NFT – the most contradictory component of the Web 3

There are probably no people left who have not heard of NFTs yet.

Being a vital component of Web-3: the next iteration of the Internet, along with the Metaverse and De-Fi, NFTs evoke, perhaps, the most contradictory feelings in society - from enthusiasm, sometimes bordering on insanity, to outright hostility and harsh criticism.

NFT - a non-fungible token - is a unique unit of data that is verified and stored in the blockchain and can be linked to digital or physical assets to provide immutable proof of ownership. Blockchain technology allows NFTs to be tracked in an immutable digital ledger that provides a history of assets and can be verified at any time. So, NFTs cannot be replicated, destroyed, or counterfeited.

NFTs are primarily created on Ethereum, but other blockchains support them as well.

For selling NFTs, they must first be minted. Minting an NFT means converting a digital file into a digital asset that can be published and stored on the blockchain, making it available to potential buyers. The minting process is not free - you need a crypto wallet and a certain amount of crypto currency to cover the Ethereum "gas fees." The most popular NFT marketplaces on the Ethereum blockchain are: OpenSea NFT, Rarible, and Mintable.

Today, almost anything can become an NFT: paintings, photos, videos, music, gifs, memes - any kind of unique art that can be represented digitally. Or it can even be real estate, collectibles, event tickets, website domains or tweets.

Famous auction houses Christie’s and Sotheby’s have already made sales of NFT artworks for several hundred million dollars.

The first experiments with NFT started back in 2013, but the wave of hype rose only in 2021, and sometimes it looked like real insanity. So, the creator of the Nyan Cat meme received $580,000 in cryptocurrency for a gif with the famous cat meme, and the digital artist Beeple sold the token of jpeg collage - Everydays: The First 5000 Days, for $69.3 million.

NFT technology is actively used by both well-known and not yet recognized artists. The main factor in the growing popularity of NFT is the opportunity for a beginner to present his or her work to a wide audience. A few years ago, a new artist had to work hard for several years before reaching the first serious exhibition, and still success was not guaranteed. Today it's enough to convert your painting into a digital format, create a corresponding NFT token (it's not that complicated) and sell it for real money.

Actually, NFT technology can be used for transactions with any digital assets, however, the recent trends show a growing interest in selling real things as NFTs. These can be, for example, sculptures, antiques, a coin collection, etc. But if converting paintings into a digital format is a common thing today, how can a real physical object become an NFT?

The first way is to create a 3D digital copy of the object. Technologies that allow the average person to create such copies are becoming more and more available. And of course, it attracts a lot of interest from businesses and corporations that have been already using and investing in 3D technologies to promote their brands and products not only in the real world, but also in the virtual world of the metaverse. In addition, NFTs of 3D objects are expected to replace our favorite real-world things, objects, and assets in the metaverse, making it even more similar to our everyday environment.

But what if we take objects that are difficult to digitize? Last month, for example, a three-bedroom house in South Carolina was sold as an NFT for $175,000. The buyer indicated that he was able to make the transaction for that property with just one click. How does it work?

In simple terms, the selling company creates an NFT that represents ownership of the house. Those who buy this NFT become the owner of the property. Despite the fact that the purchase is made digitally, the ownership is considered absolutely real - whoever owns the NFT owns the house in the real world.

Although such transactions are still viewed with suspicion by the majority, there are serious reasons to believe that NFT technology could open the door to a decentralized economy without intermediaries such as banks or a government. In the future, it may completely change the rules of the markets.

Today, besides the arts and real estate, the most potential for NFTs have gaming, education,  healthcare, supply chain and logistics industries. NFT tokens can be used to confirm any important document: a diploma, health records, a marriage registration certificate, etc.

A serious barrier to NFT adoption into the mentioned areas is the lack of government regulation. And it is very likely that in case of a fraud or hacker attack, the affected party will not be able to recover its losses.

Moreover, NFT technology faces many other challenges today. For example, one of the main arguments against NFT is its huge energy consumption and extremely negative impact on the environment. However, after Ethereum has switched from a power-intensive Proof-of-Work protocol to a mining-free Proof-of-Stake, it is possible that NFT will become more eco-friendly and increase its audience.

Since NFT has both - the devoted fans and haters, it remains one of the most hype-boosting components of web-3, and is mentioned every now and then in the news and social media, either along with the figures containing impressive number of zeros, or along with facts that cause a no less impressive number of questions and misunderstandings.

 

Private blockchain

“Our virtues are generally but disguised vices” – La Rochefoucauld

 

Why at all do we need a private blockchain?

