Chapter 1: Altcoins
Episode 4: In this post, we are going to read complementary notes on Bitcoin and what are Altcoins (mainly Ethereum).
Note: I wrote this article in summary note style
Note: Bitcoin is the first cryptocurrency that uses blockchain technology but it isn’t the first cryptocurrency in general, DigiCash was way older than bitcoin (Bitcoin is by far the most important cryptocurrency).
Protocol:
protocols are a set of rules and orders that govern the network, the examples in the bitcoin case can be:
- “every 10 minutes a block should be created”.
- The size of each block is 1 Megabyte.
- Halving.
More details about halving
Consequently, there is going to be 21 million bitcoin mined until 2140 and to this date (Dec 7th, 2020) there are almost 18 million bitcoin mined. And from that date on miners going to be rewarded by transactions fee rather than a mined bitcoin.
Halving is existed to fight against inflation in the Bitcoin market and it helps coins to be valued and regulates the market.
Unit conversion
Each bitcoin is equal to 100 million Satoshi, we need to know how to convert these units because when you're going to buy bitcoin you should enter the amount in BTC measure and you should know how to convert Satoshi to BTC especially there are times when you are going to buy other currencies via Bitcoin.
Tip: After the decimal point, there should be 8 digits.
What determines the price of bitcoin?
The price is based on the demand and supply concept. A mechanism that helps to regulate demand and supply and incentive for increasing the bitcoin price is Halving.
Why bitcoin is valuable?
The bitcoin value is based on the community trust in bitcoin and blockchain technology and the supply-demand model. Actually, the idea and concept of bitcoin are what makes it special and the network that needs no trust and has no governing organization makes it a good candidate to be a digital asset and the characteristic of bitcoin is as same as gold too overall all these and more makes bitcoin a valuable asset.
Altcoin
To put it most succinctly Altcoins are cryptocurrencies other than Bitcoin.
Coin VS Token
When a project has developed its own blockchain and operates on it we call its cryptocurrency “coins” in other words tokens are cryptocurrency projects that function on other project platforms (blockchain) which 90 percent of the time is Ethereum blockchain.
Note: Ethereum is the blockchain and Ether is its coin.
Some of the mentionable altcoins:
- Litecoin
- Ethereum
- Bitcoin cash
- Ripple
- Chainlink
- Tron
Later we are going to choose the ten most important projects(according to my understanding of importance) in the crypto market and deep dive into the bottom layers of their working process and the ideas behind their existence.
Ethereum
After the creation of bitcoin, there were many other projects whose goal was to either be an answer to bitcoin’s needs and problems or to cover areas of needs that bitcoin doesn’t pay attention to.
One of these instances is Ethereum project, Etheruem came to create a new world of dApps by utilizing the power of smart contracts(don’t worry we are going to read about both smart contracts and dApps later) and blockchain technology.
Ethereum was first conceived in 2013 by its founder, Vitalik Buterin. Ethereum’s goal is to eliminate centralism and the creation of a world without a middleman.
Note:
Ether is the coin, Ethereum is the blockchain. If you want to purchase something on Ethereum blockchain you should pay it by its native currency(Ether). For each transaction you should pay a certain amount of Ether as a transaction fee. This fee goes to miners as a reward for their contribution to the network. The transaction fee is called Gas fee in the Ethereum blockchain.
You can read the Ethereum whitepaper here:
You can read a summary of Ethereum blockchain from the given infographics
Gas fee:
Gas is used to pay for transactions on the Ethereum blockchain. The amount of gas required for each transaction depends on the complexity of the transaction. A simple transfer may use as much as 21,000 gas while a more complex transaction (for instance, those used in decentralized finance) could use in excess of 1,000,000 gas.
Each unit of gas has a price, simply referred to as the “gas price”. Gas prices are denoted in gwei, where 1 ETH = 1* 10⁹ (1,000,000,000) gwei. With a gwei price of 5, a 21,000 gas transaction would cost 21,000 * 5 = 105,000 gwei (0.000105 ETH).
While the amount of gas required for any given transaction remains constant(21 000 gas), the gas price is dynamic. Users set the gas price when sending a transaction (this is often done automatically by wallet software) and transactions are then sent to the “mempool” for Ethereum miners to include in the next block. Miners are rewarded with the transaction fees inside a block and are therefore motivated to prioritize transactions with the higher gas price.
This incentive structure leads to an auction-style market where users bid up the gas price as a means to ensure that their transaction is picked up by a miner and settled quickly.
Real Time Gas Use
What Is This Site? Calculator Gas Price Recommendations Other FAQ
ethgasstation.info
All things being equal:
- If the price of ETH increases, the average gas price decreases and vice versa.
- If the demand for settlement on Ethereum increases, so does the average price and vice versa.
These two market conditions are what lead to the dynamic gas price.
Block Gas Limit
You may now be wondering why there is an auction for gas prices at all. Couldn’t miners just include every transaction in the mempool and maximize profit? The reason this doesn’t happen is that there is a restriction on the size of each Ethereum block. Unlike Bitcoin where the block size is restricted by its size in bytes, Ethereum blocks are restricted by the sum of the transaction gas used in the block.
If the block gas limit was 10,000,000, then each block (blocks are mined roughly every 15 seconds) could include a maximum of 476 transactions assuming each transaction used 21,000 gas. Of course in reality each transaction will use a different amount of gas.
The block gas limit is what leads to the very high gas prices that have been observed in the past. When there is a lot of demand for Ethereum, users bid up the gas price in the hope of being included in the next block. Users can still choose to set lower gas prices and be included later on, however, these risk being stuck in a “pending” state or failing.
The block gas limit is set by miners and has been increased several times in the past. Raising the block gas limit is controversial — while it allows more throughput on the Ethereum blockchain, it also increases the overall size of the blockchain (in bytes).
How does gas Works?
Smart Contracts:
First read about smart contracts and then go and read Oracle problem.
Brief completion on what we have read so far
Note: In brief ERC20 is a set of standards that allow developers to create their own tokens built on the Ethereum network. Ethereum is not just a blockchain, like Bitcoin; it is a platform. This means that other tokens(projects) can run on it, and decentralized applications (dapps) can be built on it.
ERC20 tokens are the most commonly used tokens on the Ethereum network. They are designed to be used for paying for functions and are known as utility tokens. They can also be used to pay for goods and services.
These tokens are:
- Fungible — The code of each token is the same as any other although transactions histories can be used to identify and segregate tokens.
- Transferable — They can be sent from one address to another.
- Fixed supply — A fixed number of tokens must be created so that developers cannot issue more tokens and raise the supply.
Note: In contrast to ERC20 protocol and Ethereum Blockchain there are a couple of others like Tron Blockchain and TRC20 protocol that try to do the same thing with having different criteria in mind. (the token of a project on Tron blockchain is a trc20 token)
Tether project
Tether (USDT) is a blockchain-based cryptocurrency whose tokens in circulation are backed by an equivalent amount of U.S. dollars, making it a stablecoin with a price pegged to USD $1.00.
Stablecoins track traditional fiat currencies, like the dollar, the euro, or the Japanese yen, which are held in a designated bank account.
Tether tokens, which were developed by the crypto exchange BitFinex, are the native tokens of the Tether network and trade under the USDT symbol.
Tether project is on both ERC20 and TRC20.(remember you can’t send a USDT on TRC20 network to a ERC20 USDT address)
so we have USDT on ERC20 and USDT on TRC20
for more read
dApps
Chapter 1 episodes
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