Virtually Everything | Episode 8 | From Blockchain Basics to Crypto Complexities: A Brief Guide to Virtual Assets

In the final episode in the first series of the Virtually Everything podcast, hosts Lucy Nash and Vyasna Mahadevey are re-joined by William Deeb to delve into the intricacies of certain types of virtual assets, and de-mystify other key terms frequently used in this sector.

Key Topics Covered

1. Introduction to Blockchain and Distributed Ledger Technology (DLT)

• Blockchain Definition: A distributed digital ledger of cryptographically signed transactions grouped into blocks, ensuring tamper-resistance and creating a peer-to-peer network.
• DLT Characteristics:
  • Ledger: Collection of transactions that are append-only.
  • Cryptographic Security: Ensures data integrity in a trustless environment.
  • Shared Ledger: Distributed among multiple participants, ensuring transparency.
  • Distributed Ledger: More nodes enhance security and participation.

2. Consensus Mechanisms:

• Validation and Security: Ensuring transaction authenticity and preventing tampering.
• Proof of Work (PoW): Computational power is used to solve complex problems to validate transactions. Pros include verification ease and security, while cons involve high energy consumption and scalability issues.
• Proof of Stake (PoS): Validators are randomly selected based on their stake in the network. Pros include energy efficiency and scalability, while cons involve potential validator influence and philosophical debates.

3. Cryptocurrency Wallets and Keys:

• Types of Wallets:
• Non-Custodial: Users own their keys (e.g., MetaMask).
• Custodial: Third parties hold keys (e.g., most exchanges).
• Connectivity:
• Hot Wallets: Always online, vulnerable to security breaches.
• Cold Wallets: Offline, secure but risk of losing access if the device is lost.
• Warm Wallets: Keys online, but human involvement needed for transactions.

4. Tokens, Smart Contracts, and Tokenisation:

• Tokens: Units of value on a blockchain.
• Smart Contracts: Codified agreements that execute when conditions are met.
• Tokenisation: Representing existing assets on a blockchain for better trading and transfer.

5. Cryptocurrency Overview:

• Characteristics: Fungible, durable, private, transparent, and extraterritorial.
• History: Originated with Bitcoin in 2008, driven by digital innovation.
• Volatility: Cryptocurrencies are speculative and not backed by underlying assets.

6. Stablecoins:

• Types:
• Fiat-Backed: Pegged to traditional currency.
• Commodity-Backed: Pegged to commodities like gold.
• Cryptocurrency-Backed: Pegged to other digital currencies.
• Algorithmic: Price stability maintained through algorithms.

7. Central Bank Digital Currencies (CBDCs):

• Comparison to Stablecoins:
  • Blockchain Type: CBDCs use private blockchains, stablecoins use public ones.
  • Issuance and Governance: CBDCs by central banks, stablecoins by various entities.
  • Infrastructure: CBDCs use proprietary technology; stablecoins use open-source blockchains.
  • Geographical Scope: CBDCs are primarily for domestic use; stablecoins have global usability.
  • Storage: Stablecoins can be stored in various digital wallets; CBDCs would likely require government-issued wallets.

Conclusion

As we conclude the first series of Virtually Everything, we hope this episode has provided a comprehensive overview of key terms and concepts in the virtual asset space. We've aimed to demystify blockchain technology, consensus mechanisms, cryptocurrency wallets, tokens, and the distinctions between stablecoins and CBDCs. 

Stay tuned for Season 2, where our hosts will continue exploring and unpacking the dynamic world of virtual assets. 

This podcast forms part of the Virtually Everything podcast series. To find out more about the topics discussed in the series, please visit our dedicated Digital Assets and Blockchain page.