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What is blockchain used for ? Its unique characteristics allow storing and transferring data, running programs and creating tokens in a decentralized way.



<h2>Storing and transferring cryptocurrency&nbsp;</h2>



The first blockchain, <a href="https://d.center/explore/bitcoin" class="ek-link">Bitcoin</a>, was created as a foundation to an inherently independent currency, therefore its main function was to assure that the transactions flow was handled fairly, securely and without any trusted third party. This goal was achieved by setting up a trustless <a href="https://d.center/explore/p2p-network" class="ek-link">peer-to-peer network</a>, where each node keeps a copy of the transaction ledger (the blockchain) on their computer, so that no central authority can modify it. The network is incentivized to properly update the ledger with new transactions, keeping the blockchain going. Also, along with cryptocurrency virtually any data can be stored and transferred within the blockchain.



<h2>Smart contracts&nbsp;</h2>



Blockchain is a system so ingenuous, that people naturally start wondering if it could be used for other purposes. It appeared that the smart contracts (sets of computerized rules executed when predetermined conditions are met), which lie at the heart of the blockchain protocol, can also be used to program things other than transaction conditions. In fact smart contracts can be programmed for a variety of life situations (see <a href="https://d.center/explore/blockchain-use-cases" class="ek-link">Blockchain use cases)</a>, for example by setting an automated payment to an insurance policy holder in case their plane has been delayed (smart contract by AXA on <a href="https://d.center/explore/ethereum" class="ek-link">Ethereum </a>blockchain). The smart contract is given information from the flight status database, and if it sees the data satisfying the conditions of the insurance policy, it automatically triggers the payment (in crypto) to the insured party. Once the smart contract is deployed to the blockchain, it runs autonomously and cannot be changed, relieving both the insurance and the policyholder from unnecessary paperwork and assuring the policyholder they will get their payment (the insurance cannot stop it from happening even if it tried to).&nbsp;



<h2>Tokens</h2>



Smart contracts can also be a useful tool to create <a href="https://d.center/en/explore/tokens-2" class="ek-link">tokens</a><a href="https://d.center/en/explore/tokens-2" class="ek-link"> </a>- digital representations of any given value. Very easy to create, tokens only carry a value their issuer has assigned to them: it can be linked to an asset, a right, a service... For example a company willing to raise money could assign the right to use its services to a certain number of tokens that it will issue and sell to its (future) clients. Once created, tokens enjoy the simplicity and independence of circulation provided by the blockchain.



Every blockchain nowadays supports these three features, either naturally (as Ethereum, which was conceived to), or via updates or external developments, such as additional layers built on top of the main blockchain (colored coins, Lightning network, Liquid sidechain on Bitcoin ...)

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Consensus is a key element in a decentralized system and its choice (PoW, PoS, PBFT…) is determined largely by the blockchain’s purpose. 



The blockchain works thanks to a network of independent computers who execute its protocol: it is the first concrete realization of the distributed ledger technology, or DLT. Such an organization assures that blockchain (ledger) keeping is independent from any central authority. However this independence has a particular condition attached: all network computers must store an identical blockchain and agree on every update to it. The mechanism allowing this result is called a consensus. 



A distributed system is a group of independent and spatially separate computers (nodes) that work together on a shared task. These independence and remoteness make it much harder to achieve consensus and numerous studies on distributed ledgers (a subsection of distributed informatics) put this problem at the heart of the research. 



<h2>Understanding a distributed system </h2>



A consensus must take into consideration the characteristics of a distributed system, as well as its actors. 



Distributed system characteristics: 



📌 Competition - nodes work independently and simultaneously



📌 A global clock not always available - difficult to date and order the events 



📌 Message transfer - every consensus relies on message transfer between the nodes. Depending on a type of such transfer there are two classes of distributed systems:



 ➡️ Synchronous system: messages are delivered within a defined period



 ➡️ Asynchronous system: messages can be retarded for an undefined period



📌 Network partition - a part of the network does not communicate with another part







Distributed system’s actors are the nodes that can be: 



<ul>
<li>Simply faulty - nodes experiencing technical problems</li>



<li>Byzantine - nodes having incoherent or malicious behavior</li>



<li>Altruist - nodes who are always honest and work in the interest of the network</li>



<li>Rational - nodes acting in their best interest</li>
</ul>



The theory of distributed systems assimilates a blockchain to a replicated state machine -&nbsp;



a group of equal nodes&nbsp;allowing to transition after the reception of data (transaction) from one state to another (transition)&nbsp;according to the common rules&nbsp;and keeping a historical record of all these states (blockchain). 



The goal of a consensus is to make sure the nodes agree on transitions (output value) and the record, while taking into account the characteristics of a system and its actors. It comes as no surprise that such a task can quickly become problematic and that its conception depends on particular conditions in which a network evolves. 



<h2>Consensus theory </h2>



An algorithm can allow achieving consensus if it can satisfy two conditions: 



<ul>
<li>Agreement / safety - all non faulty nodes give the same output value</li>



<li>Termination / liveness - all non faulty nodes end up deciding on an output value</li>
</ul>







Achieving a consensus in a synchronous system is much easier than in an asynchronous one, notably when it comes to the liveness condition. However in reality many systems evolve in an asynchronous environment, which presents additional challenges. 



According to a study by Fisher, Lynch and Paterson a deterministic consensus in a distributed asynchronous system is impossible if at least one node is simply faulty (FLP impossibility result). Deterministic means that once the nodes agree on a new state, it could not be changed. 



This study leads to a conclusion that in order to circumvent the impossibility and achieve a consensus one must either evolve in a partially synchronous system, or choose a non-deterministic consensus. 



<h2>Consensus in a partially synchronous system: PFBT </h2>



In a partially synchronous system and in the absence of [tooltip content="nodes having incoherent or malicious behavior "] Byzantine nodes [/tooltip] algorithms such as Paxos or RAFT allow achieving consensus. 



In the presence of Byzantine nodes, the fundamental theoretical contribution is a study by Leslie Lamport, Robert Shostak and Marshall Pease called The Byzantin generals problem. This study shows that a system with n Byzantine nodes must have at least (3n+1) nodes. In other words, in order to achieve consensus a system must have less than a third of Byzantine nodes. 



The methodology of the study applies only to the synchronous systems, however other researches have been conducted under conditions of partial synchronicity.&nbsp; The consensus based on these studies are generally called BFT, or Byzantine Fault Tolerant consensus. 



One algorithm in particular has shown itself very useful: called PBFT (Practical Byzantin Fault Tolerant), it was proposed in 1999 by Miguel Castro et Barbara Liskov. Numerous blockchains today, such as Stellar, Ripple, Hyperledger and Tendermint are inspired by the PBFT. 



The PBFT algorithm and its variants necessitate partial synchronicity, and their implementation requires numerous messages circulating between the nodes. There’s designing a leader who proposes a new state, information rounds, votes… it is considered that the number of messages increases exponentially to the number to nodes. Hence these algorithms are not quite adapted to public blockchains with a big number of nodes, they are rather used in case of few nodes or in private blockchains. 



To summarize, the consensus like PBFT that circumvent the FLP impossibility by partial synchronicity are quite adapted to certain types of blockchains, but are still difficult to implement. Numerous researches in this field are being conducted in order to improve the algorithm or to adapt it to different conditions. 



<h2>Non-deterministic consensus: Pow and PoS </h2>



Bitcoin is the first blockchain ever created and thus the first one to implement a consensus algorithm in a blockchain. Bitcoin being public and having numerous nodes, the FLP impossibility was circumvented using a non-deterministic approach. 



Bitcoin’s innovation is called the <a href="https://d.center/explore/proof-of-work" class="ek-link">Proof of Work</a> (PoW), which, instead of electing a leader, gives an opportunity for anyone providing a PoW (solving a cryptographic puzzle) to propose a new state - a new block - to the blockchain (see <a href="https://d.center/explore/mining-and-consensus" class="ek-link">Bitcoin: consensus and mining</a>). 



The PoW consensus is non-deterministic, because it can happen that different blocks (states) are proposed at the same time and that one part of the network agrees on a state A, and another part of the network agrees on a state B, thus adding two different blocks to the blockchain at the same height. 



As a consensus the PoW assures the liveness (all non-faulty nodes end up giving an output value), but not the safety (all non-faulty nodes give the same output value). This can seem contradictory to the notion of consensus, for there’s no safety, but this situation does not last: before long the network converges to the same blockchain by choosing the one that has produced the biggest amount of work. Here the safety is probabilistic, meaning that the more a block is followed by other blocks, i.e. the more time passes, the bigger is the probability that block is definitive.  



The PoW consensus does not treat the problem of Byzantine nodes in a classic way (Byzantine nodes must be fewer than one third of the network nodes), but circumvents it by making Byzantine nodes’ acts more expensive and more random with respect to their goals. As in the case of safety, the result cannot be proven mathematically, but there’s a strong probability to achieve it. 



The PoW consensus has proven its worth and Bitcoin blockchain works under the condition of asynchronicity with numerous nodes and possible Byzantine actors. Many other blockchains have also adopted it. However, while PoW success is obvious, it has its set of disadvantages: slow speed, not immediate block finality, energy consumption, concentration of miners (nodes that provide PoW)... 



In order to address these concerns other consensus types were born, also non-deterministic and based on the idea of providing something in return for the right to propose a new block to the blockchain The most famous is the <a href="https://d.center/explore/proof-of-stake" class="ek-link">Proof of Stake</a><a href="https://d.center/explore/proof-of-stake" class="ek-link"> </a>(PoS) and its variant the Delegated Proof of Stake (DPoS).&nbsp; 



Instead of providing a proof of work that necessitates high energy spending, the PoS requires having native blockchain coins. The chances of submitting a block are linked more or less directly to the number of native coins a node possesses, in other words its stake in the blockchain. 



<h2>A perfect consensus?&nbsp; </h2>



Every consensus has its advantages and disadvantages and can be targeted by a specific type of attack. The criteria of a suitable consensus depend on a particular blockchain’s characteristics, notably:



📌 number of nodes



📌 public or private



📌 need or does not need an immediate finality



📌 network security



📌 speed



📌 capacity (number of transactions per second)



As of today the majority of blockchain consensus are inspired by the PoW, PoS, DPoS or PBFT. They can also mix them or create new ones, while the search of a perfect consensus continues and numerous developments are underway.

Blockchain challenges and solutions

Blockchain and DLT types

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If blockchain is decentralized, who decides on the updates to its protocol?



