The CryptoKit project aims to enhance the accessibility of Web3 protocols by using visual mapping. It includes an open source typeface that contains more than 200 pictograms of key blockchain terms.
Blockchain , for a non-initiated public, is often an obscure and incomprehensible subject. In a didactic approach far from the several related polemics, CryptoKit is a set of pictograms and graphic symbols that represent the key concepts of blockchain technology. Articulated by semantic layers to facilitate reading, they are gathered in a mindmap that can be navigated by clicking on each term in bold in this text.
Whether one is a ’crypto-enthusiast’ or a neophyte, rare are those of us who have not heard of Bitcoin ₿ and the (mostly) financial gibberish that surrounds it. But few people know that a group of people, the cypherpunks , are the creators of what would become the Bitcoin ₿ protocol (2009) and its associated technology, the blockchain . The term “cypherpunk” combines the words “cypher,” which refers to the use of cryptography to secure communication, and “punk” ,which connotes a rebellious attitude stemming from the counterculture.
The cypherpunk movement began in the 80-90’s, with the development of encryption technologies and the growth of the Internet (1974). Cypherpunks are strong advocates of the use of encryption technologies to protect against surveillance and the erosion of privacy in the digital age. In 1983, computer scientist and cypherpunk David Chaum proposed an anonymous, untraceable electronic money system. A few decades later, thanks to the combination of several technical bricks, this concept became a reality with the creation of crypto-currencies operating thanks to the blockchain .
At its core, a blockchain is a decentralized and immutable ledger of a database structure through a data register : a system that allows for secure and transparent record-keeping and transfer of data or value. It takes the form of a chain of blocks (hence the name, blockchain ). This makes it well-suited for use cases such as financial transactions (as David Chaum proposed) but also supply chain management and identity verification, among others. If it was the monetary aspect that initially drew the general public’s attention to blockchain in the 2010s, it would subsequently manifest a much broader potential to revolutionize a wide range of industries.
The first blockchain and the most well-known crypto-asset is Bitcoin ₿ (“B” for the protocol ) and its eponymous currency bitcoin (with a small “b”). Both were detailed in October 2008 in a whitepaper (a technical document published to highlight the characteristics of a service) written under the pseudonym Satoshi Nakamoto —whose identity as an individual or group remains a constant source of speculation. Bitcoin ₿ was created in response to the 2008 global financial crisis (the subprime crisis) as a way to challenge the centralized system on which banks are based. The relation to the crypto-anarchist movement was most clearly demonstrated in the first bitcoin transaction , included in the Genesis Block , dated January 3rd, 2009, where Nakamoto quote in the metadata, with a hint of irony, a headline from the Times newspaper of the day: “Chancellor on brink of second bailout for banks.”
One of the key features of blockchain is its decentralized nature. This decentralization is made possible by the use of the Internet which, unlike a centralized system , is not controlled by any central authority or organization. Among those interelation system , a polarized system also rely on a third-party verification (TPV). Only the distributed system (peer-to-peer) infrastructure of the Internet makes it possible for the blockchain to function by networking computers that participate in the maintenance and validation of the ledger to ensure secure and transparent recording and transfer of data.
Bitcoin ₿ takes the form of a bank registry based on the client/server architecture of the Internet : it is a public blockchain where anyone can consult all the transactions or participate in the smooth running of the protocol by becoming a node (provided they have the appropriate hardware).
The incrementation process unique to blocks of data means that they cannot be changed, but only added to the register. Therefore, no one can falsify the transaction history, because it is—metaphorically—“carved in stone.” Bitcoin’s ₿ public ledger lists all transactions made on the network, i.e. the transfer of ownership of bitcoins from one entity to another. This mechanism, unlike the banks’ economy ' of debts, makes it impossible to have a negative balance.
As with most traditional currencies, such as the euro € of the dollar $ (commonly called FIAT money ), the “materiality” of bitcoins resides in their registration in the registry, which is not a representation of the value but the value itself: bitcoins do not exist elsewhere than in their registration in the blockchain . The value of bitcoins (their FIAT money equivalent) is still volatile, giving rise to much speculation. This instability has led to the development of a new type of currency, stablecoins . A stablecoin is a digital cryptocurrency whose value is based on that of a traditional currency like the dollar $, making it less unstable.
