Lesson 2: Blockchains and Cryptocurrencies
After completing this lesson, you will be able to:
Know why coins and tokens are generally limited to one blockchain
Understand why blockchain transactions are anonymous
Know the role of trust in financial transactions
Understand what information is recorded on the blockchain
Know Ethereum’s unique role in the crypto world
Welcome to the second lesson in Kriptomat Academy’s Blockchain Fundamentals course. In this lesson, we’ll focus on how blockchains record transaction data.
As a general rule, each blockchain maintains transaction records for just one cryptocurrency
- The blockchain records the amount to be transferred and the addresses of the sender and recipient, but it doesn’t specify which type of cryptocurrency.
- It doesn’t have to. The Bitcoin blockchain records Bitcoin transactions. The Dogecoin blockchain records Dogecoin transactions. And so on.
- Each blockchain defines its own structure for blocks and tokens, and each blockchain has its own rules for validating transactions and creating tokens.
There are exceptions. For example, Ethereum and a handful of Ethereum-compatible blockchains are capable of hosting multiple currencies
- This means that the tokens and projects run on Ethereum or on Ethereum-compatible “sidechains.”
- Projects based on sidechains can interact with Ethereum and take advantage of widespread tools and industry knowledge about the platform.
- Most blockchain apps and NFTs are based on Ethereum. More about those in a moment!
Cryptocurrency blockchains keep users anonymous
- A crypto blockchain tracks how much crypto was sent from one blockchain address to another.
- However, the blockchain does not keep track of who owns the addresses.
- Ownership can sometimes be deduced from publicly available information, but the blockchain itself is anonymous.
Bitcoin’s creator chose blockchain technology for Bitcoin because he was trying to create a trust-free economic system
- When you sell your home, you don’t know the buyers and you have no reason to trust them.
- That’s why a bank – which is trusted by both the buyer and the seller – is necessary. It handles funds in transit and ensures the deed is not delivered to the buyer until the money is received by the seller.
- Satoshi Nakamoto wanted to eliminate the need for trusted middlemen – including banks and governments – with the new currency he was creating. He found a way to make blockchain databases support verifiable trust-free transactions.
So – what have we learned?
- In general, each blockchain maintains records for just one cryptocurrency.
- Ethereum is an exception. Many other tokens run on Ethereum because of its flexibility and capabilities.
- Blockchain technology works for cryptocurrency because it can eliminate the need for trusted middlemen like bankers.
That’s the end of this lesson! Test your understanding and earn points toward a Kriptomat Academy certificate of achievement by taking the test!
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Kriptomat Academy content is informative in nature and should not be considered a personalised or any other investment recommendations or advice.