One of the blockchain types supported by Amazon is HyperLedger Fabric. There is a special Amazon Managed Blockchain service for Hyperledger Fabric on the AWS platform, that simplifies the work related to setting up blockchain networks and reduces the time to deploy solutions based on it. Hyperledger Fabric is a private blockchain, so let's first look closer: what tasks can a private blockchain perform in general?

As you know, a public blockchain has three main properties:

- Decentralization - there is no single node or a dedicated group of nodes that store any information separately - information is duplicated in an amount equal to the number of users in the system.

- Transparency - every user has access to the entire database and can track all changes.

- Reliability - all the records form a chain, and each new record is linked to previous ones by a special mathematical function that depends on the data in the previous elements of the chain. This ensures that the data cannot be changed retroactively.

 

All these components together allow you to build an information storage system where each individual element (user) is untrusted, but in combination, they form a trustworthy repository.

Why is this concept not suitable for an enterprise environment?

First of all, the lack of user identification. This is especially critical when performing financial transactions in an enterprise environment. In 2016, the concept of KYC (Know Your Customer) appeared in the official documents of the Department of the Treasury to combat financial crime FinCEN USA, which requires financial institutions to identify their customers before allowing them to conduct financial transactions.

In addition, in 1989, the FATF introduced the principles of AML (Anti-Money Laundering) - measures to combat money laundering. And these principles require user identification. Thus, there are powerful arguments why an enterprise blockchain should be private but not public.

Is this the only difference? If we create a blockchain network with access to only authenticated users, then is it possible to use other items available in the public blockchain architecture for an enterprise system? No, it is not.

On a public blockchain, we use various consensus mechanisms to validate a transaction that adds a new block of data to the chain. All of these mechanisms rely on all network users participating in the validation process and receiving reward for this participation in one way or another.

And to pay this reward, each public blockchain invents its own cryptocurrency. Cryptocurrencies and public blockchains cannot exist without each other. Currently, there are over 10,000 different cryptocurrencies in the world. This amount significantly exceeds the number of fiat currencies, the value of which is guaranteed by the states that issue them. It is quite difficult to release a new cryptocurrency that has at least some value to the public.

This idea is not suitable for a corporate network. For two reasons:

- First, keeping a complete copy of the entire database on the computers of every employee with access to the corporate network in order to participate in the consensus will not cause enthusiasm among the security services in any corporation, no matter how powerful encryption algorithms are protecting information.

- Second, the idea of ​​introducing an internal cryptocurrency in the corporate network also seems strange.

 

This leads to the conclusion that a private blockchain needs a consensus mechanism based on a centralized algorithm.

So, what is left of the original idea? First, we consistently abandoned decentralization, although the decentralization level of public blockchains based on the Proof-of-Stake consensus mechanism is very doubtful, and then transparency was dropped. In the end, only “all records form a chain and each new record is linked to the previous through a special mathematical function that depends on the data in the previous elements of the chain. This ensures that the data cannot be changed retrospectively.

 

In fact, this is really not so few. We have obtained reliable data storage located in the corporate network and the information in it cannot be faked, no matter what the access rights of the person who wants to do it. And due to the fact that there is a central node or a set of nodes responsible for confirming transactions, the recording of information is significantly accelerated compared to public blockchains. There are many applications for such reliable storage with fast access in corporate networks. We will look closer at some of them soon, and will talk about how Hyperledger Fabric solves this problem.

 

DeFi

We have mentioned the decentralized finance system - DeFi, talking about the trading metaverse - Metafi (http://www.inmost.pro/blog/metafi-first-social-trading-metaverse/). 

As one of the hottest topics in the crypto world over the last few years, Defi is definitely worth a closer look.

DeFi is a global blockchain-based financial system built to meet the needs of the new Internet iteration - Web-3. It is an alternative to tightly controlled traditional systems with outdated infrastructure and processes. It allows you to control and have direct access to your money. DeFi eliminates the fees that banks and other financial institutions charge for using their services. People store money in a secure digital wallet and funds transfer takes only a few minutes. It also provides access to global markets and creates alternatives to local currency or banking solutions. Any traditional services provided by financial institutions can be expected to be offered through DeFi. 

While not everyone has the ability to open a bank account and use traditional financial services, anyone with access to the Internet can use services offered by DeFi products. Currently, tens of billions dollars in cryptocurrencies have flowed through DeFi programs, and the number of transactions is increasing every day.

DeFi markets are always open and there is no centralized authority limiting their working time, blocking payments or denying access. This decentralization aspect is considered to be one of the main advantages of DeFi.

To provide services without third parties, DeFi uses cryptocurrencies and smart contracts, transferring trust from intermediaries to machine algorithms.