 Blockchain governance can be defined as the process by which its protocol can be modified.&nbsp; Usually the blockchain governance includes all the community members, such as:



<ul><li>Nodes in charge of verifying transactions</li><li>Miners (for <a href="https://d.center/explore/proof-of-work" class="ek-link">PoW </a>consensus-base networks) or validators who add new blocks to the blockchain</li><li>Core developers responsible for implementing protocol updates</li><li>Users who initiate transactions on a blockchain&nbsp;</li><li><a href="https://d.center/explore/crypto-exchanges" class="ek-link">Exchanges </a>that list a blockchain’s cryptoasset...</li></ul>



Blockchains are [tooltip content=" accessible to everyone "] open source [/tooltip] and transparent by principle, and any person can submit a protocol update proposal. Usually core developers check if it makes sense and submit it to community review.&nbsp;



From this step governance models can differ greatly from blockchain to another, notably depending on whether it is [tooltip content=" that happens outside the blockchain "] off-chain [/tooltip] or [tooltip content=" that happens on the blockchain "] on-chain [/tooltip].



<h2>Off-chain governance</h2>



The so-called off-chain governance models work through discussions between all community members. It can be forums, core developers meetings, social networks... major updates arouse great interest and participation. The process can however be quite lengthy and chaotic. After an update has been implemented into software, there still can be divergent opinions and nodes or miners can just continue using the old version.&nbsp;



If the new and the old versions are compatible, the blockchain is said to have had a soft fork, and anyone can choose the version they are working with.&nbsp;



If, however, the update is not compatible with the old version, all nodes have to start running the new version at a certain point in time. Those who wish to continue implementing old rules will find themselves isolated from the rest and will be de facto working on another blockchain - the situation called hard fork.&nbsp;



It can happen that an update isn’t adopted by the network’s majority, but a minority is willing to use it - it will also be a hard fork. In any case, a hard fork leads to the creation of a new blockchain, whether it is because of the opposition of a part of the network (like Ethereum Classic forked from <a href="https://d.center/explore/ethereum" class="ek-link">Ethereum</a>), or as an intention to create a new blockchain using the basis of an existing one (like Litecoin, a hard fork of <a href="https://d.center/explore/bitcoin" class="ek-link">Bitcoin</a>). Many [tooltip content=" cryptoassets other than Bitcoin "] altcoins [/tooltip] were born thanks to a hard fork and off-chain governance is still the most common form of blockchain governance. 



<h2>On-chain governance</h2>



On-chain governance relies on voting rules inscribed into the protocol. Usually voting right is proportional to the voter’s stake in the blockchain (amount of native cryptocurrency they own), with additional rules designed to incentivize voters to take an active and positive part in the bockchain’s evolution. Updates are thus voted on-chain and the risk of a hard fork is minimal. This model, however, is more prone to concentration of power (big stakeholders) and can be seen as contrary to decentralization principles.&nbsp;



The blockchains using on-chain governance include Decred, Tezos and EOS.

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Satoshi Nakamoto exploited decades of research, in particular in the fields of mathematics, cryptography and distributed systems, and brilliantly brought them together to create Bitcoin - the first blockchain, which served as an inspiration to all the following ones.



<h2>Mathematical concepts</h2>



Among the mathematical notions particularly important for blockchain development one can note algorithm complexity, one-way functions, elliptic curves and discrete logarithm problem.



<h2>Cryptography</h2>



Employed in numerous mechanisms composing the blockchain, the cryptography secures its functioning, notably by using asymmetric (public-key) cryptography, digital signatures, cryptographic hash functions, digital linked time stamping and zero-knowledge proofs.



<h2>P2P network</h2>



Blockchain functioning relies on the protocol that verifies and confirms the transactions, and then stores them within a distributed ledger. Distributed means that the protocol is run and the data is stored on a network of the so-called peer-to-peer (P2P) computers, all independent and having equal rights. The major benefit of such a system is that data management is decentralized, making it much more difficult to hack, lose or falsify it.

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Blockchain is a tool that allowed for the first time ever to organize and store information in a decentralized way. 



Rather than be managed by a third party, the data in a blockchain is distributed across numerous independent computers - network nodes that run the [tooltip content=" set of rules or procedures that govern the transfer of data between devices"] blockchain protocol [/tooltip]. This constantly updated data composes the so-called distributed ledger - the history of all transactions that have ever taken place on a particular network. The ledger, as well as the rules that determine transaction processing, are stored within network participants’ computers, making sure that neither the ledger, nor the rules cannot be changed centrally. 



Such unique structure allows, also for the first time, to transfer digital assets from one owner to another in a decentralized fashion and without creating copies of the asset along the way. 



It is called a blockchain because ledger updates (or transactions) are combined in a data structure called a block. Each block is timestamped and cryptographically bound to its predecessor, thus creating an immutable chain of blocks.&nbsp;



<h2><a href="https://d.center/explore/blockchain-underlying-technologies" class="ek-link">Underlying technologies</a></h2>



 Blockchain functioning relies on a set of concepts and technologies from different domains, notably mathematics (such as algorithm complexity, one-way functions, elliptic curves and discrete logarithm problem), cryptography (asymmetric cryptography, digital signatures, cryptographic hash functions, digital linked time stamping and zero-knowledge proofs) and distributed computing (P2P). 



<h2><a href="https://d.center/explore/consensus-protocol" class="ek-link">Consensus</a></h2>



New transactions, i.e. ledger updates, are gathered in blocks and added to the blockchain according to a mechanism called consensus (meaning that all network nodes agree with these updates). Network nodes who add new blocks to the blockchain are remunerated in newly created coins and/or transaction fees as an incentive to keep the blockchain going.



<h2><a href="https://d.center/explore/blockchain-functions" class="ek-link">Blockchain functions&nbsp;</a></h2>



The main role of a blockchain is to serve as a transactions recording ledger. Bitcoin blockchain was the first blockchain ever and it is a public record of Bitcoin transactions in a chronological order. Over time, however, more and more applications appeared, allowing the execution of more complex conditions directly on the blockchain via smart contracts, for example by issuing additional cryptoassets other than the native coins - tokens.



<h2><a href="https://d.center/explore/blockchain-governance" class="ek-link">Blockchain governance</a></h2>



Blockchain is a new and constantly evolving technology, therefore it has to deal with constant upgrades and mutations. The way these upgrades are agreed upon by the network nodes, users and the larger cryptocurrency community is called the governance. It plays an important role in blockchain's vitality and often sparkles fervent debates.

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Bitcoin is an assembly of&nbsp; technologies and principles that interact in a predefined manner, securing the whole system performance.&nbsp;So how does it work? 



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<a href="https://d.center/explore/keys-and-addresses" class="ek-link">Keys and addresses</a>. Bitcoin is a decentralized system without any trusted third party, which means that no one can dispose of coins except for their rightful owner. Such feature necessitates extensive security measures, and Bitcoin ensures them using a system of cryptographic keys and addresses. 



<a href="https://d.center/explore/bitcoin-wallets" class="ek-link">Wallets</a><a href="https://d.center/explore/bitcoin-wallets" class="ek-link"> </a>are programs capable of communicating with the Bitcoin network. They generate keys and addresses that allow sending and receiving bitcoins, and can reconstitute the bitcoin balance of a particular account by researching the blockchain. 



<a href="https://d.center/explore/bitcoin-transaction" class="ek-link">Transactions </a>are generated and sent by wallets. Bitcoin transactions have a simple structure called UTXO, and a limited coding language script, which ensure the system’s robustness. 



<a href="https://d.center/explore/bitcoin-network" class="ek-link">Bitcoin network</a> enjoys a Peer-to-Peer, or <a href="https://d.center/explore/p2p-network" class="ek-link">P2P</a>, architecture - its nodes communicate with each other without any central server. Network nodes run Bitcoin protocol to verify if a transaction is valid (the sender has enough coins on their account and their signatures are correct) and if a candidate block (set of confirmed transactions) sent by a miner is OK, then propagate them to the network. 



<a href="https://d.center/explore/bitcoin-consensus-and-mining" class="ek-link">Consensus </a>is needed in order to determine which node will add the next block to the blockchain and to guarantee that this block is not fraudulent. Bitcoin utilizes <a href="https://d.center/explore/proof-of-work" class="ek-link">Proof-of-Work</a> consensus, where nodes need to find a solution to a cryptographic problem, which necessitates a big amount of electricity and specific equipment. As a reward for such work a node gets to add a block and receives newly created bitcoins. Such “bitcoin extraction” activity is called mining and the nodes engaging in it - miners. Mining is the only way to create new bitcoins.



 The node who finds a PoW solution first broadcasts a new block to the network, where, if the block is validated by the network, other nodes start working on the following blocks. Each block having a cryptographic reference to the previous one, a <a href="https://d.center/explore/bitcoin-blockchain" class="ek-link">blockchain </a>is being formed.

To better understand how exactly Bitcoin works, it is interesting to look at each step of a transaction in bitcoin.



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<h2 class="wp-block-heading">Download wallet</h2>



<ul class="is-style-connected">
<li>Alice and Bob download their <a class="ek-link" href="https://d.center/explore/crypto-wallets">wallets </a>(programs capable of communicating with bitcoin network) that generate a pair of keys - private and public (see <a class="ek-link" href="https://d.center/explore/keys-and-addresses">Bitcoin keys and addresses)</a>.</li>
</ul>



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<h2 class="wp-block-heading">Initiate transaction</h2>



<ul class="is-style-connected">
<li>With the help of her wallet, Alice initiates a transaction of sending 0.5 coins to Bob, using his address derived from his public key. She signs the transaction with her private key and her wallet broadcasts <a href="https://d.center/explore/bitcoin-transaction" class="ek-link">Bitcoin transaction</a> through the <a href="https://d.center/explore/bitcoin-network" class="ek-link">Bitcoin network</a> of nodes (computers running Bitcoin protocol and keeping record of all transactions).</li>
</ul>



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<ul class="is-style-connected">
<li>By running the code a node verifies if Alice has enough coins on her account ( at some time in the past she must have received them ) and if she really was the one to initiate the transaction of 0.5 coins. If the transaction is valid, the node broadcasts it to its peers. Bob’s wallet receives notification about pending transaction.</li>
</ul>



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<h2 class="wp-block-heading">Mine the block</h2>



<ul class="is-style-connected">
<li>A mining node gathers valid transactions into a block of a certain size (as of now, Bitcoin block weight is of 4 MB, able to contain around 4000 transactions). In order to propose a candidate block that should be added to the previous one a mining node must comply with the <a href="https://d.center/explore/consensus-protocol" class="ek-link">Consensus protocol</a>. In case of Bitcoin it is called a Proof-of-Work (<a href="https://d.center/explore/proof-of-work" class="ek-link">PoW</a>). </li>



