Introduction

You know what’s the magic trick of blockchain? Nobody’s in charge, yet everyone trusts the system. How is that possible?

The answer is consensus mechanisms — the rulebook that lets thousands of computers agree on what’s real without a central authority deciding for them. Think of it as a voting system that’s impossible to cheat. This is Day 13 of 60 day Web3 Series, Connect on Twitter / Join the TG Community for previous articles.

After learning about tokenomics, understanding how the network actually maintains trust is the next crucial piece of the puzzle.

What Is a Consensus Mechanism?

A consensus mechanism is a protocol — a set of rules — that determines how a blockchain network agrees that a transaction is valid and should be recorded.

In traditional banking:

• One bank (or central authority) validates your transaction
• They maintain the ledger
• You trust them because they’re regulated

In blockchain:

• No single entity controls validation
• The network itself validates transactions
• You trust the math and cryptography, not an institution

Consensus mechanisms are the blockchain’s answer to this problem: “How do we get 10,000 strangers to agree on the truth?”

Why We Need Consensus Mechanisms

Imagine you and I are playing chess online, and we both claim we won. Who decides?

In blockchain, the problem is similar but bigger:

• Alice sends Bitcoin to Bob
• Bob’s uncle also claims Alice sent him the same Bitcoin
• The network needs to decide: which transaction actually happened?

Without a consensus mechanism, bad actors could:

• Spend the same coin twice (“double-spending”)
• Reverse past transactions
• Rewrite history

Consensus mechanisms prevent all of this by making it mathematically expensive and tedious to lie.

Proof of Work (PoW): The Bitcoin Way

How it works:
Miners compete to solve a difficult math puzzle. The first one to solve it gets to add a block of transactions to the blockchain and earns a reward.

The puzzle (simplified):

• Find a number that, when combined with transaction data and hashed, produces a result starting with a certain number of zeros
• This requires trying billions of combinations
• The first computer to find it wins

Why this works:

1. Expensive to attack: To fake a transaction, you’d need to redo all that computational work faster than the honest network combined
2. Verifiable: Everyone can instantly check if the answer is correct
3. Fair: Anyone with a computer can try to solve it

Real-world analogy: It’s like making everyone in the room solve a Sudoku puzzle to add information to a shared notebook. The work itself proves you’re serious.

The energy reality:

Per Bitcoin block:

• ~10,000 miners competing simultaneously
• Each runs specialized computers (ASICs)
• Each tries billions of combinations per second
• ~700 kWh of energy consumed per block
• 10-minute block time

Where the energy goes:

99% = Solving the puzzle ⚡⚡⚡⚡⚡
1% = Broadcasting/verifying the block

The downside:

• Uses tons of electricity (Bitcoin uses ~150 TWh annually — more than Argentina’s total electricity)
• Slower transaction speeds (~7 transactions per second)
• Equipment becomes outdated quickly
• Most mining power concentrated in geographic regions

Deep Dive: Bitcoin Energy Consumption Index

Proof of Stake (PoS): The Ethereum 2.0 Way

How it works:
Instead of solving math puzzles, validators are chosen based on how much cryptocurrency they’ve “staked” (locked up as collateral). One validator builds the block, others verify it.

The three-step process:

Step 1: Becoming a Validator

You deposit 32 ETH as collateral → you become eligible to validate

Current Requirements:

• 32 ETH (~$100,000 USD at current prices)
• Validator software running 24/7 (can be cloud-based)
• Stable internet connection

Step 2: Getting Selected

The network randomly selects validators to propose blocks (weighted by stake):

• Validator with 32 ETH: ~1 chance per epoch
• Validator with 320 ETH: ~10 chances per epoch
• Can’t predict who’s next (prevents attacks)

Selection Mechanism:

• Uses RANDAO (Random Number Generator)
• Weighted by effective balance
• Rotates every 12 seconds (slot time)

Step 3: Building & Verifying the Block

When a validator is selected:

Proposer (the selected validator):

• Gathers pending transactions (~5 seconds work)
• Checks they’re valid (not double-spends, etc.)
• Creates a block
• Broadcasts it to network
• Energy used: ~0.0001 kWh