A smart contract is a self-executing contract where the terms and conditions are defined and applied through automation and approved autonomously and efficiently on the blockchain. No one will be able to change a smart contract once it is launched: it will always work as programmed. Smart contracts are public, so anyone can view and monitor them. This means that the community will be able to quickly detect a compromised contract and react accordingly.

Security, privacy and transparency of DeFi services also base on fundamental advantages of blockchain as the records of information in chain blocks cannot be changed or controlled by any authority.

Even though most DeFi services are now built on Ethereum, Bitcoin was the real DeFi pioneer, giving the ability to own, control, and send assets anywhere in the world. Bitcoin is open to everyone and no one can change the rules. Its concepts really differ from the traditional financial world, where governments can print money and devalue your savings, and companies can shut down markets.

Now, Ethereum is the ideal foundation for DeFi. Most of DeFi products are actually powered by Ethereum. Therefore, many of them can be easily configured for interaction. You can borrow tokens on one platform, and exchange them on another market and in a completely different program. Tokens and cryptocurrency are written into the Ethereum blockchain, and a shared ledger that tracks transactions and ownership is one of Ethereum's unique features.

Like every other system DeFi is composed of different parts. Its infrastructure consists of layers that are responsible for various processes and guarantee the smooth functioning of transactions and contracts:

  1. Settlement Layer: also called Layer 0. Based on Ethereum blockchain it serves as a foundation for all DeFi transactions, writing code or building applications. This is the vital component - the DeFi system can not exist without blockchain.

  2. Protocol Layer: defines rules and standards for all DeFi transactions, it is a description of the specific conditions necessary for the code to run accurately and fulfill its tasks. All the protocols are interoperable and can be used to create any application in the DeFi ecosystem.

  3. Application Layer: consists of decentralized applications or dApps - products created on the basis of two previous layers that serve as a kind of front-end in the DeFi ecosystem, enabling consumers to use DeFi services. With dApps you can buy, sell, trade, lend, and borrow cryptocurrencies on a decentralized network.

  4. Aggregation Layer: at this layer third-party vendors create end-to-end solutions by bringing together existing decentralized applications and offering users and investors a wide range of financial services in one place.

 

The list of DeFi services is constantly growing, here are some of them:

  • Money transactions around the world

  • Access to stable currencies

  • Loans

  • Deposits

  • Trading

  • Investments

  • Insurance

However, despite the great financial freedom offered to users, serious challenges regarding DeFi still exist. For example, a lack of consumer protection. DeFi is free of rules and regulations. But it means that users often have no legal protection if something goes wrong. There are no government reimbursement systems for DeFi and no laws requiring capital reserves for DeFi service providers.

The problem  is that all the rules and restrictions which could potentially protect the user do not apply to the decentralization concept. So, the path forward may be unclear, but it will certainly be important for DeFi investors to monitor the evolution of the regulatory environment for this new financial sector.

Despite all the concerns and the so far insufficient resistance to hacker attacks, DeFi would gradually break the monopoly of traditional financial institutions and decrease the cost of traditional financial services by removing barriers and giving everyone equal access to the financial infrastructure.

 

 

Dogami – petaverse

Remember Tamagochi - a digital pet from the past? Perhaps, the popularity of this toy, which seems quite primitive today, lies in the possibility of adopting a pet, even for those who are unable to do so for whatever reason.

For example, many people like dogs, but few of them have enough time to spend with the pets and are able to create all the necessary conditions for their care. Soon this problem can be solved by a quite realistic and colorful petaverse - Dogami.

Players (Dogamers) can adopt virtual dogs, play games and compete with others. It will be possible to interact with the pet through augmented reality using the Dogami app, available for any type of smartphone on iOS or Android.

According to developers, Dogami petaverse roadmap includes the implementation of lands saling and the dogs crossbreeding - there will be an opportunity to mint a new puppy NFT with a random gender from two virtual pets NFTs.

The game is built on the Tezos blockchain which provides low gas fees, fast data processing and, as the developers assure, clean NFTs - having very low carbon footprint due to the most energy-efficient blockchain technology. The utility token of petaverse ‘$DOGA’ can be used to raise your dog, buy event tickets, consumables and to create your digital wardrobe purchasing virtual accessories and luxury items such as caps, bucket hats, varsity jackets, bandanas, beds, bed pillows, hoodies and belt bags in the marketplace. 

By the way, Gap Inc. - American worldwide clothing and accessories retailer teamed up with  Dogami to launch the first fashion collaboration in the petaverse. Each item of the collection will be available in the game to create an individual style for your virtual pet. 