<li>PoW is basically a math puzzle that requires significant computational power to solve. The nature of the puzzle makes the “brute force” the only possible way to proceed, thus obliging nodes to invest into sophisticated equipment and pay heavy electricity bills. These expenses are, in a way, a gauge of node’s good intentions, as they make it economically stupid to sabotage the system. The difficulty of this work is adjusted so as to limit the rate at which new blocks can be generated by the network to one every 10 minutes. </li>
</ul>



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<ul class="is-style-connected">
<li>The first miner to find a Proof-of-Work is rewarded in newly created bitcoins, and that’s the only way to create new bitcoins. The reward is set to decrease geometrically, with a 50% reduction every 210’000 blocks, or approximately four years (as of now it’s 6.75 BTC). This system implies that the number of bitcoins in circulation will never exceed 21 million, the number that would be approached by the year 2140. Additionally, a miner is awarded the fees paid by users as incentives to include their transaction into a block. In the future, as the reward decreases, the fees will make up a much more important percentage of mining income (see <a class="ek-link" href="https://d.center/explore/mining-and-consensus">Bitcoin consensus and mining)</a>.</li>
</ul>



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<h2 class="wp-block-heading">Propagate to the blockchain</h2>



<ul class="is-style-connected">
<li>Once a mining node finds the PoW, it broadcasts the timestamped and signed block to other nodes, who verify its correctness and broadcast it to their peers. Mining nodes start working on creating the following block, mentioning the previous block’s unique identifier. Nodes always consider the longest chain to be the correct one (see <a href="https://d.center/explore/bitcoin-blockchain" class="ek-link">Bitcoin blockchain</a>). </li>
</ul>



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<ul class="is-style-connected">
<li>Bob receives 0.5 BTC from Alice. For important transactions it is recommended to wait until 6 following blocks are mined, to make sure that the transaction is included in the longest chain.</li>
</ul>



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Bitcoin blockchain is public and stores information about all transactions since the genesis block, allowing anyone to verify the transaction history. 



However, only account's address is visible, making Bitcoin a pseudonymous network.

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Bitcoin history

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Every software needs upgrades, but how do you implement them within a headless and decentralized system that is Bitcoin?



Blockchain governance is the process by which its operating rules (transaction and block verification, signatures techniques etc) are decided upon, implemented, and improved. In Bitcoin blockchain the governance is implemented through consensus between community members. It is considered an off-chain governance, as the process itself is not inscribed into the blockchain (see <a href="https://d.center/fr/explore/blockchain-governance" class="ek-link">Blockchain governance</a>).



 The original Bitcoin implementation (also called Satoshi client) was the first version of Bitcoin protocol, integrating a wallet. First supervised by Satoshi Nakamoto himself, the protocol was then entrusted to a team of developers led by Gavin Andersen, then Wladimir J. van der Laan; since the version 0.9.0 it took the name of Bitcoin core. As of today, Bitcoin core is by far the most popular “client”, even if other clients exist and in the past some of them could compete with Bitcoin Core. 



<h2>Who finances Bitcoin?</h2>



Bitcoin development is finance in a decentralised manner by any person interested in its security and evolution: tech companies (Blockstream), crypto exchanges (Kraken, Coinbase), personalities of the crypto world (Meltem Demirors of CoinShares, Jack Dorsey of Twitter, Michael Saylor of MicroStrategy), asset management companies (Fidelity Digital Assets)... Donations can be sent directly to the developers or to associations, such as MIT Media Lab’s Digital Currency initiative or Bitcoin Core Sponsorship Program.



<h2>BIP</h2>



When a person thinks that a certain protocol issue should be addressed, whether it’s correcting  a bug, adding or a new functionality or improving an existing one, they submit the idea or solution to the community. It can be a white paper or an email to <a href="mailto:bitcoin-dev@lists.linuxfoundation.org">bitcoin-dev@lists.linuxfoundation.org</a>. The ideas that make sense become Bitcoin Improvement Proposals, or BIPs; they are assigned a number and published on Github forum. The full list of BIPs can be consulted <a href="https://github.com/bitcoin/bips" class="ek-link">here</a>. 



BIPs implementation can take various forms and be really complex, even in cases when the majority of the community agrees on it. 



<h2>Implementing updates</h2>



If the codebase update is incompatible with the existing protocol (not forward-compatible), all nodes have to accept it at a certain point of time. Usually it happens when there’s a need to eliminate certain security risks or add a new functionality. Those who wish to continue implementing old rules will find themselves isolated from the rest of the network and will be de facto working on another blockchain. Such implementation is called a hard fork and it is a way to bring important changes to the protocol, as well as to give birth to new blockchains.



When a suggested update is compatible with the existing validation rules (forward-compatible), each node can choose for itself whether it adopts the update or not (even if after some time they would have to accept the update to better perform their task). Such implementation is called a soft fork.&nbsp;



Even if the majority of actors agree on a soft fork update, its implementation can be very complex, taking into account Bitcoin's decentralized nature. In the past several methods were used:



<ul><li>Miner Activated Soft Fork (BIP9), which measures miner support for soft forks on a rolling basis. Miners “signal” their support for a protocol by leaving extra information in the block header of the blocks they submit. If more than 95% of the successfully submitted blocks show support for the new rules over a period of time, the new protocol is activated. If not, it is rejected.</li><li>&nbsp;User Activated Soft Fork (UASF), by which a majority of the Bitcoin network signals that at a specified date (flag day) it will reject non-updated blocks by running a UASF full node. UASF contributed to a successful SegWit implementation in 2017, showing that the Bitcoin governance system is sufficiently decentralized to be able to adopt decisions that miners do not particularly support. Learn more on different actors of the network <a href="https://d.center/en/explore/bitcoin-network" class="ek-link">here</a>.</li></ul>







Even with different methods, implementation is still a complicated task, as shown by the debates around Taproot - a much expected protocol update desired by the majority of the Bitcoin community. At the time of writing the way of implementing it is still a subject of discussions, so in order to speed it up a proposal called <a href="https://www.mail-archive.com/bitcoin-dev@lists.linuxfoundation.org/msg09604.html" class="ek-link">Speedy Trial</a> was submitted on March 5, 2021. The idea of Speedy Trial is to start early (the nodes start to count blocks that implement the update soon after its release) and end early (if the threshold of 90% is not achieved within 3 months, the activation fails). If adopted, Speedy Trial method could be used for upcoming implementations. 



 



It is difficult to develop a decentralized protocol. Every update takes a lot of time, which potentially could have negative consequences. However it is paramount that every actor can participate in decision-making, ensuring Bitcoin independence and decentralization.

What is Bitcoin and why it could be a valuable alternative to our usual currencies such as dollars and euros?



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<h2 class="wp-block-heading">Bitcoin and bitcoin</h2>



Bitcoin is both the blockchain and the cryptocurrency that exists on it. To distinguish the two, Bitcoin as the blockchain is usually written with a capital B. 



The basis of the technology were first outlined in Satoshi Nakamoto's (pseudonyme) <a href="https://d.center/en/explore/bitcoin-a-peer-to-peer-electronic-cash-system" class="ek-link">White Paper</a> published in 2008 and titled "A Peer-to-Peer Electronic Cash System". 



It was not the first try to create a digital currency, but it was the first to succeed in solving all the intricate problems that led to previous attempts’ failures. Satoshi Nakamoto exploited decades of research, in particular in the fields of cryptography and distributed systems, and brilliantly brought them together to create a fast, secure, independent, and borderless digital money.



<h3 class="wp-block-heading">Bitcoin consists of:</h3>



<ul>
<li>Bitcoin protocol - a set of rules and algorithms that enable bitcoin issuance and transactions validation via&nbsp;network consensus (a way to ensure that network participants are well-intentioned and will update transactions ledger fairly; Bitcoin consensus is called a <a href="https://d.center/explore/proof-of-work" class="ek-link">Proof-of-Work</a>)</li>



<li>decentralized <a href="https://d.center/explore/p2p-network" class="ek-link">peer-to-peer network</a><a href="https://d.center/explore/p2p-network" class="ek-link"> </a>to run the Bitcoin protocol. Without any central server, a P2P network is composed of computers with equal rights that verify transactions and, if they wish, participate in bitcoin issuance and transactions’ recording.</li>
</ul>



Running the Bitcoin protocol results in a public distributed ledger called the blockchain, where all the transactions are stored. Everyone can consult the blockchain and its transactions from the Genesis block up to now.



Bitcoins are issued according to the protocol as a reward for maintaining the network, and their transfer is carried out&nbsp; without intermediaries and centralized authorities. This means that, unlike [tooltip content=" fiduciary money with no intrinsic value backed by and dependent on the government (e.g. dollars or euros) "] fiat [/tooltip] currencies, Bitcoin does not depend on the government or banks to issue money or to settle and validate transactions. 



The only thing that gives control over bitcoins is the private key associated with every Bitcoin address and available exlusively to its owner.



<h2 class="wp-block-heading">Bitcoin alternative to fiat money</h2>



Store of value. No single entity could ever change Bitcoin code: it is stored and run on the network nodes - literally thousands of independent computers all over the world. This ensures that the code is law, and the rules embedded into code won’t change unless the majority of the network decides so. 



This stability is particularly important when it comes to the emission rules: bitcoin emission rate is predefined, with the supply divided by two every 4 years, meaning that there won’t ever be more than 21 million bitcoins. In the world where Central Banks can print as much fiat money as they wish, Bitcoin represents a remarkable store of value.



Free use. Bitcoin is also public and open source, allowing anyone to join, participate or use it. Anyone can open a Bitcoin wallet and send/receive bitcoins, without any approval from whatever organization. 



This is a significant improvement compared to the red tape of the banking system, not to mention a precious access to the world's finance for the unbanked. Furthermore, in the authoritarian countries where access to money is often used as a tool of repression, Bitcoin’s accessibility is vital. 



<h2 class="wp-block-heading">Bitcoin updates and developments</h2>



The rules that define Bitcoin protocol were first introduced by Satoshi Nakamoto, but as every computer program, they have to be regularly revised and updated, in order to reinforce the protocol security and introduce new functionalities. The way such updates are agreed upon is usually referred to as the <a href="https://d.center/explore/bitcoin-governance" class="ek-link">governance</a>, and in Bitcoin case its community plays a critical role.&nbsp;



Beyond the Bitcoin protocol itself, there have been numerous developments of the so-called layer 2, allowing&nbsp; to execute transactions off the mainchain. Such solutions usually aim to improve Bitcoin’s performance or introduce new functionalities.



