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DICTIONARY July 2022

All about the Ethereum network, Polygon, Gas Fee and NFT

Understanding what the Ethereum network is and how it works, the Polygon network, what the gas fee is and how all this is related to NFTs will allow you to learn more about this technology, the market and the terminology used in the process of creation, purchase , possession and sale of an NFT. In this article we will explain everything to you.

However, first we recommend reading the NFT dictionary to understand a little better what is exposed in this article:

Index

What is a Network?

In crypto parlance, a network is another name for the blockchain. For example for the Ethereum blockchain we can say the Ethereum network, for the Polygon blockchain we can say the Polygon network and for the Solana Blockchain we can say the Solana network.

The term “Network” is commonly used within the wallets that are used to store cryptocurrencies and NFTs. For example, when we configure the use of the "Ethereum Network" in a wallet, we are saying that we will use the Ethereum blockchain.

What is the Ethereum network? What is the “Gas Fee”?

The Ethereum network is a chain of digital blocks (blockchain) that is built through the process of data mining. The main quality of this network is the generation of smart contracts with a high level of decentralization. For example, an NFT is backed by a smart contract generated on this network, a unique and unrepeatable transaction that validates the authenticity of the NFT, its creation date and time, and other important metadata. Once this information is generated, it cannot be modified.

Every time a transaction is made on the Ethereum network, a “Gas Fee” must be paid. This amount is represented in the cryptocurrency ETH, the native token of the network, whose value in dollars is approximately 1,250 USD per unit as of today. In general, the "Gas Fee" has a cost of cents of ETH that in dollars can represent between 10 and 150 USD depending on the type of transaction to be carried out.

Part of the "Gas fee" charged per transaction is paid to data miners as a reward for making their equipment available to this network and making it possible for these decentralized transactions to be generated. Another part is "burned", that is, the amount of circulating ETH is reduced with the aim of generating an anti-inflationary mechanism. The role of the miners is to validate each transaction in the network and replicate it around the computers distributed throughout the world, which provides security, traceability and integrity to the operations.

This operation is based on the “Proof of Work” protocol that we will explain later. In any case, being mid-2022, the Ethereum network is in the process of development in order to migrate its functionality to the "Proof of Stake" protocol, a mechanism almost as secure as the current one but much lighter and less expensive, which It would considerably reduce the price of the "gas fee" at the time of generating a transaction. For example, the Cardano and Solana networks work under the “Proof of Stake” protocol, as does the Polygon network, which works as a second layer of the Ethereum network.

In short, if we buy an NFT created on the Ethereum network, in addition to the cost of the NFT, we will have to pay a considerable extra amount called "Gas Fee" to cover the costs of running the network.

What is Etherscan?

Etherscan is a blockchain explorer for the Ethereum network that contributes to the transparency of operations on said network. It is a website that allows you to search for transactions, blocks, wallet addresses, smart contracts and other on-chain data. It is one of the most popular and free to use Ethereum blockchain explorer.

https://etherscan.io

Using Etherscan can help you understand exactly how you interact with the blockchain, other wallets, and DApps (decentralized applications). This knowledge can also help you stay safe and spot suspicious behavior.

To use Etherscan, you will need to copy any wallet address, transaction ID (TXID), contract address, or other identifier to paste into the search field. The information you'll see will depend on what you're looking for, but most of it will be transactions, addresses, timestamps, and amounts.

You can also interact directly with the smart contracts to carry out the transactions and verify the gas commissions, in short, to carry out your own investigation.

What is the Polygon network?

Broadly speaking, the Polygon network was developed as a second layer of the Ethereum network, but it is also capable of interfacing with other networks. This development and its inherent link with the Ethereum network has algorithmic and technological characteristics that achieve benefits when interacting on the blockchain depending on the Ethereum network.

One of the problems that the Ethereum network has been facing in recent years is transaction congestion. This happens due to several projects linked to NFTs and the Metaverse that have a constant and sometimes overwhelming demand on the network. This is one of the reasons for the high costs of the "Gas Fee" and the slowness of the network depending on the type of operation.

The Polygon network was designed and implemented to solve these two main problems, which provides very low costs of "Gas Fee" and/or practically insignificant or null and a greater speed of operation, except in those occasions where the network is under maintenance. The native token of this network is the MATIC cryptocurrency and its current price is approximately 0.52 USD cents although this price is very volatile and can vary considerably at the time of reading the article.

This operation is based on the "Proof of Stake" protocol, a simplified operation validation mechanism that we will explain later.

In short, if we buy an NFT created on the Polygon network, we will practically not pay "Gas Fee" or its cost may be insignificant or zero compared to the cost of operating directly on the Ethereum network.

What is Polygonscan?