Attesters (other validators):

• Verify the proposer did their job correctly (~1 second work)
• Check: Is the block valid? Are transactions legitimate?
• “Attest” (approve) if everything looks good
• Energy used: negligible (just confirming)

Block Finalization:

• When 2/3 of validators attest → block is final and permanent
• Proposer earns reward (~0.025 ETH per block)
• Attesters earn small rewards

Penalty for Dishonesty (Slashing):

If a validator cheats or validates false transactions:

• Their 32 ETH deposit gets “slashed” (taken away)
• Removed from the validator set
• Can’t earn rewards anymore
• Economic penalty for dishonesty

Why this works:

1. Economic incentive: Lose 32 ETH if you cheat
2. Energy efficient: No need for expensive puzzle-solving computations
3. Democratic: Anyone with 32 ETH can participate (though this is still a barrier)
4. Fair: Random selection prevents anyone from controlling the process

Real-world analogy: Like a security deposit on an apartment. The landlord knows you’ll take care of it because it’s your money at stake.

The energy reality:

Per Ethereum block:

• 1 proposer selected from 500,000+ validators
• Others verify (attesters)
• ~0.0001 kWh of energy consumed per block
• 12-second block time

Where the energy goes:

90% = Running validators’ servers 💻
10% = Broadcasting/network activity
0% = Solving puzzles (doesn’t exist!)

Learn More About Ethereum PoS

• Ethereum Proof of Stake Documentation
• Ethereum 2.0 Explainer
• How to Stake on Ethereum
• Lido Staking (Liquid Staking)
• Rocket Pool (Decentralized Staking)

But Wait: Doesn’t More Blocks = More Energy?

Great question! This is where people get confused.

Let’s compare the same amount of transaction throughput:

Bitcoin (PoW):

Block time: 10 minutes

Blocks per day: 144

Energy per block: 700 kWh

Total daily energy: 100,800 kWh

Transactions per block: ~2,000

Ethereum (PoS):
Block time: 12 seconds

Blocks per day: 7,200 (50x more blocks!)

Energy per block: 0.0001 kWh

Total daily energy: 0.72 kWh (!!!)

Transactions per block: ~100–200

Even with 50x more blocks, PoS uses 140,000x LESS energy!

Why? Because removing the puzzle-solving requirement creates such a massive energy difference per block that it overwhelms everything else.

Think of it this way:

PoW: 1 block = “Run NYC’s power grid for 1 hour”
PoS: 1 block = “Turn on a light bulb for 5 seconds”

Even if PoS produces 50x more blocks,
light bulbs still use way less total energy than power grids.

The Validator vs. Miner Distinction

I want to clarify a terminology confusion:

• Miner: Puzzle-solving (PoW) → Massive energy
• Validator: Block validation (PoS) → Minimal energy
• Proposer: Builds block (PoS) → 0.0001 kWh
• Attester: Verifies block (PoS) → ~0 kWh

In PoS, there’s no “miner” concept. Validators do different roles:

• Sometimes they’re proposers (build blocks)
• Sometimes they’re attesters (verify blocks)
• Most of the time they’re just waiting to be selected

The Advantages of PoS

• 99.998% less energy than PoW
• Faster transactions (12 seconds vs 10 minutes)
• More accessible hardware (laptop can validate, not ASIC required)
• Punishes dishonesty economically (slashing)
• Scales better (more validators = more security, not less)
• Environmental sustainability (Ethereum saved ~150 TWh/year after merge)

The criticisms:

• “Rich get richer” — people with more ETH earn more rewards (100 ETH = 3.1x more rewards than 32 ETH)
• Centralization risk — if a few large entities control 33%+ of stake, they could attack the network
• Higher barrier to entry (need 32 ETH, ~$100k)
• “Weak subjectivity” — new nodes need to trust existing network state
• Centralization of staking providers (Lido controls ~32% of staked ETH)

Other Notable Consensus Mechanisms

Delegated Proof of Stake (DPoS)

(Used by: Cardano, Polkadot)

• Token holders vote for representatives who validate blocks
• Lower barrier to entry (don’t need 32 ETH)
• More democratic than PoS
• Faster than pure PoW
• Risk: Voter apathy (people don’t participate)