Bitcoin's most popular layer-2 solution is Lightning Network, which increases dramatically its transaciton throughput and decreases network fees.

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 A trustless decentralized environment - &nbsp;can it be the future standard of personal freedom and transparency?&nbsp;



For thousands of years humanity’s only way to organize itself was through centralized structures. More or less complex and more or less representing community members, the decision-taking and data-storing have always been centralized. For obvious reasons - it was the best and the safest organization possible.&nbsp;



With the advent of IT and cryptography another way appeared though. By decentralizing a system according to precise rules embedded into computer code, a trusted third party is no longer needed: the system maintains itself thanks to its members running the code. The data is registered on a digital ledger stored on members’ computers, and a special system makes sure there cannot be any fraudulent inscriptions into this ledger. That’s basically how the blockchain works, and we believe it has the potential to change our very society by bringing in several core principles. &nbsp;



<h2>Personal freedom </h2>







By decentralizing the storage of their data, people do not rely anymore on a third party trusted to handle it honestly and safely. Instead the data is entrusted to the blockchain, while its owner is the only one who can manipulate it thanks to their private key. People can become true owners of their data, whether it’s their savings account or personal information on social media.&nbsp;



<h2>The code is law </h2>







The rules that define blockchain activity cannot be changed without an explicit agreement of its members, who switch to the new protocol version only if they want to. In the absence of a trusted third party no one can change the rules of the game. Hence if <a href="https://d.center/explore/bitcoin" class="ek-link">Bitcoin </a>protocol caps bitcoin emission at around 21M bitcoins, no one can modify it and increase the supply, thus keeping bitcoins scarce (See <a class="ek-link ek-link" href="https://d.center/explore/mining-and-consensus">Bitcoin consensus and mining</a>). It contrasts sharply with  the current economic system, where huge amounts of traditional money are printed on a Central Banks’ whim. Keeping emission rules unchanged assures the cryptocurrency value against [tooltip content="fiduciary money with no intrinsic value dependent on the government and central bank (e.g. dollars and euros are fiat money) "] fiat money [/tooltip].



<h2>Transparency and immutability</h2>



 



The blockchain is transparent by design, enabling anyone to check the entirety of transactions from day one. This transaction history cannot be changed as long as the blockchain is secure. Blockchain transaction can also contain arbitrary data, which becomes immutable once on a blockchain, with a timestamp on it. Such data would be stored as a digital fingerprint called hash, for the sake of size and privacy, and so that data owners could prove their ownership at a particular time (they would be the only one to know data generating this fingerprint). Such decentralized system basically substitutes notaries and other certification third parties, at least for digitized values.



<h2>Security </h2>







The bigger the blockchain network and the longer the blockchain has been in service, the harder it is to hack it. For example, in Bitcoin blockchain that relies on a <a href="https://d.center/explore/proof-of-work" class="ek-link">Proof-of-Work</a> consensus, hacking the blockchain equals gathering a computational power of more than half of its network, which with time grew pretty huge (not to mention buying tons of special hardware for that). Furthermore, since the protocol is [tooltip content="accessible to everyone"] open source [/tooltip], the best computer minds of the world are constantly searching for bugs or code mistakes. When it comes to centralized systems, even ingeniously protected ones, a targeted attack has more chances to succeed.

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Blockchain is a technological outcome of the principles of freedom expressed in different intellectual currents.





Personal liberty, as guaranteed by constitutions of numerous countries, is usually defined as the freedom of individuals to do as they please, limited by the authority of politically organized society to regulate their action to secure the public health, safety, or morals or of other recognized social interests. Such definition leaves extensive powers to the authority and numerous intellectual currents have been questioning the limits of such powers for many years.&nbsp;



<a href="https://d.center/explore/bitcoin" class="ek-link">Bitcoin</a> was the first technology that could bring a concrete solution to this problem, establishing clear limits of the money institution by decentralizing it. Ideologically this undertaking follows the ideas of many liberty-oriented thinkers, with 3 intellectual currents particularly standing out: cypherpunks, libertarians and the Austrian school of economy. 



<h2>Cypherpunks</h2>



Probably the most obvious ideological base of Bitcoin, cypherpunks or crypto-anarchists represent a movement born in the US at the end of 1980s (not to be confused with cyberpunks from the dystopian sci-fi). Composed mostly by IT scientists and engineers, cypherpunks advocate the respect of privacy in the digital era, notably by using cryptographic methods to secure personal data on the networks.



<h2>Libertarians</h2>



Libertarian philosophy is a collection of convictions related to the protection of individual rights and the individual freedom from the state, companies and other institutions that could violate them.



<h2>Austrian Economic School</h2>



Austrian economic school calls for considering individual actions within economic studies: since individuals are acting independently and not rationally, mathematically aggregating their data isn’t efficient. Hence massive interventions of state institutions could be dangerous, especially when it concerns currency.

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Can we be sure that our money keeps its value and is always accessible, while it is controlled by the banks? 



Initially money has three main functions: a store of value, a unit of account and a medium of exchange. In order for a currency to last, its holders must trust its capacity to maintain its value and stay available as a means of exchange. History shows us that this trust can be lost quite fast though and the only currency that could ever stand the test of time was gold, mostly because of its inalterability and scarcity.&nbsp;



Money is a particularly poignant case of trusted third party flaws and dangers, and also the very reason the blockchain was created.







<h2>Printing money </h2>



Paper money first appeared during Tang dynasty in China (circa 800). At first it was intended as a practical alternative to carrying around heavy coins, and was fully backed by gold. Over time, however, the authorities did not resist the temptation of printing more paper money than their gold collateral, which resulted in massive inflation, complete collapse of the currency and an eventual return to hard money.&nbsp; 



Since then every country using paper money has repeated this experience. Over-printing can have numerous reasons, most often a war, and recently - economic crisis. What is sure is that every paper money eventually succumbs to over-printing, which leads to its collapse. 



Speaking of modern times, since 1971’s Nixon shock (unilateral decision to stop dollar convertibility to gold, thus effectively ending Bretton Woods treaty) and the end of the Gold Standard most world currencies are completely detached from gold. In the absence of a physical backup, these currencies derive their value from the notoriety of institutions that issued them. That’s why such money is called fiat money (in Latin fiat is a binding decree issued by authorities, also translated as “let it be done”).&nbsp; 



Most recently paper money has taken a digital form called “scriptural money”, and is massively issued by Central Banks, making short-term economic improvements and decreasing the value of money in a medium and long term. This massive overprinting, casually referred to as “Quantitative Easing” or “deblocking funds to support the economy”, effectively dilutes the existing holdings, making the prices of real and finite assets (stocks, real estate, art, and of course gold) skyrocket. 



<h2>Controlling money </h2>



With scriptural money it became much easier to control their circulation, since all money movements are carried out by a trusted third party - a bank. Depending on the government policies, the bank can decide whether its clients can withdraw, send, or exchange their money. Hence the money on a bank account does not really belong to its owner, as they cannot fully dispose of it.&nbsp; 



In the name of saving a bank from collapsing a deposit can be erased or cut (Cyprus 2013), in the name of saving the national currency all exchanges against foreign currencies can be banned (Argentina 2019), in the name of keeping the country from default cash withdrawals can be limited or stopped (Lebanon 2020), in the name of anti-money laundering a wire can be denied (everywhere in the world)... the list of possible dangers is long, and all of them steam from the fact that the money is being controlled by trusted third party - the banks (which themselves are being controlled by the government and the Central Bank). 



<h2>Bitcoin as digital gold</h2>







The blockchain solves the problem of a trusted third party by replacing it with a decentralized system. <a href="https://d.center/explore/bitcoin" class="ek-link">Bitcoin</a> is governed by its protocol and without any central authority. Its holders will always be able to send and receive bitcoins, the bitcoin emission will always be limited to 21 millions, and this won’t change unless the majority of Bitcoin users and ecosystem decides so (see <a class="ek-link" href="https://d.center/explore/mining-and-consensus">Bitcoin consensus and mining</a>).



Bitcoin is often referred to as digital gold, and for a reason: these values have much in common, notably their scarcity and a relative independence from the Central Banks. They have some differences though.



In case of gold, an increase in price motivates more companies to start its extraction (or allocating more resources to it), and the resulting increased supply progressively could lead to a decrease in price. An increase of Bitcoin price also leads to more miners wishing to extract new bitcoins, thus increasing the mining difficulty (mining becomes more expensive), however the supply of new bitcoins does not change (it is fixed by the protocole).The only thing that increases though is Bitcoin security, creating a virtuous circle, which does not exist for any other type of money: the bigger its price, the more secure it becomes.

Why do we need the blockchain? Are cryptocurrencies important to the tech? How can decentralization change our lives?



The consice answer is: 



The blockchain has the potential to change the existing balance of power by eliminating trusted third parties. 



Here's what it means.



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<h2 class="wp-block-heading">Trusted third party and its flaws</h2>



 Our societies, economies and institutions are built on trust: we trust Central Banks to maintain our currencies, we trust commercial banks to keep our savings, we trust social media to handle our data, we trust charities to use our donations to do good... All these institutions that centrally manage a flow of data (scriptural money released in the economy or on our account, personal photos, donations) are called trusted third parties. With our lives becoming increasingly digital (e.g. money is just a piece of data stored on bank servers), trusted third parties' influence is growing more and more. 



However, these trusted third parties are managed by humans, and as humans we are subject to mistakes and corruption. Information stored by trusted third parties can be hacked and stolen, its infrastructures can be damaged. A trusted third party controlling our data means that de facto we're no longer in its possession: our savings could be lost when a bank goes bankrupt, our online profile data could be sold against our will...etc



Trusted third parties are the weakest link in any organization - the principle also known as a single point of failure.



<h2 class="wp-block-heading">The Blockchain Solution</h2>



The major blockchain's breakthrough is solving the problem of a single point of failure. The blockchain eliminates trusted third parties and replaces them with an [tooltip content="computer code accessible to everyone"]open source protocol[/tooltip] that defines the rules of a trustless data handling. This protocol is run by a multitude of different independent computers all around the world, making the system decentralized. The bigger the blockchain network, the more secure the data it contains. 



Cryptocurrency is an intrinsic part of a blockchain, as it financially incentivizes all those independent computers to participate in the network.



By cutting intermediaries the blockchain allows people to reappropriate their data and be free to dispose of it as they like. Furthermore, in the absence of trusted third parties the data is protected from any intentional or accidental prejudice that these third parties could inflict.



<h2 class="wp-block-heading">Bitcoin</h2>



Bitcoin was the first blockchain implementation, dedicated to the decentralization of the monetary system. 



