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01 Definition of blockchain
*Source: Binance Research
Blockchain is a distributed database technology that stores data on multiple nodes and uses cryptography to ensure data security and immutability. Blockchain organizes data through a chain structure consisting of interconnected blocks. Each block contains a certain amount of transaction data and metadata, including timestamps, hash values of the previous block, etc. The characteristics of blockchain include decentralization, distributed consensus, encryption technology, and smart contracts. Compared with traditional networks, the core features of blockchain are:
Decentralization: Blockchain is a decentralized system where data is stored in multiple nodes on the network rather than concentrated on a single centralized server. This makes blockchain censorship-resistant and attack-resistant, improving data security and reliability.
Immutability: Blockchain uses cryptography to ensure data security and immutability. Each block contains the hash value of the previous block, forming an immutable data chain to prevent data from being tampered with or deleted.
Transparency and traceability: All transactions on the blockchain are publicly traceable, and anyone can view and verify transaction records. This increases the transparency and traceability of data, helping to prevent fraud and misconduct.
Security: Blockchain uses encryption technology to protect the security and privacy of data. Transaction data is encrypted and signed through encryption algorithms to ensure the security and authenticity of transactions.
Smart Contracts: Smart contracts on the blockchain are automated programs that perform specific functions based on pre-set conditions and operations. Smart contracts can automatically execute transactions, manage assets, implement autonomous organizations, etc. without trusting a third party.
02 Common classification of various chains
The various chains in Web3.0 can be classified according to their design, function and purpose. Here are some common classification methods and the characteristics of each chain:
Distributed ledger types:
Blockchain: The data structure of a chain is a chain connection of blocks, each of which contains a certain number of transactions or information. Blockchain usually uses a consensus mechanism to ensure data consistency and security.
Features: transparent, tamper-proof, decentralized, and highly secure.
Typical cases: Ethereum, Bitcoin, and Polkadot.
Directed Acyclic Graph (DAG): The data structure of the chain is a directed acyclic graph, where each transaction is connected to multiple previous transactions. DAG allows parallel transaction processing, improving throughput and scalability.
Features: high throughput, low latency, no block confirmation required.
Typical cases: IOTA, Nano.
Consensus mechanism type:
Proof of Work (PoW): Competing for the right to generate blocks by solving puzzles requires a lot of computing power.
Features: high security, high energy consumption, and slow processing speed.
Typical cases: Bitcoin, Ethereum (currently transitioning to PoS).
Proof of Stake (PoS): The right to generate blocks is determined by the number of tokens held. Nodes holding more tokens have a higher chance of generating blocks.
Features: energy saving and environmental protection, fast processing speed, security depends on token distribution.
Typical cases: Polkadot, Algorand, Tezos.
Proof of Stake with Staking (PoS with Staking): Similar to PoS, but the node needs to lock a certain amount of tokens as collateral to ensure the honesty of the node's behavior.
Features: Increased network security, pledged tokens will be punished.
Typical cases: Cardano, Cosmos, Solana.
Purpose and function:
Smart contract platform: focuses on supporting the development and execution of smart contracts, such as Ethereum, Polkadot, etc.
Features: Flexible smart contract functions, rich development tools and ecosystem.
Typical cases: Ethereum, Polkadot, and Binance Smart Chain.
Distributed storage network: provides distributed data storage services, such as IPFS, Filecoin, etc.
Features: secure, decentralized storage, censorship-resistant.
Typical cases: IPFS, Filecoin, Sia.
Cross-chain protocol: a protocol used to connect and interact between different blockchains, such as Polkadot, Cosmos, etc.
Features: Achieve interoperability between different chains and provide cross-chain asset transfer.
Typical cases: Polkadot, Cosmos, Avalanche.
High-performance blockchain: focuses on improving throughput and processing speed, such as Solana, Avalanche, etc.
Features: high throughput, low latency, suitable for large-scale applications.
Typical cases: Solana, Avalanche, Near Protocol.
03 Basic Definition of Blockchain Tokens
Tokens are digital assets issued in a blockchain or cryptocurrency network, usually used to represent a specific interest, value or function. Tokens can be a form of cryptocurrency or a digital proof of a specific asset, interest or right. Tokens are usually issued and managed by smart contracts and have unique properties and functions.
The value of tokens is mainly based on the following factors:
Scarcity: Many tokens are issued according to certain rules and algorithms and have a certain supply cap, thus maintaining the scarcity of tokens. Scarcity is one of the foundations of value.
Demand and Usefulness: The value of a token is often tied to its demand and use within a particular network or ecosystem. If a token has an important function or use within that network, then it will tend to be in greater demand, increasing its value.
Network Effects: The value of many tokens is also affected by network effects, which means that as the number of network users increases, the value of the token will increase accordingly. This is because more users means more demand and wider use, which drives up the value of the token.