Learn More:

• Cardano Stake Pool Operation
• Polkadot Validators

Proof of Authority (PoA)

(Used by: Private blockchains, testnets, Binance Smart Chain)

• Known, trusted entities validate blocks
• Very fast but centralized
• Used when speed > decentralization
• Risk: Single point of failure

Proof of History (PoH)

(Used by: Solana)

• Creates a cryptographic record proving an event happened at a specific moment
• Novel approach to solving blockchain ordering problem
• Enables very high throughput (~65,000 TPS theoretical)
• Risk: Novel = less battle-tested

Learn More:

• Solana Whitepaper
• Proof of History Explanation

Hybrid Models

• Some blockchains combine PoW + PoS
• Example: Ethereum during the transition phase
• Goal: Get benefits of both (though this is debated)

Comparing Consensus Mechanisms

Proof of Work (Bitcoin)

• Energy: 150 TWh/yr | Speed: 7 TPS | Decentralization: High | Capital: Low ($500 ASIC) | Attack Cost: $50B+

Proof of Stake (Ethereum)

• Energy: 0.0026 TWh/yr | Speed: 15 TPS | Decentralization: Medium (stake-based) | Capital: High (32 ETH) | Attack Cost: $100B+

Delegated PoS (Cardano)

• Energy: 0.001 TWh/yr | Speed: 1,000 TPS | Decentralization: Medium (voting) | Capital: Low | Attack Cost: Variable

Proof of Authority (Binance)

• Energy: 0.0001 TWh/yr | Speed: 10,000 TPS | Decentralization: Low | Capital: N/A | Attack Cost: Depends

Proof of History (Solana)

• Energy: 0.05 TWh/yr | Speed: 65,000 TPS | Decentralization: Low-Medium | Capital: Low | Attack Cost: Variable

Note: Energy use changes based on network size; speeds are approximate and vary

Why This Matters for You

For investors:

• PoS is more scalable → potentially more adoption → more value
• PoW is proven and battle-tested → more secure historically
• Different consensus = different risk/reward profiles
• Staking opportunities available through Lido, Rocket Pool, Consensys Staking

For developers:

• Different consensus mechanisms = different smart contract capabilities
• Some are faster, some are more secure, some are greener
• Choosing the right blockchain depends on your consensus choice
• Solana (PoH) enables things Ethereum (PoS) can’t do yet
• Development tools: Hardhat, Truffle, Foundry

For the environment:

• PoS blockchains are dramatically greener than PoW
• Ethereum’s switch to PoS saved more energy annually than the entire power consumption of a small country
• Your choice of blockchain has real environmental consequences
• Check: Crypto Carbon Ratings Institute

For blockchain philosophy:

• PoW optimizes for security through computational expense
• PoS optimizes for efficiency through economic incentives
• Both try to solve the same problem differently
• Read: Bitcoin Whitepaper and Ethereum 2.0 Spec

The Reality Check

None of these mechanisms are perfect:

• PoW is secure but wasteful and slow
• PoS is efficient but can be plutocratic (ruled by the wealthy)
• DPoS is democratic but requires voter participation
• PoA is centralized but fast
• PoH is novel but less proven

The “best” consensus mechanism depends on what you’re optimizing for:

• Security?
• Speed?
• Energy efficiency?
• True decentralization?
• Accessibility?

Different blockchains make different choices, and that’s okay.

Key Takeaways

• Consensus mechanisms solve the trust problem without needing a central authority
• Proof of Work = computational puzzle solving (secure, slow, 99.9% energy-intensive)
• Proof of Stake = putting money on the line (efficient, fast, but plutocratic)
• The energy difference isn’t about “fewer people.” It’s about not solving computationally expensive puzzles anymore
• Different blockchains use different mechanisms for different tradeoffs
• No perfect solution exists — each has strengths and weaknesses
• Validators ≠ Miners — PoS validators build and verify blocks, PoW miners solve puzzles

What’s Next?

You now understand how blockchains reach consensus and why different mechanisms make different tradeoffs. The natural progression is understanding where consensus happens — which brings us to Layer 2 Solutions.