Classic money,&nbsp;like dollars and euros, are also called fiat money, meaning that they are imposed by the governments who protect Central Banks’ monopoly. Fiat money are not backed by any asset (they are not exchangeable against gold, for example) and the Central Banks can manage their emission as they wish. Fiat money circulation is controlled by commercial banks who keep accounts and validate transactions.



Bitcoin's ambition is to liberate our monetary system and give control over the money to the people who possess it. Bitcoin is the first money ever that does not depend on any organization, that is not imposed upon anyone, and that gets its value from the people who made a choice to use it.



Bitcoin, and the blockchain itself, is a practical implementation of cypherpunks', libertarians' and Austrian economic school's ideas praising the right to privacy and individual freedom, as well as the independent economy. It has the potential to disrupt the society as we know it by making human interactions censorship-resistant and secure.



It is important to note that Bitcoin cannot be dissociated from the blockchain technology, for the mere term "blockchain" has only appeared to describe Bitcoin structure and Bitcoin is the first (and still the most accomplished) implementation of the blockchain.

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A well-developed ecosystem is crucial for the blockchain: while assuring its maintenance and specific functions it also allows people to easily use cryptocurrencies.



The blockchain is a decentralized method of storing a continuously changing ledger and registering all transactions that compose it. It is a powerful tool that has generated an entire ecosystem around it, assuring that:



<ul class="is-style-checked"><li>the blockchain network is correctly maintained (mining for PoW-based blockchains)</li><li>a user can easily connect to the blockchain, initiate and receive transactions (<a href="https://d.center/explore/crypto-wallets" class="ek-link">wallets</a>)</li><li>a user can exchange a cryptoasset against [tooltip content=" fiduciary money with no intrinsic value backed by and dependent on the government (e.g. dollars or euros) "] fiat money [/tooltip] or another cryptoasset (<a href="https://d.center/explore/crypto-exchanges" class="ek-link">exchanges</a>)</li><li>a user can spend her cryptoassets paying for a real-world product or service not yet available in crypto (crypto payment systems)</li><li>a decentralized application (DApp) working on a blockchain can get real-world information in order to be able to execute its pre-programmed sentence (oracles)</li><li>different blockchains can work together, allowing people to use the most suitable blockchain for each particular purpose and easily switch between them when needed (interoperability protocols)</li></ul>







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With all these directions developing really fast, the blockchain ecosystem becomes yet more efficient and complete, further propelling crypto adoption.

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Smart contract platforms are called blockchain 2.0: they allow the creation of tokens and DApps, opening the blockchain to various use cases. 



The blockchain being essentially a piece of software run on a decentralized network, it can host not only the algorithms covering transaction logic, but also more complex ones.&nbsp;



The first blockchain - <a href="https://d.center/explore/bitcoin" class="ek-link">Bitcoin </a>- enabled transactions like “Alice sends a coin to Bob”, and other simple computational instructions, like “Alice will send a coin to Bob if Celine will agree on it”. These instructions are called  Smart contracts  - programs that auto-execute when triggered by a certain predefined condition - and were first theorized by Nick Szabo in 1995. Before long this idea was extended to more complex programs that could  be run in a decentralized way on blockchain. The first person to make this possible was Vitalik Buterin, creating in 2015 Ethereum blockchain - the first blockchain dedicated to smart contracts of different complexity.



<h2>Tokens</h2>



An important functionality that smart contracts logic can implement is token creation. In blockchain-speak a token is a digital unit representing any possible set of rights, assets or services attached to it, registered within a smart contract. Created on a blockchain, a token can then be freely exchanged on it, just like native cryptoassets. A token can serve as a form of currency, represent asset ownership or voting rights, or even an identity. Or all at once, depending on its purpose and developer’s imagination. With this, a new era begins - the token economy.



<h2>DApps </h2>



The applications using smart contracts were dubbed Decentralized applications, or DApps in short, since their execution is not controlled by any individual or central entity. A DApp is composed primarily of a user interface on the web and a smart contract deployed on the blockchain. Anyone using a DApp in fact initiates a transaction sent to the address of a smart contract on the blockchain, triggering smart contract execution, the resulting events being noted in the DApp’s logfile and registered on the blockchain. Generally such system makes DApps more secure than traditional applications: executed on a blockchain network instead of a private server, the possibility of an unsolicited third party intervention is much lower.&nbsp;



A direct consequence of decentralizing program execution is that once a smart contract is deployed on a blockchain, it cannot be modified, even by its creators. This property can bring additional value to a DApp (less opportunity for a DApp creator to cheat on its customers), but it also means that a special care should be taken when coding the smart contract.&nbsp;



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The DApps using smart contracts that need data outside of blockchain relies on oracles - third party data providers that trigger smart contract conditions. Oracles are generally agreed upon by both parties and written into the smart contract. For example, in case of a sports bet, an oracle will send the result of the match to the smart contract, which will execute itself and send a reward to the person who won the bet. Oracles’ development is tightly linked to the DApps success and adoption.



<h2>Smart contract platforms today</h2>



Since Ethereum, numerous smart contract-enabling blockchains have emerged, each with its own specificities. Cardano and EOS focus on scalability (number of transactions per second), the crucial aspect that needs to be improved in order to allow a widespread adoption of DApps. Tezos is reinventing the governance system, aiming at creating a self-amending blockchain. As to Tron, a blockchain with ambition to decentralize the online entertainment sector, it puts its best efforts to marketing.



These platforms and the DApps using them contribute to a wider use of the blockchain, finding yet more use cases and helping to decentralize the world.



<h2>Permissioned blockchains</h2>



Permissioned blockchains are another category of blockchains running smart contracts, used mainly by banks and enterprises when they do not wish to disclose some information or to have transaction immutability. These private or consortium blockchains speed up tedious verifications (for bank wires, for example) and help organise heterogeneous data across the companies working together (e.g. for supply chains). It is important to note though that permissioned blockchains are not independent and the information they contain can be modified by their owners.

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Conceived as an independent alternative to [tooltip content=" fiduciary money with no intrinsic value, dependent on the government and central bank (e.g. dollars or euros)"]fiat money [/tooltip], cryptocurrency is a currency circulating on a blockchain. 



Cryptocurrencies in a strict sense are cryptoassets that aim to fulfill the standard money functions (unit of account, store of value and medium of exchange), while enjoying autonomous management and easy transfer specific to the blockchain (see <a href="https://d.center/explore/what-is-money" class="ek-link">What is money)</a>. 



<a href="https://d.center/explore/bitcoin" class="ek-link">Bitcoin </a>is the first and the most prominent example of a cryptocurrency - a decentralized independent money registered on a blockchain. The blockchain here is acting both as a transactions recording ledger and as a cryptocurrency issuing tool - mining nodes receive newly created bitcoins as a reward for each block they add to the blockchain (see <a href="https://d.center/explore/bitcoin-consensus-and-mining" class="ek-link">Bitcoin consensus and mining)</a>. 



Since Bitcoin other cryptocurrencies have emerged, each trying to improve a particular aspect, whether it is scalability (Bitcoin Cash), blockchain governance (Decred), privacy (Monero, ZCash), volatility (stablecoins)... 



<h2>Native cryptomonnaies and tokens </h2>



Cryptocurrencies can be either native cryptocurrencies of a blockchain, like Bitcoin, or tokens created and deployed on a blockchain, like stablecoins - cryptocurrencies pegged to fiat money. 



Native cryptocurrencies are inherent to a blockchain and often serve as a tool maintaining the network, awarding the nodes who add blocks. In order to create a native cryptocurrency one can either develop a new blockchain, or perform a hard fork on an existing one - a modification of its protocol will give birth to a new blockchain (see <a href="https://d.center/explore/blockchain-governance" class="ek-link">Blockchain governance)</a>. The forks are at the origins of many blockchains, Bitcoin alone having served as a base for Bitcoin Cash, Litecoin, Bitcoin SV... 



While, like native cryptocurrency, stablecoins profit from seamless transfer provided by the blockchain, they are much less decentralized - they depend on an issuer company that commits to maintaining a peg between a fiat money (dollar, euro, pound…) and a token. This company is acting as a trusted third party, with all the risks it contains. In order to address this central authority drawback a new category of decentralized stablecoins has been created, with notably DAI token living on <a href="https://d.center/explore/ethereum" class="ek-link">Ethereum </a>blockchain. 



Stablecoins have also caught the attention of states and Central Banks, who, on one hand, want to regulate them, and on the other hand - think about issuing their own cryptocurrencies (crypto-euro, crypto-yuan…) These digital state currencies are usually called the CBDC, or Central Bank Digital Currency.

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The blockchain is not limited to cryptocurrencies. It has unique characteristics that could disrupt numerous industries and sectors.



The blockchain is a tool allowing to store and transfer data, run programs and create tokens  - and all this without any central authority (see <a href="https://d.center/explore/blockchain-functions" class="ek-link">Blockchain functions</a>).  These valuable qualities could be used to solve various problems, enhance overall efficiency and in general improve the fairness of our society. 



Blockchain advantages can be presented under four different angles:



Transparency and immutability, which makes a blockchain a source of reliable and provable information. Useful for data certification and traceability purposes in supply chains, audit, document authentication, control over charities etc.



Easy creation and transfer of values, allowing to digitize (or more precisely tokenize) practically any kind of value and exchange it via borderless and fast networks. Used extensively in finance and banking, but also in sectors marked by a significant red tape, such as real estate. Using NFTs, or non-fungible tokens, it is possible to tokenize unique pieces and even attribute special features to them - a quality that is being extensively used in gaming and art.



Decentralization, a crucial quality needed to organize processes without relying on a third party. Any platform-based domain, such as social media, cloud, ride hailing or marketplace, can become more efficient, secure, censorship-resistant and fair by eliminating the middleman and connecting the users directly.



Automated trustless agreements, enabled by smart contracts, guarantee automatic execution of agreement terms, reducing the risk of someone meddling with them and liberating both parties from administrative work. This quality is being used in almost every other blockchain application, however it is particularly noticeable in insurance, P2P lending and online gambling. It is also at the origin of a promising new type of payment - money streaming.



The blockchain technology is still young, and not every potential is fully exploited yet. Some directions still require a lot of adjusting and others need to find a more practical or less expensive implementation. New blockchains, protocol modification and new blockchain layers are emerging to help find a response to particular issues and put the blockchain to even bigger practical use.

Crypto finance is disrupting the existing financial practices, showing just how efficient finance could be in a borderless and permissionless world.