And, of course, it's worth mentioning the play-to-earn concept of Dogami. You can earn  ‘$DOGA’ completing day challenges and being rewarded for multiple days of consistent play. The amount of earnings strongly depends on your game level - at level 1, you can only earn a maximum of 5 $DOGA a day, but by level 10  it is already up to 50 $DOGA.

On September 14, first 100 Dogamers got the chance to participate in the early stage of the game and support Dogamí development. 

Even though Dogami was not yet fully launched, it already has a huge amount of attention and positive feedback, since the theme of the game has a really large audience. In this case you can only imagine the potential of the Metaverse for cats!

 

MetaFi – first social trading Metaverse

We have already written a lot about metaverses. We talked about metaverses where you can discover new lands, farm, live in a giant skyscraper, and even about a pet metaverse. We have mentioned that the fashion, entertainment, and sports industries are actively investing in their meta-future. After all, they understand the opportunities of brand promotion in the virtual world, because the metaverse is not just a realistic 3D virtual game, but a huge ecosystem with immense potential and a rapidly developing economy. According to industry experts, the Metaverse will far surpass the real world economy in the coming years.

The metaverse economy is built on cryptocurrencies - decentralized digital money based on blockchain technology. Decentralized Finance, or DeFi, is a platform that allows investors to trade financial products over a decentralized blockchain network.

Transactions do not require intermediaries such as banks or brokers. DeFi accepts investors who do not have a government ID, brokerage or bank account, proof of residency, or social security card.

What happens when you combine the Metaverse and DeFi? Welcome to MetaFi!

The developers of MetaFi claim that the current market products are not able to make Web3 truly decentralized: it is actually being traded, and talked about, on Web2. MetaFi changes this forever by making trading truly social on Web3.

The MetaFi World is divided into futuristic trading zones focused on each kind of asset -  you can trade tokens, NFTs, tokenized stocks, commodities, bonds.  

The $METAFI token is hyper-deflationary by design: the deflationary mechanism is based on the fact that as more users enter the metaverse and trade, more fees will be generated that will be used for activities that reduce MetaFi's circulating supply (buying and burning, providing liquidity, placing bets).

To enter the MetaFi world, you will need to create your virtual avatar - MetaFi Citizen and connect it with your crypto wallet.

One of the most  important features of MetaFie is the ability to communicate - participants can chat, exchange text and voice messages, images, share  knowledge and show their trades in real time. In this world, everyone is trading together and trying to beat the market using collective thinking, research and technical analysis.

“Most trading platforms compete with nearly identical products. MetaFi reimagines the trader’s experience: making trading fun, engaging, and social. With the Trading World, MetaFi will aggregate major decentralized protocols with deep liquidity, wrapped in a new gamified trading environment, designed to be a seamless onramp for non-crypto audience.”- Matt Danilaitis, Founder of MetaFi said. 

This month, MetaFi announced the successful completion of a $3 million funding round. So, now  ​​the company with its web-3 virtual trading platform is valued at $25 million.

The booming interest in cryptocurrencies and metaverses, as well as the opportunity to improve trading skills, communicating and exchanging experience with other participants, make MetaFi very attractive to the crypto community. Currently there are over 100,000 participants on the waiting list.

 

Is there an alternative to PoW and PoS algorithms?

What is a consensus algorithm in the blockchain? Since decentralized networks require tools to agree on decisions and to ensure overall reliability, a mechanism for coordinating system processes has been developed. This mechanism is called a consensus algorithm. It is a decision-making procedure aimed to prevent a network from centralized control and to ensure that everyone follows the rules.

One of the main differences between various cryptocurrency networks is the type of consensus algorithms used.

In the article about Ethereum Merge (http://www.inmost.pro/blog/ethereum-merge/), we talked about the two currently most commonly used algorithms: proof-of-work and proof-of-stake. Both have their pros and cons, their supporters and opponents. And while the crypto industry rapidly evolves, developers will continue to come up with new solutions searching for the perfect one.

Let us now take a look at what alternative consensus algorithms exist, although they are less popular than proof-of-work and proof-of-stake.

 

Proof-of-Burn (PoB)

Unlike the proof-of-work, this algorithm is not very energy consuming. Miners do not need to invest in physical resources - powerful hardware. Instead, they invest cryptocurrencies (coins) to be selected for mining and validation of a new block. Coins sent for burning can no longer be returned. The more coins burned, the higher the chance of being selected as a validator. The system provides a reward for miners to cover the initial cost of the burned coins within a certain time.

One of the main drawbacks of this algorithm is that it does not really reduce energy consumption, since in most cases bitcoin coins mined with proof-of-work are used for burning.