Moreover, in an effort to modernize, FIAT money also got their digital version issued and regulated by the country’s central bank. These are called Central Bank Digital Currencies (CBDC) . They share one characteristic of stablecoins as they are pegged 1:1 to the value of the traditional currency and can be used for transactions and as a store of value. CBDCs are not to be confused with cryptocurrencies , though, as they’re centralized and regulated by governments, which could allow for an unprecedented surveillance of money transactions as federal officials have full control over the money going into–and coming out of–every person’s account. As a result, CBDCs are the direct opposition to the original purpose of Bitcoin ₿. The same is true of private blockchains , which do not rely on decentralization to maintain authority over the protocol . This type of blockchain is often used by companies to improve the efficiency and security of their internal processes.
In opposition to governments-owned CBDCs or banks, Bitcoin ₿ operates by the pseudonymization of individuals. This partial anonymity (contrary to the popular belief of full anonymity) makes use of asymmetric cryptography , also known as public key cryptography , a type of encryption that uses two different keys: a public key and a private key . While the public key is available to anyone, the private key is known only to the recipient. This means that anyone can send an encrypted message to the recipient, but only the recipient will be able to read it.
One of the fundamental tools of cryptography is the hash function —a mathematical algorithm that takes any amount of data as input and produces a fixed-size output. Known as a hash , this output can be used to create a digital signature for a piece of data and allows others to verify its authenticity and integrity. In the context of bitcoins , a specific type of hash function known as Secure Hash Algorithm 256 bits (SHA-256) is used in conjunction with the Merkle tree data structure, a tree-like data structure which allows for efficient verification of large amounts of transaction data on the Bitcoin ₿ network.
All this taken into account, Bitcoin ₿ is a pretty secure way to send money to someone. Some services can further increase the privacy of transactions by mixing them together. For instance, one might send funds to a coin mixer , which will in turn send the funds back to another address (controlled by the user ), mixed with other users’ funds. That way, it makes it difficult to determine which funds belong to which user , as the funds (mixed together) are not easily traceable. This method can be useful for people who want to keep their financial activities private or who want to protect themselves from being targeted by attackers.
The development of blockchain technologies and the increase in the price of bitcoins have made this type of protocol increasingly popular with the general public. However, because of this increasing popularity, one of its biggest challenges today is scalability , which is the ability of a system to handle a growing number of transactions without experiencing delays or performance issues. As more people join a blockchain network, the ability of the system to handle scalability is increasingly tested, leading to issues such as slow transaction speeds and high fees.
One solution that has been proposed to address this issue is the use of sidechains . A sidechain is a separate blockchain that runs parallel to the parent blockchain . It allows for transactions to occur off of the main chain to reduce the strain on it as the sidechain can process transactions at a faster rate.
An example of a sidechain is the Lightning Network . It operates as a “layer 2” solution to the Bitcoin ₿main chain and enables fast and low cost micro transactions. It is implemented by creating channels between users which enables them to transact directly with each other, as to reduce the load on the main chain and increase the scalability .
Another example is the Interplanetary File System (IPFS) which is a peer-to-peer c method of storing and sharing media in a distributed file system. It relies on the peer node to keep the files instead of depending on central servers or cloud solution.
A last example is off-chain solutions (as opposed to on-chain ), that allows the handling of transactions and data outside of the main chain , that is without being written directly onto theblockchain .
Sidechains , theIPFS protocol and off-chain solutions push the boundaries of blockchain technology to ensure a wider variety of applications and usage scenarios. While on-chain transactions provide greater security, sidechains allow for new rules and off-chain solutions allow for lower transactions costs.
Public blockchains are often used for decentralized finance (DeFi) applications, which allow for financial transactions to take place without the need for a central authority. Decentralized exchanges (DeX) are a type of exchange platform that allows the trading of assets using DeFi protocols .
