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A complex topic, I think, is how to explain blockchain and the various blockchains that exist in the simplest form to people coming in for the first time. And then how do you explain coins, tokens, centralized exchanges (CEXs), and decentralized exchanges (DEXs)?
Blockchain is a digital system that records information in a way that is secure, transparent, and decentralized. Think of it as a digital ledger — like a book for recording transactions — that isn’t controlled by any one person or organization. Unlike traditional systems like banks, where one entity controls everything, blockchain relies on the network (various computers called nodes all around the world) to validate and record transactions.
How Blockchain Works
Information, like transactions or data, is grouped into “blocks.” Each block is connected to the one before it, forming a “chain” of blocks — hence blockchain. Once a block is added, it can’t be changed or deleted, making the system secure. Instead of being stored in one place, copies of the blockchain are shared across many computers (nodes) worldwide.
Decisions about the network are made collectively through mechanisms like “proof of work” or “proof of stake.” This ensures a consensus is reached fairly and securely. What makes blockchain especially powerful is its decentralization: no single person, company, or government controls it. Because it’s shared, anyone (in the case of public blockchains) can view the data at any time. This transparency, accessibility and decentralization make it incredibly hard for bad actors to tamper with the information.
Various Blockchains
Think of a blockchain as a country, and the various blockchains that exist as different countries, each with its own unique currency (coins). These “coins” are the medium of transactions in their respective blockchain economies. Just as countries have unique strengths and weaknesses, so do blockchains. For example, Bitcoin focuses on security and decentralization, while Ethereum emphasizes programmability. Other blockchains like Solana and Avalanche aim for high transaction speeds and low fees.
Examples of Blockchains
- Bitcoin: The OG blockchain. It revolutionized digital money by enabling secure peer-to-peer transactions without intermediaries. Its sole purpose is sending and receiving cryptocurrency (Bitcoin).
- Ethereum: Took blockchain to the next level by allowing interactions beyond just transferring crypto. Ethereum introduced smart contracts opening doors to decentralized applications (dApps).
Just like countries have different strengths, weaknesses, and specialties, blockchains are the same. Each blockchain aims to solve unique problems, improve on others’ shortcomings, or innovate in new ways. For example, Bitcoin focuses on security and decentralization, while Ethereum emphasizes programmability. Other blockchains like Solana and Avalanche aim for high transaction speeds and low fees.
Bridging
To transact in another country, you need to convert your currency to that country’s currency. Similarly, in the blockchain world, to use another blockchain, you need to convert your coins. This is done through bridges or exchanges. A bridge allows users to transfer their funds from one blockchain to another seamlessly. Examples include:
- Wormhole: A popular blockchain bridge enabling asset transfers across networks.
- LayerZero: A messaging protocol, it supports cross-chain communication, laying the foundation for bridges to be built upon.
Tokens
On each blockchain, various projects operate, and these projects often have their own tokens. Tokens are similar to stocks of companies in a country. Just as companies create value within an economy, projects on a blockchain do the same. The value of these tokens is tied to the performance and utility of the projects. To get started with tokens, you’ll usually need the blockchain’s native currency (its coin) to buy them.
Centralized Exchanges (CEXs)
Centralized exchanges are often the first step for anyone entering the blockchain space. They’re like banks — they allow you to exchange fiat currency (like dollars) for coins and tokens. However, because they’re centralized, the assets you deposit there aren’t fully under your control, similar to how money in a bank is managed by the bank. This is why you’ll hear the famous phrase in the blockchain space: “Not your keys, not your money.” Examples include Binance and Coinbase.
Decentralized Exchanges (DEXs)
Decentralized exchanges work similarly to centralized ones in that they facilitate the exchange of tokens. However, they do so in a peer-to-peer manner, with no intermediaries. Instead, the blockchain and smart contracts enable transactions directly between users. Examples include:
- Uniswap (Ethereum): The OG DEX that redefined possibilities for peer-to-peer trading.
- PancakeSwap (BNB Chain): A popular DEX with lower fees and faster transactions.
In Summary
Blockchain, CEXs, DEXs, coins, and tokens are transforming how we interact with money and technology. Whether you’re using Bitcoin to transfer funds globally, exploring Ethereum’s dApps, or trading tokens on Uniswap, you’re participating in a revolutionary ecosystem. Welcome to the future of decentralized finance.
Blockchain Made Simple: A Beginner’s Guide to Coins, Tokens, CEXs, and DEXs was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.
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