Also, this algorithm lacks speed, and since it is not yet widely used, its efficiency and security still need to be tested.

 

Proof- of- Authority(PoA)

This algorithm is based on a reputation concept that uses a limited number of block validators. Blocks and transactions are verified by pre-approved participants with confirmed identities who act as system moderators. These system moderators validate blocks and transactions.

To be selected as a validator, a candidate must be trustworthy and have no criminal record. Reputation is a major investment here, as confidence in the identity of the validator ensures the security and reliability of the entire network.

It is clear that this approach, in addition to disclosing access to the identity of the validator, has another significant flaw - centralization. However, this factor makes PoA attractive for large enterprises and private use.

 

Delegated- Proof- of- Stake (DPoS)

DPoS consensus is achieved by voting of the delegates (third parties) authorized by the stakeholders, with voting power proportional to the number of coins each user holds. We can admit that the mechanism of this algorithm also relies on the reputation of voters. In case of suspicion of manipulation or rules violation, the community can replace the delegate at any time.

Delegated-proof-of-stake was designed to be more efficient than the proof-of- stake and proof-of-work consensus algorithms, especially in terms of speed of transaction processing.

One of the main problems with DPoS consensus is the possibility of collusion between delegates. This can lead to centralization of the network and increase vulnerability to attacks.

 

Proof-of-Elapsed-Time (PoET)

This  is an algorithm that prevents high resource usage and high energy consumption. Its concept was invented by Intel. 

Determining the node that gets the privilege of adding a block is a kind of lottery in which all participants of the network have equal opportunities. Each node in the blockchain generates a random wait period and goes asleep for this specified amount of time. The node with the shortest waiting time "wakes up" first and includes a new block into the chain, passing the necessary information to the entire network. The same process is then repeated to find the next block.

The cause of concern regarding PoET is a recently discovered vulnerability in Intel's technology, which serves as a foundation of the protocol. In addition, the reliance of consensus on third-party technologies - Intel, runs against the paradigm that cryptocurrencies are trying to implement with blockchain networks - removing the need for trust in intermediaries.

 

Proof-of-Capacity (PoC)

It allows mining equipment to use the available hard drive space on the network to determine mining privilege instead of using the computing power of the device. The larger the hard drive, the more possible solution values ​​can be stored on it, the higher is the chance for the miner to match the required hash value from his list, providing a better chance of achieving a reward.

Despite the fact that the mining process is part of this protocol, it is considered to be less energy consuming as there is no need for super powerful hardware.The disadvantage of this protocol is insufficient security and vulnerability to malware attacks.

This is far from a complete list of existing consensus algorithms.The listed algorithms are used quite infrequently. They have good potential, but there is still a lot of room for improvement. 

Even though proof-of-work is still the most commonly used algorithm today, Ethereum's recent move to proof-of-stake looks like a bit of a gold rush among companies looking for the perfect consensus algorithm to move the industry forward.

 

Ethereum after Merge – what have changed?

The Ethereum upgrade - one of the most impressive achievements in the blockchain industry, finally has been finished.

"And we finalized it!... Happy merge all! This is a big moment for the Ethereum ecosystem," said Ethereum co-founder Vitalik Buterin in a tweet. 

So, what has changed since Ethereum switched to Proof of Stake, except that ETH costs have dropped 20% in the last 7 days.

Since the preparations for the Merge in the Ethereum community have been ongoing for several years, it is currently unlikely that the event itself will cause significant changes in the overall development of Web-3.

There are prerequisites for a positive trend in the NFT segment - as many artists and users have had antipathy towards blockchain technologies due to the environmental impact of high energy consumption. By switching to proof-of-stake, Ethereum became much more eco- friendly. In fact, less than an hour after the Merge was completed, a user spent 36 ETH - about $60,000 - to mint the first NFT on the proof-of-stake network. It is a panda face image called "The Transition."

At the same time, the eco-aspect had a crushing effect on the miners, who appeared to be the most suffered side of the Merge. It is possible that some miners will choose to mine on another chain instead of selling the gear.

Of course, the biggest concern and criticism of the past-merge Ethereum is that it is moving toward centralization. Proof-of-stake depends on users buying, holding and staking large amounts of the network's cryptocurrency.

And while control of the Ethereum network will no longer be concentrated in the hands of a few publicly traded mining syndicates, critics insist that previous powerful players will simply be replaced by new ones. Lido, a kind of community of validators, controls over 30% of the stake on the Ethereum proof-of-stake chain. Coinbase, Kraken, and Binance - the three largest crypto exchanges - own another 30% stake in the network.