From TradFi increasingly using crypto to CeFi serving as a gateway between the crypto and the [tooltip content=" fiduciary money with no intrinsic value, dependent on the government and the central bank (like dollars or euros) "] fiat money [/tooltip] worlds, and of course the DeFi that lays the groundwork for the decentralized finance of the future, Crypto Finance is one of the most dynamic sectors of the crypto economy.



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Finance is one of the sectors most impacted by the advent of blockchain. Its borderless, permissionless, and programmable nature has opened to the large public an array of possibilities that have been so far reserved to a tight circle of exclusively professional audience. 



What's more, crypto finance has demonstrated how seamless and efficient this sector could be, compared to the traditional finance ridden with artificial delays, intermediaries, excessive fees and all sorts of inefficiencies that the insiders know so well. 



Crypto Finance has become an umbrella term ☂️ for a wide range of very different ventures, with different degrees of centralization. We can separate it into three big groups:&nbsp;CeFi (Centralized Finance),&nbsp;TradFi (Traditional Finance), and&nbsp;DeFi (Decenrealize Finance).







<h2 class="wp-block-heading">CeFi</h2>



CeFi is the oldest type of crypto finance with a foot in both crypto and fiat worlds.



CeFi describes centrally managed financial companies that offer products and services related to crypto: centralized exchanges (Binance), derivative trading platforms (Deribit), asset management (Grayscale), centralized stablecoins ($USDT), lending-borrowing (Nexo)…



CeFi companies are conducting a [tooltip content=" Know Your Customer"] KYC [/tooltip]on its clients and managing their cryptoassets operations. While the structure is still subject to trusted third party flaws, such as corruption, error or a targeted attack, its blockchain exposure allows moving values from one part of the world to another in a matter of minutes or even seconds.



The most remarkable instances of fraud and malfunctioning in the crypto industry concern the CeFi, mostly because it operates in a traditional way, staying opaque and hiding its dirty laundry until a major problem exposes it all with a bang 💥



This is the way all financial companies function, and the fact that CeFi works with crypto does not change much:&nbsp;all CeFi’s notable failures were very conventional: using clients’ money to fund side operations (FTX), poor risk management (Celsius)… The industry and the regulators are working on tools, both crypto and traditional, which would allow to decrease these risks via proof of reserves, audits, etc.



<h2 class="wp-block-heading">TradFi</h2>



An increasing number of traditional finance companies are already working with crypto, which offers them an excellent portfolio diversification.



Indeed, the cryptoassets represent a completely new type of assets: unlike stocks or bonds that derive their value from the profitability, GDP, interest rates or other economic factors, a cryptoasset value depends on its technology, network size, user adoption or regulation. These factors, uncorrelated with traditional economic criteria, mean that crypto represents an excellent ways of diversifying an investment portfolio. Furthermore, cryptoassets domain is still in its early days, so potential gains could be huge.



Traditional banks, like JP Morgan or Bank of America, can now offer crypto exposure to their clients, while crypto-focused banks, like the Swiss SEBA or Sygnum, choose to explore the full potential of crypto, including the high-potential asset tokenization direction.



Others, like the French Société Générale, are regularly experimenting with issuing bonds or stablecoins on blockchains like Ethereum.



Financial giants like Fidelity are offering crypto custody, while BlackRock has filed for a Bitcoin ETF.



In the traditional derivatives finance, Chicago Mercantile Exchange was one of the first to offer Bitcoin futures.



<h2 class="wp-block-heading">DeFi</h2>







The blockchain prompted the emergence of a new type of finance - the DeFi, or decentralized finance. The DeFi represents an array of financial tools built on a blockchain and managed by its smart contracts accessible via <a href="https://d.center/en/explore/smart-contrats" class="ek-link">DApps</a> (Decentralized Applications): P2P lending platforms, decentralized exchanges (DEXes), synthetic tokens following the price of a commodity or a stock, prediction markets, decentralized insurance, decentralized asset management etc. 



The main quality of DeFi that really makes it stand out is the absence of any central authority. The users never relinquish control of their funds, and the protocols execute all the necessary operations in an autonomous way.



Another quality of the DeFi is that anyone can access it. Furthermore, decentralized means that no third party can unilaterally interfere with the existing protocol, and often governance-related decisions are taken by an associated DAO (decentralized autonomous organization).



Most of the DeFi applications are built on Ethereum, leveraging its smart contracts flexibility and massive development already done on it. 



The size of the DeFi market is often measured in TVL (Total Value Locked), which represents the collateral locked in different types of DeFi applications. TVL can be tracked on sites like <a href="https://defipulse.com/ " class="ek-link">DeFi Pulse</a> or <a href="https://defillama.com/" class="ek-link">DeFi Llama</a>.

Web3 has become a buzzword recently, often misunderstood, misplaced and misjudged. 



To understand this phenomenon - that we believe has an enormous potential - let’s start with some key definitions.



Blockchain&nbsp;is a shared distributed database run by independent nodes.



To motivate these nodes to maintain the blockchain, it issues a&nbsp;native coin&nbsp;– a&nbsp;cryptocurrency.



Many blockchains allow users to issue their own cryptocurrencies and more broadly – cryptoassets. These are known as&nbsp;tokens, either fungible (like a stablecoin), or non-fungible (an&nbsp;NFT).



For example, $ETH is a native coin of the Ethereum blockchain, while Tether, a company, can issue/burn fungible tokens that it engages to redeem for $1 – the stablecoins. A university can issue diplomas in form of NFT. Anyone can create tokens and assign them the value they wish, but the native coins and their value depend only on the blockchain.



Many traditional services use cryptoassets in one way or another, but a growing sector re-imagines its operations and products by putting the blockchain at their core. This sector is called&nbsp;web3.



Why “web3”? The name reflects the evolution of the Internet:



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The term was coined in 2014 by Gavin Wood, Ethereum co-founder, who described web3 as a “decentralized online system based on blockchain”.



Crypto investor Packy McCormick has given a more romantic definition, calling web3 “the internet owned by the builders and users, orchestrated with tokens.”



This is how we see these notions related:



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The notion of web3 is still very young, and it is often difficult to draw a line between web2 using crypto and web3. What degree of decentralization does a service need to be considered a web3? There’s no clear answer yet.



The understanding evolves together with the industry and its use cases. Let’s look at a couple of examples to get a better idea.



💰 Web2 finance: Kraken, a centralized exchange that keeps users’ crypto and is managed by its board of directors.



💰 Web3 finance: Uniswap, a decentralized exchange that does not keep users’ crypto and is managed by its DAO – a decentralized autonomous organization with tokens that carry voting rights.



👯 Web2 social media: Twitter that has a special avatar shape for verified NFTs.



👯 Web3 social media: Lens protocol that allows users to own their data and connections and to carry them across social platforms.



🎮 Web2 gaming: Ubisoft releasing additional gear for its Tom Clancy game as NFTs.



🎮 Web3 gaming: Axie Infinity, where all characters are upgradeable and tradeable NFTs, a community governance system is underway.



Here’s the above graph with examples, to give you more perspective:



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Some blockchains were created to enable cryptocurrencies. Others serve primarily as smart contract platforms, allowing to decentralize digital economy: online platforms, financial flows, collaboration... and of course the nascent Web3 sector.



The number of blockchain use cases is constantly growing, as does its ecosystem.



This is a high level view on what blockchain in practice looks like today. 



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<h2 class="wp-block-heading">Cryptocurrencies </h2>



With <a href="https://d.center/explore/bitcoin" class="ek-link">Bitcoin</a>, the first practical application of the blockchain was currency, or more precisely “P2P electronic cash system”, as described by Satoshi Nakamoto himself. Invented in order to remedy the failing monetary system, the blockchain proved itself to be particularly well suited for such a role, providing an independent, immutable and transparent transaction ledger.&nbsp;



Following Bitcoin, new <a href="https://d.center/explore/cryptocurrencies" class="ek-link">cryptocurrencies</a>-focused blockchains have emerged, trying to ameliorate this or that aspect of the blockchain: transaction throughput like Litecoin, privacy like Monero… 



Some cryptocurrencies have appeared as an extension of a community, like the Doge memecoin.



Other cryptocurrencies, created as tokens (and not native coins), serve as representations of fiat currencies on the blockchain. They are called stablecoins, the biggest ones being USD-pegged Tether and Circle.



<h2 class="wp-block-heading">Smart contract blockchains</h2>



Currency is not the only thing that can profit from the blockchain's decentralization.



Virtually any digital system (hence most of organisation that use them) can benefit from eliminating central authority.



This is achieved through the use of <a href="https://d.center/en/explore/smart-contrats" class="ek-link">smart contracts</a> - autonomous and self-executing programs that run on the blockchain. Smart contracts allow the development of DApps, or decentralized applications, and power the emerging web3 sector.



The first and most popular smart contract platform is Ethereum blockchain, but it has many competitors: Solana, Cosmos, BNB Chain... etc



The difference between a Cryptocurrency blockchain and a Smart contract blockchain is now rather theoretical and can be understood only by questioning the blockchain’s purpose: whether it was conceived to support a currency or to host elaborate smart contracts. Both types of blockchains need a native coin to pay the network nodes for running the protocol, however in cryptocurrencies’ case the native coin is a goal in itself, whereas for smart contract blockchains it is a payment for running smart contracts. 



<h2 class="wp-block-heading">Blockchain use cases</h2>



Almost every traditional economic sector can use blockchain's qualities.



⛓️ Decentralized systems are intrinsically fairer than centralized ones: their transparency and self-executing nature are much better in redistributing value and allowing the users to be true and sole owners of their data. This quality is substantial when it comes to online platforms, be it social media, cloud computing or ride hailing.



⛓️ Blockchain being a transparent and immutable ledger, it is also particularly suitable for data certification purposes.



⛓️ Smart contracts can automate numerous processes, not only increasing the overall cost and time effectiveness, but also providing users with a guarantee that no one can unilaterally change the rules underlying the DApp.&nbsp;This notably enables the new type of trustless collaboration within DAOs, or Decentralized Autonomous Orgnizations.



⛓️ Finally, the blockchain structure allows fast and easy data and values transfer, without any borders or other limitations. This quality is highly appreciated in finance, and many traditional players have already incorporated crypto into their offer: exchange, custody, asset management, asset tokenization... Besides, a crypto-native version of finance, known as the DeFi, is developing very fast.







<h2 class="wp-block-heading">Web3</h2>



Blockchain and cryptoassets can be used both in centralized and decentralized way. 



The exact boundary between the two is not always clear, but usually when the core operations happen on-chain, the value is transparently distributed, and governance decisions are taken by the community, we can speak about <a href="https://d.center/en/explore/web3" class="ek-link">Web3</a>, a new era of the internet where users are in control. 



