Whatever is Blockchain, Crypto, Web 3.0 and DeFi? Explained in layman’s terms

Whatever is Blockchain, Crypto, Web 3.0 and DeFi? Explained in layman’s terms

Do you know what blockchain means? That term has been out there, everywhere. Add to that all the news about cryptocurrency and metaverse and Web 3.0 and a whole lot of other things. It can be just too much!

But, what can you do? These technologies have become integral to the modern world. You can’t shut yourself from these things anymore. And if you’re talking about investing in cryptocurrencies or NFTs, surely you need to understand how this high-tech stuff works.

Now that can be terribly overwhelming, especially if you don’t have a technical background. But thankfully, the truth is you don’t need an in-depth know-how of these subjects. You only need plain working knowledge.

So, check out below the basics of these innovations in super simple layman’s terms.

Blockchain

Blockchain is a clever way to store and retrieve data. That’s all! In technical terms, it’s a database.

To understand blockchain you need to understand data storage using a server and cloud. So take, for instance, Google photos. You take a picture on your phone. The picture is immediately sent to a computer (called the server) in another part of the world. It’s then stored there in some sort of data storage format.

When there’s a cluster of servers doing the storage for you, you call it a cloud. So, your data are stored in a centralised location along with the data of millions of other users.

The catch with kind of data storage: the owner of the cloud, Google, in this case, has the ability to access your data! And they extract data about your data and sell them to firms for advertising purposes.

Blockchain eliminates data centralisation.

How?

Firstly, your data is encrypted as a code of 256 digits and letters called a hash. Then the hash is put into a block. When the next batch of data comes in, the program will mention the hash of the first block in the 2nd. Similarly, the 3rd block will contain the hash of the 2nd, the 4th will contain the 3rd hash and so on.

Now you see, why it’s called the blockchain. It’s as if the data blocks are connected to each other by means of these hashes. You can also see why tampering with the data won’t go unnoticed. Because the data are stored in such a way that altering one block would need you to alter all the other blocks on the blockchain.

And, where will the data encoding and storage happen if there’s no data centralisation? Originally, they were meant to happen on the computer (node) of every person who connects to the blockchain.

When you get on the blockchain your computer becomes part of the blockchain’s processor.

However, ordinary computers don’t have the power to process these operations and store data. So blockchains run on specialised ones called miners. You connect to these miners through an app or website.

These miners are owned by ordinary people all over the world who contribute computing power to the blockchain. In return, they get paid in cryptocurrencies.

Cryptocurrencies

These are basically blocks of programming code on the blockchain that function the same way your banknotes work. Instead of paying a seller in cash, you pay them with these programs. These programs don’t carry out any tasks. They merely record who’s paying to whom and how much they’re paying.

These records are stored on every computer on the blockchain. And unlike your normal currency that’s regulated by your nation’s central bank, here there’s no such central body. The supply of new currency is done by the blockchain itself.

If you want to buy a cryptocurrency like bitcoin, you need to go to a bitcoin portal (wallet) and create your unique ID. This is very similar to creating an email ID.

After that, you can buy bitcoin at whatever price it’s available. Then you can use it to buy stuff or use it as an asset and trade it for profits.

A caveat: cryptos are high-return assets. This obviously means that the inherent risk is high. So, you should invest only as much as you’re comfortable with.

DeFi

DeFi is the short form for decentralised finance.

On the blockchain, to transfer money to another person, you don’t need to go through a bank. You can directly transfer them some crypto.

Similarly, if you want to take a loan, you can bypass a bank and get it directly from a lender on the blockchain. And, if you want to send money to another country, you don’t need to go to the currency exchange. You can simply send money as crypto.

As you see blockchain is making a lot of intermediations done by banks and other traditional institutions redundant.

This is DeFi. People running the financial system themselves through blockchain technology. There are many advantages to Defi including getting rid of the Bank’s “Cut” and any other fees associated with any middlemen. This can be shared between the lender and the lendee thus benefitting both parties.

Web 3.0

Blockchain was originally created as a database for cryptocurrencies. But, later on, people found that they could do a lot more with it like using it to run programs and do calculations. That’s how the idea that the entire internet can be run on the blockchain took root.

When you visit a website like Facebook or Amazon, you’re just accessing information stored on the server of these websites. In turn, these websites track you through the internet collecting all kinds of data about you.

They then use this information to show you personalised advertisements.

But, in Web 3.0 the data you’re looking for on the internet aren’t stored by a big company on its centralised servers. They’re stored on every single computer on the blockchain. This decentralisation is the primary characteristic of Web 3.0

Additionally, as the data are stored in blocks, the data can be given unique identities. Take for example a digital painting. Once you create it and post it on the internet anyone can download it or take a screenshot of it.

But when it’s put on a blockchain, it gets a unique hash that doesn’t change ever. So even if a person takes a screenshot of it, they don’t possess the original piece.

This ability to maintain ownership in the digital world along with technological feats like the Metaverse make Web 3.0 very interesting and more powerful than the current Web 2.0.