“Since the successful completion of the Merge, the majority of the blocks — somewhere around 40% or more — have been built by two addresses belonging to Lido and Coinbase. It isn’t ideal to see more than 40% of blocks being settled by two providers, particularly one that is a centralized service provider (Coinbase)”- explained Ryan Rasmussen, crypto research analyst.

Since decentralization is the main component of Web 3 concepts, this problem should be solved for the successful development of Ethereum and keeping ahead of competitors in the future.

Therefore, the Merge cannot be considered as the final transformation of Ethereum. The challenge is in keeping upgrading the network to adapt it to the decentralization concept and to increase security and speed.

As Buterin admitted, the Merge is just the beginning. "To me, the Merge just symbolizes the difference between early stage Ethereum, and the Ethereum we've always wanted to become," he said. "So let's go build out all of the other parts of this ecosystem and turn Ethereum into what we want it to be.

No matter how much the traditional financial sector resists the advance of cryptocurrencies, they will inevitably take a dominant position in the future. And there is no doubt that the evolving Ethereum is one of the main pillars of this industry.

 

The Merge – Ethereum is on the edge of grandiose changes!

The whole crypto community holds its breath waiting for the most grandiose event that is about to happen. Ethereum is on the edge of the most significant event in its history. A large-scale update called The Merge is planned for the Ethereum network, which involves changing the consensus algorithm from Proof-of-Work (PoW) to Proof-of-Stake (PoS).

The goal of the upgrade is to make this blockchain platform more scalable, secure and decentralized.

The actual activation of the Merge will happen with the "Paris" update, around September 15th, when the cumulative Terminal Total Difficulty (TTD) reaches 58750000000000000000000. TTD specifies the final Proof of Work block, after which the Proof of Stake consensus takes over.

With the change of consensus the era of mining will finally be closed. After the transition of Ethereum to PoS, miners in the network will be replaced by validators. They will confirm new transactions with the help of stakes and receive a reward in Ethereum coins (ETH) for this work.

To clearly understand what is happening, let's take a closer look at the basic concepts of the blockchain and figure out what consensus algorithms are and what are the pros and cons of PoW and PoS algorithms.

Each blockchain has its own protocol as a set of rules and actions, aimed at transferring data. Protocol is a critical component of Blockchain technologies that allow interaction of network nodes, transmission of data and block mining confirmation. A node is one of the many devices that runs the blockchain protocol software and usually stores a history of transactions. Nodes are connected to each other in a decentralized network. 

The consensus algorithm ensures that the rules of the protocol are followed and that all transactions are authentic. In other words, it is responsible for ensuring that all the nodes of the network agree with the adding of a new block. In this way, the consensus algorithm maintains the integrity and security of the network.

Proof-of-Work and Proof-of-Stake are currently the most used and well-known consensus algorithms. In fact, there are many more consensus algorithms, but for now we will consider only these two.

 

Proof-of-work (PoW)  is used widely in cryptocurrency mining, for validating transactions and mining new tokens. It is a mechanism that allows the decentralized Ethereum network to come to a consensus or agree on things like account balance or the order of transactions. This prevents users from “double spending” their coins and ensures that the Ethereum network is extremely difficult to hack or to fake.

To participate in a transaction, network members need to solve an arbitrary mathematical puzzle to find the hash and publicly prove the work done in order to avoid cheating the system.

A hash function is a function that converts an array of input data of arbitrary length into a bit string of a fixed length, performed by a certain algorithm. The conversion performed by the hash function is called hashing. The result of the conversion is called a hash.  The hash calculation process requires a lot of energy, which only increases as more miners join the network.

The first miner who is lucky to find a solution gets the right to add a block to the chain. Moreover, it gives the  ability to receive a reward for the work done and this is the main motivation for mining. All nodes are competing with each other, increasing the capacity of computing resources in order to be the very first node to receive a reward.

The main disadvantages of PoW:

  • Mining requires an enormous amount of energy. Nodes in the network are competing with each other, constantly performing complex calculations. But as a result, most of the work is done for nothing, since the reward goes to only one node. Bitcoin mining consumes more energy than countries like Switzerland or Greece;
  • Low speed and poor scalability. PoW blockchains are sorely lacking in speed. For example, the maximum throughput of the Bitcoin network is only 7-10 transactions per second. Such low rates are not suitable for mass and everyday use;
  • Users have to pay fees to miners for the verification of transactions. The more users in the network, the higher the commission. For the small transactions, commissions can even exceed the amount of the transfer itself;

 

Proof-of-Stake (PoS)  reduces the amount of computational work required to validate the blocks and transactions that keep the blockchain secure. Computing power (block validation) is replaced by staking. Staking is the process of blocking cryptocurrency assets in order to earn rewards or interest.

