Thread by @onlyequities

I met a crypto startup founder in a local Starbucks and had an amazing discussion with him on this space and asked all my questions and cleared my doubts

A thread on my learning and answers to some basic questions on #ETH and the metaverse #btc #eth #nft #smartcontracts
Thread

Disc: I am no crypto expert and the thread is based on my understanding and whatever I have learnt about the space

I am trying to simplify everything here for an average user who is new to crypto and some parts may not be completely accurate due to oversimplification

#BTC is the most popular crypto because of the early mover advantage, finite quantity (21 million) and the proof of work mechanism to make it secure

Proof of work basically means that miners have to spend some computational effort to add the transaction and others can verify it

For their efforts(miners efforts) they are paid an incentive called the miner's fees. For bitcoin, 18.78 million btc are in circulation right now and more are added each minute and paid to miners as fees. Once 21m are minted fees will be paid completely by the users

Now with BTC network the coding is such that you can only send tokens(BTC) to each other and thats it

This is where #ETH and most of these new projects differ

#ETH is like a supercomputer (called the Ethereum Virtual Machine, or EVM)

Here apart from the ether currency token, you can write programs and upload to the network and users can interact with it

The selling point is that its secured by the ether network so no one can manipulate it once the transaction/or data is recorded on the blockchain

This is where all the NFTs, Smart Contract and other Decentralised apps(DApps) come into play

Smart contracts are basic contracts on eth network to explain this I will give an example
say you agree to pay me 1eth per tweet with a max of 50 eth. When we enter into this smart contract 50eth will be blocked from your acc and whenever I tweet 1 eth will be transferred to me

The selling point is that unless its specified in the contract, no one can modify or back out of the contract

There is no need for trust or any central authority between the parties

Its completely decentralised

A lot of Fintech and DeFi apps are trying to build on this

Now this space is very nascent, like literally 3-4 years old at max and is constantly evolving

New projects are coming up every day,new problems are being solved and money is flowing

This is not just about BTC anymore,dont be in any preconceived notion and discount this space

Now enough of this positiveness and time for some of the biggest criticism and problem with this entire thing -
1) electricity
2) gas fees
3) time required for transaction confirmation

1) These blockchains are massive electricity guzzlers due to the fact that entire ledger is stored with everyone on the nodes unlike a centralised authority with a primary server and few backups

Then mining consumes a lot of computational and electrical power

The solution that's being touted is using clean energy, some of the projects like Solara($SOL) is already doing it

Second is using Proof of stake (PoS) instead of PoW mechanism
where the miners will have to stake this tokens on the network resulting in skin in the game

This has already been started to roll out in phases with Etherium 2.0 implementation on the eth network

It's expected that it will cut down electricity consumption by 99%

2) Gas fees

Gas fees is the fees that we pay to the miners on the ethereum platform

Gas refers to the unit that measures the amount of computational effort required to execute specific operations on the Ethereum network. - definition from docs

Since each Ethereum transaction requires computational resources to execute, each transaction requires a fee

Now the problem is due to the sudden exponential rise of NFTs,defi and daaps the no of transactions have increased substantially wrt the computing power

So the gas fees are increasing at an astonishing rate and are currently at a level where even the basic transactions are very costly and it's kind of impossible to transact for small ticket items
chart source: Coindesk

WHY DO GAS FEES EXIST?

Gas fees help keep the Ethereum network secure. By requiring a fee for every computation executed on the network, we prevent bad actors from spamming the network. - from ethererum docs

Now the solution is the same here, Ethereum 2.0
where they will bring down the computation and gas fees

It's expected that this transition could happen near to end of 2021 or early 2022

3) Bringing downtime required for transition conformation

Currently, its a lot of time for transactions to get confirmed
on BTC it may sometimes take 30min to even an hour
For ETH you can pay a priority fee to incentivise the miner to verify your transaction first

This makes it costly and time-consuming to perform microtransactions and makes a lot of DApps unviable

There are different ways to scaling, and different protocols are using different ways to scale

The most popular and promising is Layer 2

Now with all technologies, there are risks
All these may not get implemented properly, there could be glitches, these protocols may get outdated and better tech and protocols may take over

But this space is going to do wonders, Its not just about Bitcoin

Hope you liked this thread, I have tried to present it to the best of my abilities, and have tried to cover as much ground as possible
pardon me for any typos or mistakes

Do add your thoughts in the comments sections.