In the context of cryptocurrencies , a transaction typically refers to the transfer of property of bitcoin from one address (a unique string of characters that is used to identify a specific location on a network) to another. As we’ve seen before, Bitcoin ₿ operates by the pseudonymization of individuals through asymmetric cryptography by making use of a public key and/or a private key . The process of using a private key is called ’signing’ and allows the recipient to add a digital signature (a cryptographic code) to a piece of data in order to verify that it came from a specific sender and has not been altered. This is an important security measure, as it helps to ensure that only the intended recipient can access the data and that the data has not been tampered with. A multi-signature , also known as a ’multi-sig’, is a type of digital signature that requires multiple private keys to sign a transaction . This is used as an additional security measure, as it means that a transaction can only be approved if a certain number of authorized individuals all sign it.
To send and receive a transaction , and more specifically cryptocurrencies such as bitcoins , it is necessary to have a crypto wallet or a web3 wallet . That is, a software program that allows to store, send and receive cryptocurrencies . It usually contains one or more addresses , and uses the associated private keys to enable one to manage their cryptocurrencies . Contrary to popular beliefs, one cannot “lose their bitcoin,” on a lost hard drive for instance, as bitcoins (and other cryptos) are registered on a blockchain in a decentralized way. It is more accurate to say that this person has misplaced their private key or their seed , also referred to as mnemonic phrase, which is a set of words (typically a string of 12-24 words that are generated at the creation of a new crypto wallet ) used as a backup to the private key to recover a crypto wallet . This wallet is to be imagined as a bank account for which you have lost the connection access: your money is still there, at the bank, but you cannot use it or transfer it. Since the bank doesn’t really exist in a decentralized registry, you simply can’t request a new password.
If blockchain technology has revolutionized the way we think about financial transactions and organizational structures, we’ve yet to tackle one other important aspect of this technology which is the use of protocols to govern the way information is recorded, verified and shared on a blockchain network.
Bitcoin ₿ transactions are not recorded one after another, but rather ’page by page,’ in blocks which hold a set of transactions that have been validated by the network at time T. The workforce allowing for the validation and inscription of the chains of blocks is constituted by ’miners ’. A miner is a person who contributes to the Bitcoin ₿ network by downloading the open-source registry software and allocating some of the computational power of their computer. The miners can at any moment submit their version of a new block (along with other miners ) to insert into the registry. To write their block , miners will select which pending transactions waiting in the memory pool to include in their block . The most recent inclusions are sorted and classified by transaction fee , a small amount of money measured in satoshi , the smallest unit of bitcoin used to represent the average cost of a transaction (in january 2023, 1 satoshi is equal to $0.0002309 USD and 0.00000001 BTC).
Since new versions of a block can vary from one miner to another, the protocol must make an appeal to a consensus to avoid ’double spending ’ (the act of spending digital currency twice as the same transaction could be recorded in the two different blocks ) or fraudulent activity. To avoid such issues, Bitcoin ₿ rests on Proof-of-Work (PoW) technology, which requires miners to ’validate’ their blocks before submitting them. The miner must therefore exercise a sort of ’transformation’ of their block via a ’hash operation.’ As we’ve seen before, Bitcoin ₿ uses a specific type of hash function (SHA-256 ), which allows for the transformation of any set of numerical data into a product (following alphanumeric characters), called a ’hash ,’ which constitutes the ’footprint’ (or ’cryptographic condensate’) of the original data and allows others to verify its authenticity and integrity.
This operation is irreversible and allows for the verification of a unique set of data corresponding to a specific hash (any modification would result in a different hash ). This exercise consists of finding a new number (nonce ) integrated into the new block , which contains a set of transaction waiting for confirmation , such that it produces a result (hash ) that respects certain characteristics of the network. The difficulty of this operation, which only depends upon computational power and time allocated on the network, automatically adjusts according to accumulated total power. This difficulty is called a target and defines the minimum number of zeros that the hash must have in its header to be valid. It is automatically adjusted by the network so that the average time for a person on the network to find a valid hash is about 10 minutes. This is why the blocks are edited at this period of time: it is not a technical choice but a protocol choice in order to ensure better security. Because new blocks are edited at a regular rate, a transaction with 6 confirmations means that if the transaction is in the 6th block from the last; therefore the transaction was mined one hour ago (6 × 10 minutes). This state can be easily verify through a blockchain explorer .