Polygonscan is a blockchain explorer for the Polygon network like the Etherscan that we already mentioned, with the same features, but its functionality applies to the Polygon network.

https://polygonscan.com

What is the ETH token and what is it used for?

The token or cryptocurrency ETH (Ethereum) is the native token of the Ethereum network. It is necessary to have an available balance of this cryptocurrency in our wallet only to be able to buy the NFTs created in the Ethereum network. On the other hand, it is not useful to offer or to bid an NFT created in this network, to get that we need the WETH token associated with the Polygon network.

What is the WETH token and what is it used for?

In a few words, the WETH token or cryptocurrency is a wrapped ETH token that works on the Polygon network and replicates the ETH token of the Ethereum network, so it trades at the market price of the ETH cryptocurrency (Ethereum).

The WETH token is used both to buy an NFT on the Polygon network and to offer an amount on an NFT created on both networks: Polygon and Ethereum. It is also used to start an bid of an NFT on the mentioned networks. Therefore, to carry out this operation we need an available WETH balance in our wallet set up with the Polygon network. The WETH balance can be obtained by exchanging the MATIC cryptocurrency for WETH in our wallet.

What is the MATIC token and what is it used for?

The MATIC token or cryptocurrency is the native token of the Polygon network. The main role of this token is to provide functionality to the Polygon network. It is represented in the MATIC cryptocurrency. This token will be used to buy an NFT created on the Polygon network, also to offer or bid NFTs.

To trade on the Polygon network, it is necessary to provide a balance in MATIC to our wallet and later, from our wallet, convert the MATIC that we need into the WETH token since the marketplace does not operate with MATIC directly, but rather requires us to operate with this token wrapped.

Protocols

If you are interested in going deeper into some concepts, we will give you two more definitions, although it is not necessary for you to fully understand them since they are somewhat complex technical terms, so for the curious we have tried to explain it as understandable and summarized as possible.

What is Proof of Work?

PoW or “proof of work” is a protocol closely tied to proof of consensus. It is one of the oldest blockchain protocols currently used by the Bitcoin and Ethereum networks. Broadly speaking, it consists of performing a very complex computational task that demands a lot of resources and sometimes this computational task needs more than one computer connected to the blockchain to be solved, which is called a mining pool. The computer or computers that solve this task will receive a reward which represents a cost for the user called "Gas Fee", we have already written about it.

When we need to write a transaction in the blockchain with the "Proof of Work" protocol, a series of steps are carried out that we could divide into 3 stages:

  • The node, team or mining pool establishes a connection with the network, consequently the network assigns a very expensive computational task that must be solved in exchange for an economic incentive
  • Once the task is assigned, the node proceeds to solve it, then many complex computational processes are triggered, this is the role of data miners that we have mentioned in the previous definitions. When solving the computational task, the node shares this information in the network.
  • The node has already shared the result of the task to the network, so a very simple and fast verification process begins, checking that the task meets all the requirements that are demanded. If the verification is successful, access to the network resources is granted and the node that has solved this problem, that is, the miner, receives its financial compensation in the native cryptocurrency of the network.

Advantage:

  • 100% sure
  • Simple and easy to implement algorithmically
  • Easily adapts to hardware needs

Main disadvantage:

  • It consumes a lot of resources and energy, that's why the high "Gas Fee" rates. This is the reason why the "Proof of work" is dying

What is Proof of Stake?

PoS or "proof of participation" is a consensus protocol created to replace the well-known PoW, providing better security and scalability to the networks that implement it. The objective of this algorithm, as in PoW, is to create consensus among all the parties that make up the network.

The nodes that mine in PoS are called validators. The decision on which node has to validate a block is made randomly, but giving greater probability to those who meet a series of criteria. Among these criteria we can mention the amount of reserved currency, known as staking, and the time of participation in the network, but others can be defined. Once established, the random node selection process begins. Once the selection process is over, the chosen nodes will be able to validate transactions or create new blocks.

In PoS the process is much simpler than PoW and energy friendly. These are the reasons why many blockchain projects are currently interested in this new protocol and the fundamental reason for the future migration of the Ethereum network to this protocol.

The transactions carried out with this new protocol have a low cost of "Gas Fee" and on occasions practically null because it does not require tasks that consume a lot of energy or resources. As we have mentioned, an example of networks that use this protocol are Cardano, Solana and Polygon, which works as a second layer of the Ethereum network.

What is Staking?

Staking consists of a process of blocking cryptocurrencies or tokens in a wallet for a certain period of time in order to participate in the validation of transactions, a criterion used by the "Proof of Stake" or PoS protocol. Participants are rewarded every few seconds or after processing a certain number of blocks. Participants who decide to block their cryptocurrencies will not be able to use them until they cancel their participation, therefore, although they earn money while their tokens are blocked, they are subject to market volatility that can appreciate or depreciate the value of the blocked capital.

NFT Trends

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