We’ve already explored Layer 2s conceptually in previous articles, but tomorrow’s deep-dive will show you:

• How Optimistic Rollups and ZK Rollups actually work under the hood
• Why they need less consensus work than Layer 1
• Which approach solves consensus differently
• When you should use each one

After mastering consensus and scaling, we’ll then compare different blockchains that use these mechanisms in practice — specifically Ethereum vs Solana, which make radically different consensus choices.

Questions to Explore

1. If you could design a consensus mechanism, what would you optimize for first?
2. Do you think PoS is truly more democratic than PoW, or just differently plutocratic?
3. Why would a blockchain choose a slower, more expensive consensus mechanism when faster options exist?
4. What would happen if you controlled 33% of Ethereum’s staked ETH? What attacks could you do? What couldn’t you do?
5. Is energy consumption the most important factor when choosing a blockchain?
6. How might consensus mechanisms evolve in the next 5 years?
7. Can Layer 2 solutions reduce the need for efficient consensus mechanisms? Or do they complement each other?

Series Navigation

60-Day Web3 Journey Series:

• Previous: Understanding Tokenomics — Why Token Design Matters
• Current: Consensus Mechanisms Explained (Day 13)
• Tomorrow: Layer 2 Solutions Deep-Dive: Optimistic vs ZK Rollups (Day 14)
• Soon After: Ethereum vs Solana: Consensus in Action (Day 15)

Follow the series for daily updates | Drop a comment with questions | Connect on Twitter / Join the TG Community

Consensus Mechanisms Explained: How Blockchain Networks Agree Without a Boss was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.

Understanding Tokenomics — Why Token Design Matters

Welcome back to the 60-Day Web3 Journey. Join here for discussions.

Over the last 11 days, you’ve learned what blockchain is, how Bitcoin and Ethereum work, what smart contracts can do, and how DeFi and NFTs use those contracts to create financial systems and digital ownership. You’ve deployed code. You’ve understood how protocols move billions of dollars.

But here’s the question nobody asks until it’s too late: Why does a token have the value it does?

You’ve seen tokens everywhere by now. Uniswap has UNI. Aave has AAVE. Bitcoin has BTC. Ethereum has ETH. DeFi protocols have their own tokens. But why do these tokens exist in the first place? Why are they designed the way they are? And why does some random token go to zero while another goes to $100,000?

The answer is tokenomics.

This is Day 12 of your 60-day Web3 journey. Today, you stop being confused about why tokens matter.

What Is Tokenomics?

Tokenomics is a blend of “token” + “economics.” It’s the study of how tokens are designed, distributed, and used within a blockchain ecosystem.

But here’s the key: A token’s value is determined by how it’s designed, not by hype or luck.

Let’s break down what makes a token valuable:

Element: Supply
What It Does: How many tokens exist (or will exist)
Example: Bitcoin: 21 million total

Element: Distribution
What It Does: Who gets the tokens and when
Example: Aave: 16% to founders, 50% to community

Element: Use Case
What It Does: What you do with the token
Example: UNI: vote on protocol changes

Element: Scarcity
What It Does: How rare it is
Example: Ethereum: no max supply, but issuance limited

Element: Demand
What It Does: How many people want it
Example: Uniswap UNI: traded on every DEX

A token is only valuable if people want it. And people only want it if it does something useful or becomes scarce (or ideally, both).

The Three Types of Tokens (By Function)

1. Governance Tokens — The Voting Chip

These tokens let you vote on how a protocol changes. You own a piece of the decision-making.

Examples:

• UNI (Uniswap): Vote on protocol upgrades, fee structures, treasury usage
• AAVE (Aave): Vote on which assets can be lent/borrowed, interest rates
• MKR (MakerDAO): Vote on stablecoin parameters, collateral types

How it works:

1. You own 1 UNI token
2. New proposal: “Should Uniswap charge 0.01% or 0.05% on swaps?”
3. You vote your 1 token
4. If you owned 1,000 UNI, your vote counts 1,000x more
5. Majority wins

The catch: The more tokens you own, the more power you have. Some people see this as fair (you invested more), others see it as undemocratic (rich get richer).