Speculation and market sentiment: Like other assets, the value of tokens is also affected by speculation and market sentiment. Factors such as the sentiment of market participants, market supply and demand, and market news will affect the price fluctuations of tokens.
Typical token cases include:
Bitcoin: Bitcoin is the first cryptocurrency on the blockchain network, representing the status of digital gold and regarded as the "gold standard" in the digital currency market. Bitcoin has the characteristics of scarcity, decentralization and security, so it is widely used as a store of value and value exchange.
Ethereum: Ethereum is the native cryptocurrency on the Ethereum blockchain. In addition to being used for value exchange, it is also used to pay for the execution fees (Gas) of smart contracts. Ethereum is also used as an incentive and payment method for various decentralized applications (DApps) on the Ethereum network.
Binance Coin (BNB): BNB is a token issued by Binance Exchange. It was originally used to pay transaction fees and was later expanded to various purposes within the Binance ecosystem, including voting, discounts, staking, etc.
Virtual currencies in on-chain games: such as CryptoKitties cat coins in CryptoKitties, Smooth Love Potion (SLP) in Axie Infinity, etc. These tokens are designed for payment, rewards and transactions in a specific game ecosystem.
04 Cross-chain transactions and operations
Cross-chain transactions refer to the process of transferring assets or exchanging information between different blockchain networks. Due to the isolation and independence of blockchain networks, cross-chain transactions need to solve some technical challenges, including security, reliability, and interoperability.
To conduct cross-chain transactions, the following conditions must be met:
Security: Cross-chain transactions need to ensure the safe transfer of assets between different chains to prevent double payments or other fraudulent activities. To this end, cross-chain transactions need to use secure encryption technology and verification mechanisms.
Reliability: Cross-chain transactions need to ensure the reliability and consistency of transactions to avoid loss or errors. Therefore, the cross-chain transaction system needs to have a highly reliable network and communication mechanism.
Interoperability: Cross-chain transactions require interoperability between different blockchain networks, even if they use different protocols and consensus mechanisms. To achieve interoperability, the cross-chain transaction system needs to support cross-chain protocols and standards.
In terms of technology, cross-chain transactions involve the following technical details:
Middleware/Gateway: Cross-chain transaction systems usually use middleware or gateways to achieve communication and interaction between different blockchain networks. The middleware is responsible for handling the forwarding and verification of cross-chain transactions to ensure the reliability and security of transactions.
Atomic Swaps: Atomic swaps are a technology that allows for direct asset exchange between different chains, using atomic properties to ensure transaction consistency. Atomic swaps can complete asset transfers without trusting a third party.
Cross-chain smart contract: A cross-chain smart contract is a smart contract that can span multiple blockchain networks. It can execute logic and operations on different chains to achieve cross-chain asset transfer and interaction.
Relay Chain: Relay Chain is an intermediary chain connecting different blockchain networks. It acts as a bridge and forwarder for cross-chain transactions and is responsible for verifying and forwarding cross-chain transactions.
Sidechains: Sidechains are parallel chains connected to the main chain. They can achieve cross-chain interaction with the main chain and have higher throughput and flexibility.
Through the above technical means and methods, cross-chain transactions can realize the safe and reliable transfer and interaction of assets between different blockchain networks. However, cross-chain transactions are still an active research field, which requires continuous technological innovation and improvement to improve its efficiency and scalability. There are many tools and platforms that provide cross-chain transaction services, which use different technologies and mechanisms to realize asset transfer and interaction between different blockchains. The following are some tools and platforms that provide cross-chain transaction services:
Cosmos (Cosmos Hub): Cosmos is an open cross-chain ecosystem that enables interaction between different blockchains by providing a cross-chain communication mechanism based on the IBC (Inter-Blockchain Communication) protocol. Cosmos Hub allows users to transfer and exchange assets across different blockchain networks.
Polkadot (Polkadot Relay Chain): Polkadot is a multi-chain blockchain platform that uses Parachain and Bridge technologies to achieve cross-chain communication and interaction between different blockchains. Polkadot's Relay Chain acts as a relay chain connecting different Parachains, enabling cross-chain asset transfers and transactions.
AtomicDEX: AtomicDEX is a decentralized cross-chain trading platform developed by Komodo that supports cross-chain transactions of mainstream blockchains such as Bitcoin and Ethereum. It uses atomic swap technology to achieve asset exchange between different chains, and users can conduct cross-chain transactions directly from their wallets.
Thorchain: Thorchain is a decentralized cross-chain trading protocol that allows users to exchange assets between different blockchains. Thorchain uses atomic swaps and automated market makers (AMM) to achieve cross-chain transactions, providing a highly secure and efficient trading experience.
In summary, supporting ERC-20 tokens can provide users with more choices, better transaction convenience and wider market participation opportunities. Therefore, supporting ERC-20 tokens in cryptocurrency trading and wallet services is of certain importance.
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