We're kicking off the series Ethereum Essentials for Finance & Innovation Professionals! Let's start with the basics.
Terminology
We're kicking off the series Ethereum Essentials for Finance & Innovation Professionals! Let's start with the basics.
One of the factors that makes web3 such an inaccessible bubble is the particular culture and vocabulary. There are many technical terms that you might not know yet, and we'll cover those in this article.
The Foundation
First things first: What's the difference between blockchain, crypto and web3? And what does DLT have to do with it all?
- DLT = Distributed Ledger Technology is the broadest term, referring to any system where multiple computers maintain identical copies of records, eliminating the need for a central authority.
- Blockchain = a specific type of DLT that uses connected blocks of data for transaction records.
- Crypto = digital assets like cryptocurrencies and tokens that operate on the blockchain for value transfer.
- Web3 = describes a decentralized internet vision built on blockchain, enabling user-owned data and control.
How do these concepts tie together?
DLT provides the technology for creating a decentralized system. This is fundamentally different from how the current banking system works, where each bank has its own centralized system. A centralized system is easier to manage in general, but it creates limitations in the world as we know today where global data exchange and transactions are becoming a basic need.
Blockchain has emerged as one of the most popular types of DLT technology. In essence it's just a ledger that tracks which account transacts to which account. Through consensus mechanisms, the data is set in stone and cannot be altered anymore. This creates transparency and security.
Cryptocurrencies represents the digital assets that can be transferred on a blockchain. You probably know Bitcoin and Ethereum as these are the most famous. You can buy these coins and use them to pay for things.
Finally, Web3 represents the broader vision of the ecosystem. It promotes decentralization, transparency and autonomy by combining blockchain technology with cryptocurrencies and other applications to create a user-owned internet. The term itself does not describe any particular technology. You can use it to describe the full ecosystem and its possibilities.