The most obvious example of web2 using blockchain vs web3 are exchanges: a centralized one like Binance is centrally managed and controls its users' cryptoassets, while a decentralized exchange like Uniswap never gets in the possession of its users' funds and evolves according to its DAO's decisions.



<h2 class="wp-block-heading">Blockchain ecosystem</h2>



Blockchain is a collective endeavor, and it needs an extensive ecosystem to function and to serve its purposes. 



Numerous products and services have therefore been developed: <a href="https://d.center/explore/crypto-wallets" class="ek-link">wallets </a>to interact with the blockchain, <a href="https://d.center/explore/crypto-exchanges" class="ek-link">exchanges</a><a href="https://d.center/explore/crypto-exchanges" class="ek-link"> </a>to buy and sell crypto, <a href="https://d.center/en/explore/oracles" class="ek-link">oracles</a> to interact with the real world and feed information to smart contracts, not to mention the miners who maintain the network, or interoperability protocols connecting different blockchains. 



<h2 class="wp-block-heading"> </h2>

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Get a better understanding of the crypto industry's state through the insider stories. 



 5 questions to understand the aspirations, challenges and opinions of people working in the crypto space... and maybe also get wind of the next big thing ?



This section is about people who BUILD : blockchain infrastructure, mining, smart contracts development and other software and hardware, on which the crypto industry is based.



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<h2>Blockchain interoperability</h2>



October 14, 2022. <a href="https://www.linkedin.com/in/gc76/" class="ek-link">Greg Chaw</a>, CEO & founder of <a href="https://qpq.io/" class="ek-link">QPQ</a>.



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What's your story? I'm a finance and legal professional with extensive experience in capital markets and Fintech. I started QPQ is order to create an "Internet of economics" and move away from a system that rewards owning infrastructure to one that rewards the value. After years of research, we are weeks away from releasing our first product, an interoperability solution called 1DLT. 
</div></div>



Why interoperability ? Projects and users are frustrated by the fragmented nature of Web3. Accessing different services on multiple blockchains requires complicated user journeys that take time, money and a lot of background research. 95% of users won’t use cross-chain solutions and are too scared to leave the one chain they are on.



What is 1DLT? 1DLT is a tool that uses a custom-made atomic swap engine to combine features of different blockchains, for example taking the programmability of Ethereum, the speed of Algorand, and the services from BNB Chain. Our end goal is to allow users to interact with any blockchain service in a fast, seamless, secure fashion, just like they do on the Web2. 



 What blockchains can 1DLT connect? 1DLT taps into services, users, and assets of chains such as Avalanche, Algorand, Arbitrum, Binance, Ethereum, Hedera, and many more.



 Your insights on the state of crypto interoperability? Our competitors – Layer Zero, AnySwap for example – are focused on interconnectivity – third party bridges that connect otherwise siloed blockchain protocol ecosystems. Interconnectivity is very different from interoperability – we remove the cost of choices and allow a single, consolidated market to operate seamlessly. Tokens that are native to 1DLT can be created using one protocol and get consensus from another – users get the best features of all the protocols and the downsides of none.



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Stay tuned on <a href="https://www.linkedin.com/company/14070445" class="ek-link">LinkedIn </a>and <a href="https://twitter.com/DCenter_Explore" class="ek-link">Twitter </a>for more stories to come!

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Get a better understanding of the crypto industry's state through the insider stories.



5 questions to understand the aspirations, challenges and opinions of people working in the crypto space... and maybe also get wind of the next big thing ?



This section is about people who CREATE: all sorts of creativity that can take an NFT form, crypto gaming, open metaverse, digital fashion, NFT art and music...



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<h2>NFTs for Good</h2>



October 22, 2022. <a href="https://www.linkedin.com/in/renata-couto/" class="ek-link">Renata Couto Bos</a>, Co-founder of <a href="https://www.womenforce.art/" class="ek-link">Women Force NFT</a>



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What's your story? 



I'm Brazilian, Woman, Mother, and a Marketing professional. I have over 15 years of professional experience working across
Commercial, Digital and Marketing teams.



I decided to launch Women Force NFT to educate women, fighting for
gender equality and to protect the environment.
</div></div>



What makes NFT a tool for doing good? Doing good should feel rewarding and empowering, and NFTs help that. NFTs are transparent and reliable and present a unique chance to make a huge impact through their communities.



What is Women Force?&nbsp;An NFT project featuring beautiful art and giving as much as 40% of its proceeds to vetted organizations that have the highest standards on transparency and accountability. We have established partnerships to increase diversity, educate and onboard the next generation creating equal opportunities for everyone. 





What value will Women Force NFTs give their owners? Our holders will cause a real impact on the world and will receive through their ownership instant access to Web3 education, exclusive discounts on merch and access to a powerful community. Next to that they can win a high resolution digital art, an art mentorship or a trip to Brazil.



Which criteria do you look at when evaluating an NFT project? It all starts with the beautiful art. That's the first item that impacts the value of a project. Next to that the most important thing is the long term vision of an NFT project: do they have the team and commitment to make the project a success? 



Of course World of Women have been pioneers in this field. 



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GROW / helping crypto businesses

REINVENT / decentralize the economy

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Get a better understanding of the crypto industry's state through insider stories.



5 questions to understand aspirations, challenges and opinions of people working in the crypto space... and maybe also get wind of the next big thing ?



This section is about&nbsp;people who INSTRUCT: all types of crypto-related knowledge, from on-chain analytics and academic research to educating people on blockchain and crypto.



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<h2>On-chain analytics</h2>



October 28, 2022. <a href="https://www.linkedin.com/in/pierregerard/" class="ek-link">Pierre Gerard</a>, Co-founder & CEO of <a href="https://www.scorechain.com/" class="ek-link">Scorechain</a>



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What's your story? Since 2015 I have been the CEO of Scorechain, the European leader for crypto compliance.



I define myself as an “open-source entrepreneur” as I co-founded
several companies which have developed new business models based on the
open-source innovation in software development, news media and even music.
</div></div>



What information can you get by analysing on-chain data? Transactions on a Blockchain are public and the access is based on pseudonymity, so we can extract a lot of information that can be linked to off-chain data: the origin and destination of funds, type of wallet activity, monitor the liquidity of a token supply, analyse the activity of DeFi protocol like DEX.&nbsp; 



How does Scorechain help companies stay compliant?&nbsp;Our goal is to bring trust to the crypto ecosystem.We follow regulation guidelines and requirements, and implement them as features in our products and services. We provide a full set of reports, risk scenarios, transaction monitoring, and also integration with other companies, for example crypto custodians. 



Your position on privacy in the blockchain environment? I think that the missing link is a true digital identity. IRL, any financial transaction requires knowing both counterparties and where their funds comes from – and the same rules would apply to the blockchain environment. Then, we would develop more tools to protect privacy like Shielded transactions, but with some auditing capabilities.



Your insights on the state of on-chain analytics ? Scorechain is not managing personal data, and does not act as a
“crypto cop”. Our tools could be used to check the “level of transparency” of
your crypto activity and to help you adapt your behaviour.&nbsp;It seems some competitors are not playing with the same rules and
aggregate some data that we consider as personal and private.&nbsp;

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Get a better understanding of the crypto industry's state through insider stories.



5 questions to understand aspirations, challenges and opinions of people working in the crypto space... and maybe also get wind of the next big thing ?



This section is dedicated to people who ADVOCATE and contribute to defining a legal landscape for the crypto industry. Regulators, lawyers, lobbyists... all kinds of specialists who work on making crypto practices legal and protected by law.



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December 3rd, 2022.c<a href="https://www.linkedin.com/in/roshi-sharma-lawbeam/">Roshi Sharma</a>, founder and CEO of <a href="https://www.lawbeam.io/">LawBEAM</a>



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What's your story? Short story : I’m a lawyer from the United Kingdom. 



Longer story, I’m the founder and CEO of LawBEAM, a digital asset and crypto focused legal practice. We help our clients navigate the complex and changing regulatory
landscape. 
</div></div>



Why have you decided to specialize in crypto? My view is that the next wave of financial services innovation will
be driven by digital assets and blockchain. And as a consequence, the next wave
of global regulation will be focused on the crypto industry. I’ve spent my career navigating global financial services laws and regulations. So it’s logical to me to skate to where the puck is heading.  



Who are LawBEAM’s clients and what are their legal needs? LawBEAM advises across the crypto eco-system. Our clients are
crypto exchanges, cryptocurrency issuers, token projects, technology companies,
and gaming/NFT platforms. 



We act for start-ups and established players moving into the crypto space. And because crypto is borderless, clients need advice across multiple jurisdictions. That’s what we specialise in. 



Is  UK crypto-friendly? The UK is definitely more friendly than the US and the EU. 



It got off to a bad start because the authorities miscalculated the demand from crypto companies to register in the UK. However, the FCA has now worked through the back-log and the tide is turning. Our latest Prime Minister is also on record as being a “crypto fan” so we are definitely heading in the right direction.



Your thoughts on the future of crypto? New technology always brings turbulence to the established order of
things. That is what is playing out in the crypto industry today, as it is
having its Lehman-Enron-Madoff moment. 



Remember it is an extremely young industry. Binance, the largest
crypto company, is only 5 years old. Amazon took 5 years to even generate its
first profit. My bet is that crypto regulation will lead to a better and stronger
industry.

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This section is dedicated to people behind crypto projects - those who participate in creating Web3, each in their own special way. 



By sharing their stories and their opinions we can get a very real picture of the current state of the crypto industry and the different parts that compose it:



BUILD / Infrastructure development: mining, blockchains, wallets, smart contracts, interoperability protocols... this is the base, on which the crypto world is built.



CREATE / Metaverse, gaming and NFTs... blockchain gives free rein to creativity, giving birth to new trends, subcultures and of course defining what we'll be playing in the future.



 REINVENT / Blockchain allows decentralize all sorts of traditional sectors: finance, commerce, internet platforms, advertising... the list can go on very far.



ADVOCATE / Defining crypto's place in the legal landscape and creating a proper regulatory framework is no small task: lawyers and lawmakers know it firsthand.



CULTIVATE / Blockchain is transparent, but to many, it is still obscure. Crypto education, on-chain analytics, and research are helping demystify the space and spread the knowledge. 



GROW / Crypto industry is still in its infancy, and a whole bunch of specialists is there to help it grow, from incubators and VCs to marketing specialists and HR.

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Europe is a place of rich cultural and economic diversity, and there are virtually as many attitudes towards the blockchain as there are countries. Some general tendencies can be deduced though. 



