The Alankrit Srivastava Blog

Tag: web3 basics

  • Day 23 — Where Does Crypto Yield Actually Come From?

    Watercolor illustration tracing crypto yield back to borrowers, trading fees, staking, and token rewards

    Crypto yield means the return a user earns from putting crypto assets to work. Before chasing a high number, compare this idea with DeFi loan liquidation and with the wider Ethereum DeFi overview.

    A dashboard may promise five, twenty, or even one hundred percent annual yield, but the percentage is the last part of the story. The first question should be: who is paying, and what useful activity produces the return?

    In a lending market, yield can come from interest paid by borrowers. In a liquidity pool, it can come from fees paid by traders. Proof-of-stake networks reward validators for helping secure and operate the chain, and some of those rewards can flow to people who delegate or stake assets.

    Protocols also distribute newly created tokens to attract users. These incentives can bootstrap a market, but they are not the same as durable revenue. If everyone earns a token only to sell it, and there is no continuing demand for it, the displayed yield may collapse along with the token price.

    Annual percentage yield often assumes rewards are reinvested and the current rate continues for a full year. Both assumptions can be unrealistic. Rates change with utilisation, trading volume, token emissions, and market prices. A high APY can disappear within hours while the underlying asset falls much faster.

    Yield is compensation for something: lending risk, market-making risk, price volatility, lock-up, validator penalties, smart-contract exposure, or simple token dilution. If the source cannot be explained clearly, the return may be circular—paid mainly from new deposits or newly printed incentives rather than productive demand.

    A useful review separates rewards by source, values them in a stable unit, checks withdrawal conditions, and tests what happens if the reward token drops sharply. It also includes gas, slippage, taxes, and impermanent loss instead of focusing only on the largest number on the screen.

    Many yield protocols can change parameters or direct a treasury through community voting. Tomorrow we will look at the organisation behind that process: the DAO, and how decentralised its decisions really are.

    Why this matters

    In simple terms, crypto yield is not free money. It usually comes from fees, borrowers, rewards, or risk that someone else is willing to take.

    What to remember

    Therefore, a useful yield question is not only how high the return looks. Ask where the return comes from, who pays it, and what can break.

  • Day 16 — How Can a Blockchain Know What Happened Outside It?

    Watercolor illustration of an oracle bridge carrying real-world data onto a blockchain

    Why blockchains need oracles

    A blockchain oracle brings outside information to a blockchain. Smart contracts need this because they cannot freely browse the web.

    That limitation is intentional. Every node must be able to reach the same result.

    If each node fetched a website on its own, the answers could differ. Then the network could not agree.

    The oracle problem

    Smart contracts can verify on-chain data easily. However, real-world facts live outside the chain.

    For example, a lending app may need the price of ether. A prediction market may need a sports result. An insurance contract may need weather data.

    An oracle delivers that information in a form the contract can use.

    Why trust still matters

    An oracle can become a weak point. If it reports a bad price, a contract may make a bad decision.

    Because of that, many oracle systems use several data sources. Some also use multiple operators.

    This reduces risk, but it does not remove risk completely.

    A simple example

    Imagine a smart contract that lends stablecoins against ether. It must know the current ether price.

    The oracle supplies that price. Then the contract can decide whether a loan is safe.

    The takeaway

    A blockchain oracle is a bridge between on-chain code and outside facts. It is useful, but it must be designed carefully.

  • Day 14 — What Makes an NFT Different From an Ordinary Token?

    Watercolor illustration of unique numbered digital certificates represented by NFTs

    What a non fungible token means

    A non fungible token, or NFT, is different from an ordinary crypto token.

    Fungible tokens are interchangeable. One token is treated like another token of the same kind.

    A non fungible token is different because each token has its own identity.

    Fungible versus non fungible

    Think about money first. One dollar can usually replace another dollar. That is fungible.

    Now think about a concert ticket. Seat A1 is not the same as seat B7. That is non fungible.

    An NFT brings that idea to a blockchain.

    What the NFT actually stores

    An NFT does not always store the full image, song, or file on-chain.

    Often, it stores a token ID and metadata. The metadata may point to artwork, traits, or other information.

    Therefore, the location and durability of that metadata matter.

    Why ownership is easier to verify

    Because an NFT lives on a blockchain, anyone can check which wallet owns it.

    This makes digital ownership easier to prove. However, ownership of a token is not always the same as copyright ownership.

    The takeaway

    A non fungible token is useful when uniqueness matters.

    It can represent collectibles, access, game items, or records. Still, the real value depends on the rights, metadata, and community behind it.

  • Day 13 — Is Every Crypto Token Its Own Blockchain?

    Watercolor illustration of many tokens recorded inside one Ethereum smart contract

    Tokens do not always need their own blockchain

    Crypto tokens often live on an existing blockchain. Many do not have their own separate network.

    This surprises many beginners. A wallet may show many assets, but several can be smart contracts on Ethereum.

    So a token is usually a record managed by code.

    What a token contract does

    A token contract keeps track of balances. It knows how many units each address owns.

    It also defines transfer rules. When you send tokens, Ethereum runs the contract and updates those balances.

    No tiny token file travels through the internet. Instead, the contract changes its ledger.

    Why this is useful

    Creating a new blockchain is difficult. It needs validators, security, infrastructure, wallets, and users.

    Creating a token on an existing chain is easier. The token can use the security and tooling of that chain.

    Therefore, many projects launch tokens before they ever consider their own network.

    Coins versus tokens

    A coin usually belongs to the base blockchain. Bitcoin belongs to Bitcoin. Ether belongs to Ethereum.