This algorithm gives the right to create the next block in the blockchain to the node that has more balance - the amount of resources, for example, cryptocurrency coins. The node does not receive a reward for the creation of the block. The reward is paid for the transaction. 

The main advantages of the PoS algorithm:

  • Low power consumption compared to PoW algorithms;
  • No special equipment needed;
  • High speed and scalability. For example, the transaction amount increases up to 2000 per second;
  • Low commissions;
  • Participation in the evolution of the project. Validators are taking part in voting on the future development of the project;

 

But aside from the fact that Proof-of-Stake is younger and less tested compared to Proof-of-Work, the biggest concern about the PoS algorithm is the risk of centralization. The validators, who have the larger amount of coins, will eventually control the majority of the network. Therefore, blockchain developers have been working on new versions of the PoS algorithm in recent years to solve this issue.

So, what will happen when the cumulative difficulty of Ethereum mining  finally exceeds the assigned TTD value? After crossing this milestone, there will be no more mining here. Network users (wallets) will stop accepting blocks from miners and will be waiting to get them from PoS validators.

The updated version of the protocol after the transition is called “Paris” and will continue the line of European capitals after: “Berlin” and “London”. On the evening of September 11, almost 84% of wallets were ready for the transition.

To become an Ethereum validator, you need to have at least 32 ETH as a deposit. In order to optimize the calculations, staking participants are divided into committees -  groups, the members of which are determined randomly. They include from 128 to 2048 validators. 

Time in Proof-of-Stake Ethereum is divided into slots (12 seconds) and epochs (32 slots). A randomly selected validator proposes blocks in each slot. This validator is responsible for creating a new block and sending it to nodes in the network. A committee of validators votes to agree on the validity of the block that was proposed. Committee members are shuffled after each epoch. 

By June 2022, the energy consumption of the Ethereum blockchain was 112 TWh per year. As a result of replacing mining with staking, this amount will decrease by 99.95%. This will not affect the operational processes of the protocol and the economics of projects, but it will allow Ethereum to avoid criticism from the “greens”. In addition, Ethereum will become more attractive to investors who take into account environmental issues. The developers claim that after PoS implementation, each node will require no more electricity than a regular PC.

The Ethereum roadmap includes the implementation of a technology called sharding, which is necessary to increase the scalability of the blockchain. Sharding is the division of a common database into fragments and distributed storage of information by nodes. This update will allow the Ethereum network to grow in line with the increasing load.

Sharding will reduce hardware requirements and allow the node to run on laptops and smartphones. The update is planned to be integrated in 2023, but the final date depends on the effectiveness of the Merge - transition to Proof-of-Stake.

There is no doubt that the Merger is one of the most significant events in the history of cryptocurrencies, which may have far-reaching consequences, from unpredictable fluctuations in the price of Ether to global changes in the crypto industry at all.

 

Are you ready for the Metaverse?

Introduction

The metaverse is an online world, a virtual space where the digital version of you performs virtual activities similar to those performed in the real world, such as communicating, building, owning digital real estate, using digital currency that can be converted into real transactions.

Matthew Ball - modern ideologist of the metaverse, identifies its seven main features:

  • Endless existence - it never stops, resets or ends;
  • An unlimited number of audiences can connect to it simultaneously. Anyone can connect to the metaverse at any time and participate in its life on an equal basis;
  • A functioning economic infrastructure and reward system for virtual work that brings value recognized by others. Income or earnings that can be spent and invested;
  • Compatibility of all data from different digital worlds;
  • Independence from external factors - it exists in real time, although developers can create and schedule events in the metaverse;
  • Bridges the digital and physical worlds, private and public networks, open and closed platformes;
  • Filled with content created by variety of individual contributors or groups of users;

Though currently existing gaming platforms are the best examples of the metaverse, there are also a huge number of opportunities for the businesses. 

Today, many companies have integrated VR technology into their manufacturing processes. Ford, for example, uses virtual reality to allow employees from different countries to work on car design simultaneously. VR helps make processes faster and cheaper, and does not require physical materials. 

VR technologies can be useful not only in production, but also in office work. Imagine being able to work remotely but still hold meetings and negotiations with colleagues and business partners in a virtual space? Already existing platforms glue.work or Mesh, which Microsoft introduced in November 2021, allow several people to communicate in one virtual space. 

The participants can interact with each other and even with 3D objects. So far, this is possible with digital avatars, but later Microsoft plans to develop technologies that will allow people to appear in a virtual environment through their own holograms, which will help to express the real emotions and communicate better.

