The Foundations of Web3: Cryptocurrency, Ethereum, and Smart Contracts Concepts Explained

Cryptocurrency Core Concept

What is a Cryptocurrency?

Cryptocurrency is a type of digital-only currency. It uses cryptography to ensure the security of transactions.

Its core feature is decentralization, meaning it is not controlled or issued by a central bank.

Cryptocurrency vs. Fiat Currency

Feature	Cryptocurrency	Fiat Currency
Issuer	Decentralized network, generated through mining and consensus mechanisms	Central bank
Form	Purely digital and virtual	Physical form (cash, coins) and digital forms
Value backed by	Community consensus, technology, and supply-demand dynamics	Government credit and trust
Control	Distributed among network participants	Fully controlled by central institutions

White Paper

A white paper is the official explanatory document of a crypto project, released by the development team. It aims to explain the project's technology, vision, and purpose.

For investors and developers, it is the key resource for evaluating a project's value.

A qualified white paper typically includes:

1. Project purpose and vision:

   • Why the project was created
   • What problems it aims to solve

2. Technical architecture:

   • A detailed explanation of the underlying technologies
   • The consensus mechanisms used

3. Tokenomics:

   • To explain token distribution model
   • Issuance mechanism
   • Utility of the token

4. Roadmap:

   • To present future development plans and milestones

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Ethereum

What is Ethereum?

Ethereum is a decentralized and open-source blockchain platform. It has a key innovation —— it supports smart contracts, making it not just a cryptocurrency but a global computing platform for building and running decentralized applications.

Key Difference Between Bitcoin and Ethereum

The fundamental difference between Bitcoin and Ethereum lies in Turing completeness.

Ethereum (Turing Complete):

In theory, it can execute any complex computation.

It supports loops and conditional logic, making it a flexible programming platform.

Bitcoin (Turing Incomplete):

It uses a limited scripting language.

It does not support loops and is mainly used for simple transaction verification.

It is not suitable for building complex apps.

This characteristic determines that Ethereum is an application development platform, while Bitcoin is a pure digital currency / digital gold.

Three Pillars of the Ethereum Ecosystem

• Ether / ETH: The native token of the Ethereum network.
  
  It is the fuel of the network, used to pay for transaction fees and computation (Gas).

• Solidity: The most dominant Ethereum smart contract language.
  
  Syntax is similar to JavaScript and is used to write backend logic of DApps.

• DApps: Decentralized Applications that run on Ethereum.
  
  From DeFi to games to NFTs, DApps are building a new open internet.

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Smart Contract (SC)

Key Features of a Smart Contract

A smart contract is deployed on the blockchain. It is self-executing code. Once deployed, it becomes a trustless and autonomous program.

It includes a lot of core features:

• Immutable: A smart contract cannot be modified once deployed. To fix bugs or update logic, a new version must be deployed.
• Transparent: Its code and transaction history are publicly accessible and auditable by anyone.
• Deterministic: It executes automatically when conditions are met, producing a unique and predictable result.
• Trustless: No need to trust other parties or intermediaries — just trust the logic of the code.
• Security constraint: To ensure security, smart contracts cannot access off-chain data directly.

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DApp

The backend of a DApp is powered by a smart contract running on a blockchain. Users can interact with these contracts through a frontend UI.

Example: Decentralized Real Estate Transaction

• Deploy:
  
  A property owner (the developer) writes a smart contract containing property price, ownership info, and rules.
  
  It is deployed to the Ethereum blockchain, and a Gas fee is paid.

• Interact:
  
  The buyer views property info on the DApp UI. After agreeing to the terms, the buyer calls the purchase function and sends Ether to the contract address.

• Execute & Verify:
  
  Ethereum nodes execute the contract code.
  
  The contract verifies payment, automatically transfers ownership to the buyer, and sends the Ether to the seller.

The entire process is automatic, transparent, and irreversible, effectively eliminating the need for intermediaries.