    A token is usually built on top of a chain. For example, many stablecoins and governance tokens run as Ethereum token contracts.

    The takeaway

    Crypto tokens are often smart-contract records. They use an existing blockchain for settlement, security, and visibility.

    That is why one wallet can hold many assets without each asset having its own blockchain.

  • Day 10 — Why Does Ethereum Charge Gas for Every Tiny Step?

    A measured gas meter limiting the computational work of Ethereum

    We now know that Ethereum nodes repeat the instructions inside a smart contract so that the network can agree on one result. That shared execution creates a new problem. Computation is not free. If anybody could ask every node to perform unlimited work, a careless program or an attacker could keep the network busy forever.

    Ethereum solves this with gas. Gas is a unit used to measure the amount of computational work a transaction requires. Adding two numbers costs a small amount. Reading or changing stored data costs more. Deploying a large smart contract may require much more. Gas is not a separate coin; it is the meter that counts the work, while the fee is paid in ether.

    Think of it like taking a taxi. Distance is not money, but it helps calculate the fare. In the same way, gas measures the journey through a program. A user sets a limit on how much gas the transaction may consume. If the contract finishes within that limit, unused capacity is not charged. If it runs out, execution stops so that the program cannot consume resources endlessly.

    The final fee also depends on what the network is charging for each unit of gas. When many people want their transactions included, block space becomes more competitive and fees can rise. A user can also offer an additional priority fee to encourage faster inclusion. This is why two identical actions performed at different times may cost different amounts.

    Gas protects the network, but it can surprise beginners. A transaction that fails may still consume a fee because nodes already performed work before discovering the failure. Paying for computation does not guarantee that the intended result will succeed; it pays the network for checking and executing the attempt.

    This system turns computation into a scarce resource and discourages spam. It also explains why developers try to write efficient contracts and why scaling Ethereum matters so much. Before we reach scaling, however, we need to understand who is authorising these paid instructions.

    When a website sees a password, it asks a company’s server whether the password is correct. Ethereum has no such account desk. So how can a wallet prove that a transaction truly came from you without sending a password to the network? The answer lies in digital signatures.

  • Day 9 — If Ethereum Is a Computer, Who Actually Runs It?

    Independent computers executing the same Ethereum Virtual Machine instructions

    Yesterday we described Ethereum as a blockchain that can hold both value and logic. That description sounds impressive, but it also hides a practical problem. A program cannot execute itself. On a normal website, code runs on a server owned by a company. If Ethereum has no central server, which computer actually runs a smart contract?

    The answer is not one special machine. Ethereum defines a small, standardised computing environment called the Ethereum Virtual Machine, usually shortened to the EVM. Developers write smart contracts and compile them into instructions that the EVM understands. Those instructions are stored on the blockchain along with the contract’s address and data.

    A useful way to imagine the EVM is as a calculator whose design has been copied onto thousands of computers. Give every copy the same starting numbers and the same operation, and each should produce the same answer. When someone sends a transaction to a smart contract, Ethereum nodes execute the relevant instructions and calculate the resulting changes. One node may be in Mumbai and another in London, but the rules of the virtual machine are the same.

    The result is a shared state. This state includes account balances, contract storage and other information that Ethereum currently recognises as true. A transaction proposes a change to that state. The network checks the signature, executes the contract, and agrees on the new result before it becomes part of a block. A person cannot simply change the answer on their own computer because their version would disagree with everyone following the protocol.

    For this agreement to work, the EVM has to be deterministic. The same input must always lead to the same output. A smart contract therefore cannot casually ask one computer for its local time, read a private file, or browse a website while it is running. Different machines might receive different answers. Contracts operate inside a controlled sandbox and can use only information supplied in a form the network can verify.

    This repetition sounds wasteful because many computers perform the same work. In one sense it is. Ethereum deliberately trades ordinary server efficiency for independent verification. The benefit is that no single server owner can secretly change the program’s result, switch off the database or rewrite a balance. The cost is that shared computation is scarce.

    That leads to the next question. If thousands of machines may need to check a computation, what prevents someone from submitting an enormous program or an infinite loop and making everybody work for free? Ethereum’s answer is a meter attached to every instruction: gas.

  • Day 8 — What If Money Could Follow Instructions?

    A smart contract running on a blockchain as a shared programmable agreement

    When money follows instructions

    Smart contracts make blockchain money programmable. They let value move only when certain rules are met.

    Bitcoin showed that money can move without a bank. Ethereum asked a bigger question. What if money could also follow logic?

    That idea turns a blockchain from a payment ledger into a shared computing platform.

    A simple example

    Imagine a small bet between two friends. A normal version needs trust. One person holds the money, or both trust a third person.

    A smart contract changes the setup. The rules can be written in code. Then the contract can release funds when the condition is met.

    In practice, real contracts need careful design. Still, the basic idea is simple. Rules can hold and move value.

    Why Ethereum matters here

    Ethereum was built for this broader kind of logic. It can store balances, run code, and update shared state.

    Because of that, developers can create tokens, lending apps, exchanges, games, and governance tools.

    However, the blockchain does not make every app safe. Bad code can still cause real losses.

    The trade-off

    Programmable money is powerful. It can remove some middlemen and create open financial tools.

    But it also adds complexity. Users must understand wallets, fees, approvals, and contract risk.

    Therefore, smart contracts are useful, but they are not magic.

    The takeaway

    A smart contract is a rule machine on a blockchain. It can hold assets and act when its conditions are met.

    That is the bridge from simple digital money to Web3 applications.