The European Union clearly put the cryptoassets issue on the table with its 5th amendment to the AML directive, also known as AMLD5. The 27 member states therefore have to transcribe its approach within their legislatures and require crypto service providers to comply with the AML standards used within the financial sector.



Other than AMLD5 compliance, each EU country positions itself differently towards cryptoassets, with overall good intentions to set up a regulatory framework and encourage the blockchain industry development without compromising investor protection. Malta and France are notably among the countries with the most precise crypto-focused regulation, while Germany is creating a rather favourable environment for the crypto finance, authorizing its banks to act a crypto custodians. A number of smaller countries, like Estonia, Liechtenstein or Luxembourg, are also looking for an opportunity to attract innovation and set crypto-friendly conditions. 



Beyond the EU, Switzerland is it on its way to become a world leader in the blockchain sector, incorporating crypto notions within the existing legal framework and encouraging blockchain-related companies to settle in the country. As to the UK, it has adopted a rather lenient approach, with only minimal restrictions concerning cryptoasset business. 



In the Eastern Europe, the crypto attitude varies strongly, from the overall hostile Russia to the enthusiastic Ukraine or the crypto-excited Belarus.

Crypto regulation in Europe

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Cryptocurrencies have come into usage on both American continents, although from somewhat different perspectives. America, and USA in particular, harbor numerous companies developing blockchain technology and crypto finance. As to Latin America, its population is growing accustomed to using cryptocurrencies in everyday life, prompted notably by the deficiencies of their national currencies. It is also home for a large unbanked or underbanked population - up to 50% according to some researches, making crypto adoption all more widespread. 



It comes as no surprise that the regulation is more finance-oriented in the North. The decisions of the US federal agencies dealing with crypto, such as SEC and CFTC, have an impact over the financial aspect of the crypto world, and they are followed with attention. The country still lacks a global approach though, and regulatory gaps are sometimes filled in on the state level.



Canadian regulation looks somewhat like a more crypto-friendlier American one, combining investor-protection measures with a certain financial openness. 



In Latin America only Mexico has specifically defined cryptoassets, other countries either broadly considering them goods, or just simply banning them, like Bolivia and Ecuador. The region is also known for experimenting with state-issued digital currencies: the attempt failed by Ecuador, ongoing in Venezuela and planned by Eastern Caribbean islands.



Although many countries apply AML regulations to companies involved into crypto transactions, they are often considered too lax, and some researchers estimate that Latin American crypto exchanges contribute to money laundering problem.

Crypto regulation in the Americas

Crypto regulation in East Asia

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Do cryptoassets have a legal status? What is the politics of financial regulators or tax services? Many countries start tackling this issue, each in its own way.



Some purists of decentralization may find it illogical to regulate a self-sustaining organization without a head, like Bitcoin. At the end of the day, cryptoassets were created in order to redeem independence from trusted third parties. However, the truth is that even highly decentralized and independent assets like Bitcoin need an anchor point within the regulated societies we live in. Thus, an exchange that allows buying bitcoins with dollars, or a company raising funds through an [tooltip content="Initial Coin Offering, a fundraising method using tokens"] ICO [/tooltip] would inevitably enter the regulatory field. Moreover, for the blockchain industry to grow legal certainty and enable customer protection rules are necessary.



New technologies have always been a source of confusion for the regulation, though. It is even truer now, when blockchain and decentralized technologies threaten to change the very structure of our society and even undermine some widely-accepted monopolies, such as money emission. Hence it has become necessary for legislative, regulatory and even judiciary bodies to weigh in on exactly what a cryptoasset is, how it is related to the legal concepts of property, money and taxes, and how governments should deal with it.&nbsp;



Most countries do not recognize cryptocurrencies as legal tender and stress that money-issuing monopoly belongs to Central Banks. Some countries, like France or Mexico, go further and give a legal definition to cryptoassets within a specific law. The majority, however, leaves the definition and the basic rules regarding cryptoassets to the specific government agencies regulating different areas of law, such as property rights, securities law, derivatives trading, taxation, AML...etc.



<h2>Cryptoassets within different areas of law</h2>



<h3>Finance</h3>



Financial regulators are numerous to have paid attention to security tokens and their ICOs, mostly thanks to their surge of in 2017. That period showed the practical advantages of an ICO vs a traditional IPO, however it also witnessed a big number of scams, urging the regulators around the world to issue ICO-precising notes. In most of the countries now ICOs are examined by the local financial authority and if tokens are considered securities, the ICOs must comply with the same securities law as IPOs. Some countries, however, go much further and ban the ICOs altogether, like did China.



<h3>[tooltip content="Know Your Customer"] KYC[/tooltip] and [tooltip content="Anti-Money Laundering"] AML [/tooltip]</h3>



The authorities in charge of fighting money laundering often consider cryptocurrencies as money and compel cryptocurrency service providers, such as exchanges or custodies, to comply with KYC and reporting obligations. Many countries use or intend to use the [tooltip content="Financial Action Task Force"] FATF [/tooltip] guidance from July 2019 as a standard in AML applied to cryptoassets. The intergovernmental organization notably recommends giving crypto service providers the same KYC and reporting obligations as financial intermediaries and set the transaction threshold equivalent of $1000, above which crypto service providers should disclose its details. In practice, this threshold is rarely used and every country sets its own reporting criteria.



<h3>Taxes </h3>



Eager to collect taxes, most Revenue Services precise the category to which the cryptoassets belong tax-wise (in the absence of a special definition they are often considered goods) and whether the gains from selling or exchanging crypto are taxable. Most countries now assimilate profits from crypto trading/investing as capital gains and tax them accordingly. Cryptocurrency obtained through mining is generally considered income and is subject to taxes. VAT, on the other hand, is usually not applicable to cryptoassets.



<h2>Crypto-hostile countries</h2>



There are also countries that perceive cryptocurrencies more as a treat than an opportunity and ban all activities involving them. Crypto is thus illegal in countries including Algeria, Egypt, Morocco, Qatar, Bolivia, Ecuador, Nepal, Pakistan, and Vietnam. Others preclude financial institutions from facilitating crypto transactions (notably China, Nigeria, Bangladesh and Iran).&nbsp;However, regulatory landscape changes quickly, and a country once damning crypto might find itself embracing it the day after. It is also worth mentioning that these bans rarely impede the everyday usage of crypto thanks to its decentralized nature. 



<h2></h2>



Despite notable progress in some countries, in general legal coverage of crypto and blockchain-related matter is still insufficient throughout the world. However, the technology and its adoption moving quickly, numerous countries have expressed their intention to address the issue with custom-made laws.&nbsp;&nbsp;

Bitcoinnn

Blockchain in use

Philosophy behind blockchain

Underlying technologies

Blockchain trilemma

Bitcoin mechanism

Bitcoin Transaction

Bitcoin transaction inputs and outputs

Bitcoin implementations

Script

UTXO

Mainchain functions

Transaction inputs

Sidechain solutions

Cryptography

Transaction Fees

Keys and addresses

Private key

Public key

Adress

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Blockchain is a recent invention. It is still in early stages of its development, and yet a burgeoning new blockchain-related industry is already emerging. Improving the technology, finding new use cases, developing the ecosystem… and of course looking to change the world are some of these new endeavors.



This section is dedicated to exploring different facets of the blockchain and bringing answers to an array of questions one might have - from “Why do we need it” to “How does it work” or “What is it used for”. The structure of Explore descending from general concepts to specific notions, you are welcome to choose your own path according to your interests and go down the rabbit hole. 



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<h2><a href="https://d.center/explore/blockchain-philosophy" class="ek-link">Blockchain philosophy</a></h2>



Why are crypto enthusiasts so enthusiastic? Blockchain is not a trivial technology, but the one that has a potential to change the very way our societies operate. Every organization and every community rely on trusted third parties, responsible for storing and managing data, with all the related risks . Replacing these trusted third parties with a decentralized data handling mechanism would eliminate much of the system’s deficiencies, and that’s exactly what blockchain does. 



<h2><a href="https://d.center/explore/bitcoin" class="ek-link">Bitcoin</a></h2>



The very first implementation of the blockchain, Bitcoin was created to solve the deficiencies of the monetary system and replace the so-called fiat money (dependent on Central Banks) with cryptocurrency, a completely independent alternative that runs on a decentralized peer-to-peer network.&nbsp; 



<h2><a href="https://d.center/explore/blockchain-fundamentals" class="ek-link">Blockchain fundamentals</a></h2>



A blockchain is a collection of technologies and methods that allow gathering data into a ledger, which is stored and updated by the network’s participants (which anyone can become). Data handling is its main role, although it also allows embedding more complex programs and running them in a decentralized way.&nbsp; 



<h2><a href="https://d.center/explore/blockchain-in-practice" class="ek-link">Blockchain in practice</a></h2>



Most blockchain encounters today are about cryptocurrencies - Bitcoin and many others that have appeared since. However the understanding of the technology becoming increasingly subtle, other blockchain real-world use cases appear, notably with the development of decentralized applications, or Dapps. A developed ecosystem makes these functionalities readily available and opens up previously restricted-access industries, such as finance.&nbsp;&nbsp; 



<h2><a href="https://d.center/explore/crypto-regulation" class="ek-link">Crypto regulation</a></h2>



Blockchain and its products are becoming an increasingly important part of our lives and our economies, which inevitably attracts the regulators’ attention. This is not a bad thing, though, for the right laws can support the technology and protect its users against related scams. Depending on a country however the attitude varies greatly, from progressive to autocratic. 



<h2>Beginner’s path </h2>



If you do not yet have a clear idea of what it is you would like to explore, let us suggest you a suite of 8 articles that will smoothly introduce you to the world of cryptoassets and Bitcoin in particular: it will help you to understand what it is used for, how it works and some necessary tools allowing to buy some of it.



<a href="https://d.center/explore/blockchain-philosophy" class="ek-link">Blockchain philosophy</a>



<a href="https://d.center/explore/bitcoin" class="ek-link">Bitcoin</a>



<a href="https://d.center/explore/how-does-bitcoin-work" class="ek-link">How does Bitcoin work</a>



<a href="https://d.center/explore/bitcoin-mechanism " class="ek-link">Bitcoin mechanism</a>



<a href="https://d.center/explore/blockchain-in-practice" class="ek-link">Blockchain in practice</a>



<a href="https://d.center/explore/blockhain-ecosystem" class="ek-link">Blockchain ecosystem</a>



<a href="https://d.center/explore/crypto-wallets" class="ek-link">Crypto wallets</a>



<a href="https://d.center/explore/crypto-exchanges " class="ek-link">Crypto exchanges</a>