, but also to fully own it, as if the text you write is your signed book, published in a huge circulation, and if someone wants to read it, they will have to pay for it.

Now, probably, many of you are wondering - what about copyright these days, in WEB 2.0? Doesn't it give ownership rights? The answer is: copyright gives ownership. It’s just that you have to monitor compliance with copyright, almost manually. If we are talking about copyright compliance on one site, for example, YouTube, then yes, this can be moderated by artificial intelligence. What if copyrighted content is copied and transferred to a completely different site, for example, one just created by another developer. For some time, such content will definitely be stored and distributed there until the real owners of the content notice it.

Based on this, what is the chance that this article was written by some Elon Musk, and we simply copied it?

Nah, it’s not clear. Therefore, we will try to explain.

If in 2021 and 2022 you ever went online, turned on the TV, or just live on the ground floor, you have 100% heard about NFTs. If you haven’t heard, don’t worry, now we’ll look in detail at what it is.

As is our custom, we will first give an official description, and then explain it in simple terms:

In other words, an NFT can be anything, be it your picture, your music, your movie or your documents. Remember the example of Jayden selling his box to everyone? So this was exactly what NFT was. Just in a different manifestation. In order:

Let's introduce Jayden again. Jayden , by the way, is also an artist. He painted an impressive picture:

Now he wants to put it on the Internet for the purpose of selling it. This is very difficult to do in WEB 2.0, since there are no resources that will simply take your creativity and virtually sell it to other people. And the question is whether someone in WEB 2.0 should buy a picture if they can take it and simply Google it and use it for their own purposes. Why pay at all now? So, in WEB 3.0, the possession of such art is viewed from a different perspective. You can own it at the official level. Whoever buys this picture of Jayden will become the real owner. Behind this picture will be the signature of the creator (Jayden The Greatest), and ownership is yours. And anyone who wants the same will have to fork out for it.

Nobody forbids you to create exactly the same picture, perhaps even steal Jayden ’s picture and sign it with your name. It’s just bad luck - Jayden had the original. Jayden created this picture earlier and verified it using a smart contract on the blockchain. And with such a signature, it is impossible to dispute that Jayden has the original.

So why should Jayden’s original be worth something, and a copy worth nothing? Do you know this picture:

By the way, this is just a photo, although it contains art, this photo is worth nothing. Anyone, anyone, right now can take a canvas, paints, a ruler and do something like this. But bad luck, your painting won’t cost a lot of money. Uniqueness plays a role here. Kazimir Malevich was the first to create it. There is no second copy like this. Only this painting has a history, unlike its copy.

Therefore, in art, it is often not so much the art itself that plays a role, but what stands behind this art (in the context of value).

An analogy with Jayden’s example: if Jayden uploads his art to WEB 3.0 using a smart contract, gains fame or this painting becomes “cult” in some way, no matter how many copies you make, Jayden will always have the original. Achieving this in WEB 2.0 is almost impossible.

p.s. NFT is an Ethereum feature. Ethereum was the first to make it possible to create such tokens. Bitcoin did not initially support NFTs. At the beginning of 2023, NFTs also appeared on the Bitcoin network, which are called Ordinals. But that's a completely different story…

As we have already said, WEB 3.0 is characterized by content ownership. What you create belongs to you and no one else. Let's think about what can be done with NFTs.

Let's put Jayden to rest once again. Jayden has:

• passport (ID)
• apartment
• car
• wife
• and his favorite playstation

He has all this in real life. A passport in the form of a physical piece of paper, an apartment in the form of a certain area in a real place, a car that stands in the yard and periodically drives back and forth, a wife who scolds Jayden every day for lending money to someone again. A separate item for Jayden is a PlayStation with a huge collection of games. Everything that Jayden has is really provable, it can be proofed by receipts or documents.

What does Jayden have on the Internet? None of this. Whatever Jayden says on the Internet, it could be a lie, photoshopped or simply showing off. At the checkout in the store they ask Jayden for a ID - the photo won’t work. Nobody will believe Jayden based on information from the Internet at word.

And here WEB 3.0 comes to the rescue. Let’s imagine that Jayden creates a copy of his passport on the blockchain. For example, for this, he will use some kind of centralized, government service, but linked to a real blockchain. His passport appears on the blockchain, it is verified by a centralized service, which means that the passport contains valid data. The passport is the property of Jayden. Jayden comes to the store checkout and shows his passport. The cashier sees that all data has been verified. The cashier understands that such data cannot be falsified and sells Jayden the goods. Result: Jayden just bought some kind of junk food using a virtual copy of his ID.

Thus, blockchain can solve the problem of electronic documents. Such documents simply cannot be lost or forged. The only thing left to decide is how to prevent someone unknown from seeing your ID on the blockchain.

p.s. even if someone sees your ID, this does not mean that someone will be able to use it. The unknown person is not Jayden. And the ownership right belongs only to Jayden.

In general, this procedure can be done with any document: be it documents for an apartment, a car, or a marriage certificate.

Already today, some artists are releasing their music as NFTs. Those. some Tory Lanez or Chainsmokers release their song as a limited edition NFT. For example, 1000 copies signed by the musicians themselves, and collectors buy these songs. This is not something you add to liked songs on Spotify, this is full ownership. Even a physical copy of the disc is not ownership of the song. This is ownership of a copy of the song. In our case, the one who buys the song as an NFT is literally the owner. Do what you want with it - listen to it, sell it, or just erase it forever. It's your right to decide what to do.

Blockchain technology goes far beyond: “I’ll buy Bitcoin- I’ll become rich” Blockchain is a technology for storing and owning information with all guarantees of inviolability and authenticity.

While Bitcoin and Ethereum demonstrate the versatility and potential of blockchain in creating decentralized financial systems and implementing smart contracts, the impact of this technology is much broader.

However, it is critical to address emerging issues including scalability, power consumption, and regulatory issues. Looking to the future, the continued development of blockchain technology promises to further transform our digital and real world, bringing new levels of efficiency, transparency and security to a wide range of applications.

Perhaps one day we will create this virtual cyberpunk and go into oblivion, but for this we need everyone to understand that blockchain technology is probably the most innovative technology of the 21st century, capable of solving such simple, but still unsolvable household tasks.