Blockchain & Fintech (Part-2)

Metaverse and broader institutional adoption:

With the change of Facebook to Meta, the term Metaverse became popular. But more importantly, the shift in focus on building a digital ecosystem and the company's promise have identified all metaverse projects, like many established institutions, and web2 companies are starting to see potential in the transition to a digital society.

The crypto space is expected to see more institutional adoption and investment in various sectors of the crypto industry. Fashion giants like Adidas and Nike have not been left behind, opening stores on Metaverse platforms like Sandbox and Decentraland. Also, e-commerce giant Walmart is playing Metaverse. Microsoft's acquisition of game maker Activision Blizzard is further proof of the value these companies see in the future of the Metaverse.

Proof of Work (POW):

Proof of work (PoW) has been a part of the crypto market from its earliest days, having been built into the bitcoin blockchain when it launched in 2009. In practice, proof of work means that as transactions are added to a given blockchain network, other computers within the network must validate and approve of them before new blocks are created and entered into the blockchain.

Proof of work requires computers to solve cryptographic puzzles, putting in?“work” to be rewarded the ability to verify, or validate, transactions on the blockchain. It’s called cryptocurrency mining, and it’s similar to a competition. The?idea is that through a long string of numbers and?letters, called hashes, it’s?possible to stave off malicious attacks and verify that a transaction is valid. A function on the network that underlies blockchain transactions allows only one hash to be generated when someone transmits data.

So, when a transaction occurs on the blockchain (for example, sending bitcoins to someone else), the received hash is distributed across the network. Any hash changes caused by spoofing are detected and rejected.

Proof of Work allows the blockchain to remain “untrusted”. This means that no?third party is required to verify or manage the transaction.

“Proof of work, particularly the method used by the Bitcoin network, is the ultimate vehicle for asset development,” says Bloomberg. “Someone has to put in?the time and effort, and sometimes literal energy has to be converted into value.?That’s what makes it so powerful as the foundation of Bitcoin’s value.”

Proof of Stake (POS):

Proof-of-stake (PoS) relies on validators who own the blockchain-related coins. With proof-of-stake, validators are randomly selected based in part on how many coins they have pegged to a blockchain network, also known as stake. Coins act as collateral and are rewarded when a participant or node is chosen to confirm a transaction.

To verify a stake, multiple validators must agree that the transaction is correct, and it will be executed when enough nodes confirm the transaction.

"Proof of Stake is much more energy efficient," says Bloomberg. “There is not enough energy globally to power a decentralized financial ecosystem of any scale?for Ethereum and other blockchains.”

Part of the problem with PoS vs. Proof of Work is the security and decentralization that PoW provides when using PoS. Bloomberg points out that for decentralized finance (DeFi) to be viable in the long run, PoS models must provide security and speed and enable real-time transactions.

Smart Contract:

Smart contracts are decentralized applications that execute business logic in response to events. Execution of smart contracts may result in the exchange of money, provision of services, the unlocking of content protected by digital rights management, or other types of data manipulation, such as renaming land ownership. Smart contracts can also be used to provide privacy protection, such as facilitating the selective release of privacy data to satisfy specific requests. There are a variety of architectures for how the programs underpinning smart contracts are developed, distributed, managed and updated. They can be stored as part of a blockchain or other distributed ledger technology, and integrated into various payment mechanisms and digital exchanges that can include bitcoin and other cryptocurrencies. Despite the name, smart contracts are not legally binding contracts. Their main function is to programmatically execute business logic that performs various tasks, processes or transactions that have been programmed into them to respond to a given set of conditions. Legal steps must be undertaken to link this execution to legally binding agreements between parties.

In simple terms, smart contract is a contract which not executed on paper but executed in form of code running on a blockchain like Ethereum. Smart contracts allow developers to build Dapps that take advantage of security, reliability and accessibility provided by Blockchain.

Following are examples of popular smart contract platforms:

• Ethereum
• Solana
• Cardano
• BNB chain
• Key aspects of smart contracts:

??Smart contracts are programs built on decentralized distributed ledger technologies (DLTs) that execute based on specified logic and agreements.

• Smart contract platforms include Ethereum, Cardano, Solana, and Fantom.
• Smart contracts can help reduce document forgery and increase
• accessibility.
• Distributed ledger technologies (DLTs) make smart contracts a good option
• for administrative payments since they are inexpensive to maintain.
• Supply chain technology built on smart contracts is more effective and can
• help unlock value and reduce wasted resources.
• The token economy, which runs on smart contracts, unlocks new markets and opportunities, making it easier to buy and sell properties and raise funds.
• Smart contracts can help with reducing identity theft, giving users privacy and control over their identity.
• Other places smart contracts can be utilized include; the Internet of Things, data science and machine learning, and legal contracts.

Importance of Smart Contracts:

One of the major advantages of smart contract implementation is the you won’t?need to use intermediary services such as brokers, agents etc. to facilitate a transaction. It also enables agent neutrality and automation in signing deals and is time saving. It excludes human participation in transactions, everything is done by the prescribed program code. It ensures safety as the data in the decentralized registry cannot be lost and cyber attacked. It automatically generates a record of all transactions that is highly resistant to forgery and also has the ability to create entire trading environments and schemes to exchange customized items of value (e.g., could be used to implement a private carbon credit scheme).

In fact, there are many applications for this technique. For example, we can completely eradicate election fraud when votes are entered into special registers. Decrypting it requires a huge computer. Users will also be able to find smart contracts in the field of logistics, helping to solve the bureaucracy common in this field. Smart contracts can also determine who is responsible for an accident, making it easier for insurance companies to determine premiums.

How smart contracts interacts with Blockchain ecosystem for working:

• When a transaction needs to be executed, the user sends it to a network of peer nodes.
• The algorithm verifies the authenticity of digital signatures of both parties involved in the transaction.
• After that, the algorithm-based contract makes a decision for the parties involved in the transaction.
• If the terms of the contract are fully met, the participants receive money. If the rules are violated, the algorithm imposes a penalty on users and also restricts their access to further actions on the platform.

Essential conditions:

• An asymmetric encryption method should be used to protect data.
• The system should have open databases with information about users
• entering into a transaction.
• There should be complete absence of the human factor.
• Decentralized platforms should be used for a transaction.

Advantages of Smart Contracts:

• No intermediary that charges an additional fee is required to complete the transaction.
• Business gets reliable protection of customer funds and storage of confidential user information.
• The algorithm uses multiple duplications, which ensures an additional guarantee of security.
• There is no need to fill in the contract manually; the service automatically enters all data about the parties of the transaction.
• Users do not need to monitor compliance with the contract terms. If one of the parties violates the requirements, the contract will be automatically deleted.

Disadvantages of using Smart Contracts:

• Advanced solutions can contain code bugs in the system, which often lead to problems in transactions and their execution.
• The lack of government oversight is both an advantage and a disadvantage. There are still no laws regulating the use of smart contracts in the blockchain ecosystem.
• At this stage, the use of smart contracts is only allowed within blockchain ecosystems.
• Some systems have too low data transfer rates, which complicates the conclusion of transactions.