Let’s explore a simple way to illustrate this: Alice (representing the protocol ) thinks of a number between 1 and 100 and asks a group of ten people (representing all the miners ) to find the number she has in mind. There is no specific calculation or method to find this number more easily; the group will have to enumerate them one after the other until they find the right number, whether by increasing the number (1, 2, 3, 4, etc.) or randomly selecting one (23, 9, 15, 74, etc.). Each method would be valid and with the same success rate. Now let’s assume that each member of the group can only say a number every second so it will take 10 seconds for the probability of finding the number to be 1. If Alice now thinks of a number between 1 and 10,000 it will take 1,000 seconds or (16.6 min) to get the same result.
On Bitcoin ₿, the protocol will adjust the target (the difficulty) according to the number of miners and their computing power: the hashrate . The hashrate refers to the number of hashes that the entire network is able to calculate per second. This computational work is referred to as mining and is often done on dedicated - and powerful - computer hardware, the mining rigs . To operate this hardware, and have it run complex calculations, it requires energy. The transaction fee one has to pay to operate a transaction helps pay for the energy needed to confirm it, however, the ecological impact of thousands of computers competing against each other in the Proof-of-Work protocol is harder to solve.
In the Ethereum blockchain ⟠, which we’ll explore more deeply in the following part, transaction fees are measured in gas : a unit of measurement that represents the amount of computational work required to execute a particular action on the Ethereum blockchain ⟠. The price of gas is measured in a smaller unit of Ethereum’s ⟠ native currency, the ether Ξ, called gwei . Because of the amount of power needed to operate a consensus mechanism based on Proof-of-Work , Ethereum ⟠ operated, on the 15th of september 2022, the then long-awaited “Merge”: the transition of Ethereum ⟠ from a Proof-of-Work protocol to a Proof-of-Stake (PoS) protocol .
Proof-of-Stake is considered a more ecological alternative to Proof-of-Work as it avoids any overconsumption of energy (the Ethereum ⟠ Foundation estimates a reduction of energy consumption of 99.95%). Indeed, it does not involve any type of mining , where the miner has to invest in hardware, but relies on staking . To participate in the consensus mechanism of a PoS blockchain , the miner needs to have accumulated (“staked”) a sufficient amount of relevant tokens . The more tokens you have, the more important the security of the network will be considered to be for you and you will have a better chance to see your block added to the blockchain . In short, this solution requires you to invest in the blockchain instead of investing in hardware. However, if a “staker” is found to have made a fraudulent transaction , they may be punished by having their stake slashed (potentially losing a lot of money) or being ejected from the network altogether.
In a decentralized blockchain , if not all miners upgrade at the same time (for a change in protocol ), whether due to miscommunication or active resistance, the market could split. This is what happened in 2017, when a dispute between Bitcoin ₿ miners caused the blockchain to split in two and the minority became a new cryptocurrency Ô called Bitcoin Cash. A potential split on a blockchain , also called a fork , could result in a loss of governance , security and funds as well as create uncertainty and divide among communities.
While it was the monetary aspect that initially brought blockchain to the attention of the general public, it will manifest a much broader potential to revolutionize a wide range of industries. Indeed, while Bitcoin ₿still is the focus of media attention, it is only one of 1,500 crypto-assets (or altcoins ) that have been developed since its launch in 2009. Some are particularly notable in terms of their technology as they are no longer developed to create yet another cryptocurrency Ô, but rather to provide new functionalities, linked for example to governance .
Initially developed by Vitalik Buterin as an update to Bitcoin ₿, the Ethereum ⟠ Platform (2015) proposes new protocols such as smart contracts , decentralized application (dApp) , and tokens . These three new concepts allow for a diversity of new use cases.
Smart contracts are like ’intelligent contracts’ which automatically generate scripts under specific conditions. By allowing for the shipment of all kinds of metadata in the blockchain , smart contracts allow for the autonomization of predefined actions by the parties putting a contract into place, for example, reimbursement for a ticket for a flight that has been canceled. In this fictitious case, a person only needs to buy (with ethers) his ticket in the decentralized application (dApp) of the given airline. That ticket can later be materialized as a token specifically designed for this usage. The funds harvested by the application will be blocked through a smart contract . This same dApp , by means of an Oracle service (charged with entering the external data into the blockchain ), connected to the airport’s network will automatically trigger, via the smart contract , a specific action defined by the signee(s).