Blockchain is also an extremely important part of the metaverse world. It is the economic mechanism of the future. Blockchain will tie each user's data and money to their digital account and allow them to use purchased products throughout the metaverse.

The rapid development of the metaverse will bring benefits in many areas of our lives - education, entertainment, the arts, health care, and others. It opens up important business opportunities, even more impressive than after the digital transformation that has turned most companies into online businesses in recent few years.

The metaverse is creating a new economy that can significantly increase brand awareness, deliver immersive customer experiences, and improve communications. 

The fashion industry is already using these tools. Fashion shows where the model walks not on the catwalk, but in the virtual world, have already taken place.

Did you know that sports brand Nike has its own metaverse - Nikeland, where you can style your avatar buying exclusive digital shoes, clothes and accessories? Adidas has already released a mixed collection for both the real and the digital world. The items of Adidas “Into the Metaverse” collection were sold as NFTs.

Celebrities are also starting to dabble in the NFT world. One example is Quentin Tarantino, who decided to sell part of the Pulp Fiction movie-script, which was not included in the final film, as NFT.

Digital giants like Google and Microsoft are now investing heavily in creating their own metaverses, and Facebook has recently been renamed to Meta. According to Zuckerberg, users of the new metaverse will not be tied to any particular social network any more. People will be able not only to view the content, but literally to be in it.

The ultimate goal of the metaverse as a product is to recreate the real world with all the feelings and processes. Companies want people to be able to "live" in the metaverse - to hold meetings there, watch shows, play games and make new friends. 

However, besides the fans of the metaverse, there are those who believe that it has a dark side.

 

Privacy concerns

There is no doubt that technologies that already track our behavior and preferences will be used in the metaverse. Moreover, these technologies will become much more aggressive and intense.

By connecting wearable devices, necessary for immersive virtual experiences, we will allow companies to track our physical reactions and emotions. They will collect and use huge amounts of data for marketing and other purposes.

For example, the eye-tracking technology that VR headsets provide will make it possible to collect information about where and for how long we are looking during metaverse experiences. Such issues raise significant concerns for those who care about privacy.

 

Health Concerns

Returning to the real world after an amazing and impressive time spent in virtual reality can cause sadness or even depression. Adults and children already suffer from gaming addiction. As the metaverse expands, more and more people will suffer from this so-called “digital hangover”.

 

Legislation issues

Is it possible to control everything that happens in a vast universe comparable to the real world? The first allegations of sex parties, harassment and meetings of extremist organizations in the metaverse have already surfaced. We must be prepared for an increase in such cases. 

Second, who and how will evaluate the ethical and moral components of the content? Can a virtual act be a crime? Who will establish the rules for what is allowed and what is forbidden? The metaverse will cause regulatory problems and will create new blind spots in legislation.

An issue that can rather be attributed to the challenges that the metaverse is already facing on the way to its expansion is facilitating access to virtual reality technologies for the general public. One of the reasons is the high price of VR headsets. Now they are becoming more affordable and easier to use and you no longer need a powerful computer to immerse yourself in VR. 

Beyond that, a technological breakthrough regarding the headsets should be expected. So far, they are quite massive and can hardly be called mobile. Probably portable and convenient glasses that allow you to enter the metaworld from anywhere, will be produced soon. Three major new releases coming this year: the Sony PlayStation VR2, a Meta headset "Project Cambria" and Apple's AR glasses, which will most likely be similar to smart watches and will display notifications, calls, and information in augmented reality.

Technologies aim to enable full immersion in the virtual world, where objects can be touched and felt. South Korean company bHapticshas presented gloves that will not only reproduce your movements in VR, but will also allow you to feel objects. Sensitivity is provided by a system of inflated or deflated pads that apply pressure to different parts of the hand, simulating the sense of touch. bHabtics also has a special suit that converts the sound effects of explosions, shots, etc. into tactile feedback using special built-in motors. In the scary game Phasmophobia, for example, you can already feel the touch of ghosts.

Why is such a hype around the metaverse happening just now, though for the first time this term was mentioned back in 1992 by a science fiction writer Neil Stevenson in his  novel Snow Crash?  

Perhaps it was influenced by Covid-19 pandemic, when people were isolated for a long time: public events like concerts, visits to museums, theaters, cinemas and clubs were under restrictions. However, the human nature to interact, as well as the need for self-expression and recognition, have significantly increased the value of digital presence on virtual platforms.

Since the metaverse includes all the main components of the new stage of Internet development, such as NFT, blockchain, cryptocurrencies and DeFi, there is an opinion that Web-3 is the Metaverse. 

Based on research, Gartner predicts that people will spend at least an hour a day in the metaverse by 2025.

Are you already metaverse-ready?