A decentralized application (dApp) , is a type of software application that runs on a blockchain and is not controlled by any single entity. Compared to the usual centralized applications (like on the App Store), dApps are more resistant to censorship and malfunctions.
A token is a unit of value that is issued and managed on a blockchain network. Tokens can represent assets such as cryptocurrencies Ô, commodities, or even assets that are not traditionally considered to be digital, such as real estate or art. There are two main types of tokens : fungible tokens and non-fungible tokens (NFTs ). Fungible tokens are interchangeable and have a uniform value, such as cryptocurrencies Ô like bitcoin or ether Ξ and follow the ERC-20 ststandard. NFTs , on the other hand, are unique and have a distinct value, such as digital art or collectibles; they follow the ERC-721 standard.
NFTs have gained fame because of their appropriation by the art world in which they triggered their own controversies, largely discussed – or fought – when some big sale made the headlines: in 2021, the digital artist known as Beeple sold an NFT of his work for $69 million at Christie’s. This sale placed Beeple, who had never sold a print for more than $100, among the most valuable living artists in the world. As an NFT is a token associated with a digital artwork and not the artwork itself, you may think that buying a NFT , apart from the bragging rights you get over a digital entity, is quite absurd (the purchase of a work in NFT is not necessarily associated with the right to exploit it commercially). However, the accusation of uselessness is more related to the overall allegations expressed about art in general. Most importantly, NFTs do not only apply to the art world, which is only a fraction of it. For instance, a NFT concert ticket could be a unique digital asset that represents ownership of a specific seat at a concert. In this fictional case, the ownership of the NFT ticket is recorded on a blockchain network, making the ticket’s authenticity verifiable and secure. Additionally, the NFT ticket may have additional features such as the ability to transfer ownership or access special perks at the concert, which can increase its value.
We could wonder why anyone would want to participate in a blockchain other than being a simple user ? Like cypherpunks , it can be because of one’s ideology and their will to change the current systems. But values don’t always pay the bills: we’ll dig more into the financial aspect of it which drives a lot of miners .
Indeed, participating in a blockchain as an active party can be financially rewarding. One type of reward is the block reward , which is a fixed amount of cryptocurrency Ô that is given to the miner who successfully mines a block . This reward is a key component of mineable blockchain protocol , such as Bitcoin ₿ that uses computing power to validate transactions . Because mining can require expensive equipment in order to have hardware powerful enough to find the nonce , miners can join a “mining pool ” in order to combine their computational resources to strengthen their probability to find a block . In a mining pool , the block reward is then split amongst all miners in the pool according to the amount of work they contributed to the collective effort.
A coin can therefore be referred to as “mineable ”, if its blockchain implements a protocol where its emission is done block by block. To create new tokens (minting ) on Ethereum ⟠ (such as a cryptocurrency Ô, a Decentralized Autonomous Organizations (DAOs) token membership, a NFT ) you would have to mint it: that is to design the token (its specifications such as its total supply, its symbol and any features it may have), write a smart contract designed to automatically create and distribute the new token based on certain conditions, such as a specific date or the completion of a fundraising campaign and deploy this smart contract on the blockchain by uploading the code and paying the transaction fee . The smart contract will then automatically create and distribute new tokens if the conditions set in the code are met.
Tokens can be created during an initial coin offering (ICO) , in which a new blockchain project , announced by a whitepaper , sells a portion of its tokens to early investors in exchange for money. This money is typically used to fund the development of the project and bring it to market. After the ICO , the tokens are typically traded on market places, allowing people to buy and sell them just like they would any other cryptocurrency .
Another way to create value and gather communities around new cryptocurrencies Ô is through airdrops , where a certain amount of tokens is given away for free to a specific group of users or holders that have been previously whitelisted . These rewards can help to increase awareness and adoption of a new service.
As we’ve seen before, cryptocurrencies’ Ô value can fluctuate, and some processes allow for a better control of their value. On Bitcoin ₿, the block reward decreases by 50% over time (every four years) in a process known as halving . This is done to control the inflation rate of the currency and to ensure that there’s a limited amount of bitcoins (21 million at most) as rarity creates value. Following this idea, a token burn can also create value by decreasing the supply of a token , by permanently destroying it or making it unavailable for use thus increasing its scarcity and potentially causing the value of the token to rise. While demand stays the same, the supply drops.
In fine, blockchain-powered tokens and shared ownership addresses the fundamental issue with centralized networks where value is accumulated by a single organization. Thanks to decentralization, users become the content owner of their data and have an equal opportunity to participate in the project . Until now, even though decentralization has helped create the stable, robust infrastructure on which the World Wide Web W lives, it has at the same time allowed a handful of centralized entities (the GAFAM – Google, Amazon, Facebook/Meta , Apple, Microsoft) to have a stronghold on large swathes of cyberspace. Many early crypto adopters therefore felt that the Web W required too much trust. That is, most of the Web W that people know and use today relies on trusting a handful of private companies to act in the public’s best interests. The question then arises as to whether blockchain could usher in a third age of the Web W, the Web3 󠄀.
From the first version of the Web W, retrospectively called “Web 1.0” , developed in the early 1990’s, which was primarily used for accessing and sharing information on personal webpages, it evolved in the early 2000’s into “Web 2.0” , which refers to the more interactive and dynamic version of the Web W, that we still know today in the early 2020’s. Web 2.0 services, such as social media, blogging platforms, and user-generated content have revolutionized the way we communicate, access information, and do business. It has also raised issues regarding concepts of privacy, ownership and security as the digital age allowed for new forms of surveillance and piracy, creating the need for new data-encryption technologies.
In this respect, the term “Web3” 󠄀 was coined by Gavin Wood in 2014 to name the next generation of Web W where decentralization is key. Web3 󠄀 proposes an all-in-one ecosystem: a monetary system (Bitcoin ₿) within an economic system (DeFi ) to exchange digital properties (NFT ), all managed by a new governance systems such as Decentralized Autonomous Organizations (DAOs) through decentralized identifier (DID) .
A Decentralized Autonomous Organizations (DAOs) operates based on a set of predetermined rules encoded into smart contracts . DAOs work through the use of a decentralized identifier (DID) which ensures the secure and private management of member identities and voting power.
A decentralized identifier (DID) is a unique identifier that is owned and controlled by the individual rather than a central authority thus opposing Web 2.0’s tendency toward the monetization of data and invasion of privacy. Web3 󠄀allows with this web3 identity for a more “self-designed” identity that would allow users to fully immerse themselves in the metaverse , a virtual world where avatars and virtual reality intersect.
This new era of the Web W offers a wide range of possibilities for both individuals and businesses. As people gain the ability to own and control their own identity, new opportunities can open up for commerce, communication, and even entertainment. However several artists have highlighted the paradoxes endemic to blockchains and NFTs , with, on the one hand, its promise of equity and responsibility, and, on the other, implementations that are often quite capitalistic in nature. One example of this is the play-to-earn model.
Through the years, it seems that the true economic potential of NFTs mightemerge not in the realm of art which, until now, has garnered the most media attention, but rather that of video gaming. One of the most well-known games using the play-to-earn economic model is Axie Infinity, launched in 2018, which offered the chance to purchase and collect, trade and battle NFTs of digital Pokemon-like creatures called Axies in order to gain revenue. The play-to-earn paradigm has given rise to “guilds” which play an intermediary role between the “managers” (owners of NFTs ), and players: if they cannot purchase the NFTs in the game (like Axies) because they are too expensive, players—called scholars in that context—can “rent” them in order to gain revenue: this is referred to as a scholarship . This activity has grown to be a new economic model, quite representative in how Web3 󠄀 could work by allowing people to transfer data across platforms and which brought about major social transformations in the countries in which the players are based.
The case of play-to-earn shows that it is difficult to know whether the problems that Web3 󠄀 is supposed to solve (those of GAFAM) will not be replaced by the emergence of new areas of control (increased inequality, censorious voting, insecurity related to individual management of digital identifiers, complexity of access, etc.) potentially more harmful. The cypherpunk ideology is an echo to the one of the tech-idealists (such as John Perry Barlow) who saw in the early days of the Web W the possibility for a space independent from government control and free of privilege and prejudice – but which instead became predominantly owned and operated by capitalistic-oriented companies. At this stage, it is still difficult to know if Web3 󠄀 and its sometimes utopian ideologies will not be just a repetition of history.