2. Utility Tokens — The Tool

These tokens unlock features or services within a protocol.

Examples:

• ETH (Ethereum): You need it to pay gas fees for any transaction
• LINK (Chainlink): Staking it to become an oracle node (data provider)
• SOL (Solana): Used to pay transaction fees

How it works:

1. You want to swap tokens on Uniswap
2. You need ETH to pay the gas fee (say, $5 in ETH)
3. You send $5 ETH + your swap instruction
4. Miners take the $5 ETH as a fee
5. Your swap happens

Why this matters: If a token is genuinely useful (you need it to use the protocol), it will always have baseline demand.

3. Reward/Incentive Tokens — The Bribe

These tokens are issued to incentivize specific behaviors the protocol wants.

Examples:

• UNI (Uniswap): Rewarded to liquidity providers (people who deposit capital)
• COMP (Compound): Rewarded to lenders and borrowers to bootstrap the platform
• GGP (Goggles): Rewarded to stakers who validate transactions

How it works:

1. Uniswap launches a new trading pair (token X ↔ token Y)
2. But nobody has deposited liquidity yet, so spreads are huge
3. Uniswap says: “Deposit tokens here, and we’ll reward you with UNI tokens”
4. Liquidity providers arrive for the UNI rewards
5. Suddenly the pool is deep, spreads are tight, everyone benefits

The insight: New protocols often need to “bribe” users to show up. Once traction builds, the incentives can decrease.

How Tokens Get Distributed (Tokenomics 101)

This is where tokenomics gets interesting — and controversial.

Bitcoin (The Original)

Total supply: 21 million BTC (fixed, will never change)

Distribution:

• 2009–2012: Miners get 50 BTC per block found
• 2012–2016: Miners get 25 BTC per block (halving)
• 2016–2020: Miners get 12.5 BTC per block (halving)
• 2020–2024: Miners get 6.25 BTC per block (halving)
• 2024–2028: Miners get 3.125 BTC per block (halving)

The design choice: Every 4 years, the reward cuts in half. This creates scarcity and incentivizes early mining. It also means most BTC has already been mined (about 21.5 million out of 21 million). By 2140, no new Bitcoin will be created.

Why this matters: Bitcoin’s fixed supply is its defining feature. There will never be more than 21 million Bitcoin. This scarcity is why Bitcoin holders believe it will stay valuable.

Ethereum (More Flexible)

Total supply: Unlimited (no cap)

Distribution:

• Pre-launch (2015): 72 million ETH created (initial supply)
• Today: ~120 million ETH in circulation
• Every 12 seconds: ~2 new ETH created as validator rewards
• BUT: Users pay transaction fees in ETH, which get burned (destroyed forever)

The design choice: Ethereum has no max supply, so theoretically infinite ETH can exist. BUT the fee-burning mechanism (introduced in 2021) destroys ETH daily. As of mid-2025, more ETH is burned than created most days, making ETH deflationary (total supply shrinking).

Why this matters: Ethereum chose flexibility over scarcity. It needed a way to pay validators indefinitely. The fee-burn keeps supply in check while incentivizing network security.

Uniswap (The Governance Token)

Total supply: 1 billion UNI (fixed)

Distribution:

• 600 million (60%): Distributed to community (airdrop + liquidity providers + developers)
• 150 million (15%): Uniswap Labs team
• 150 million (15%): Investors/founders
• 100 million (10%): Advisors

The design choice: Uniswap’s founders deliberately gave 60% to the community. This was a statement: “We’re decentralizing governance from day one.” They didn’t keep the majority for themselves.

Why this matters: Token distribution affects who controls the protocol. If you keep 90% for yourself, you control the vote. If you give away 60%, you’re genuinely decentralizing power (at least initially).

The Real Question: Why Does Token Price Change?

This is where tokenomics connects to economics.

A token’s price is determined by supply and demand:

Supply:

• How many tokens exist right now? (Circulating supply)
• How many will exist in the future? (Max supply)
• Are tokens being created? Burned?

Demand:

• How many people want to buy this token?
• Why do they want it? (utility, governance, speculation, HODLing)
• Is adoption increasing or decreasing?

The formula (oversimplified):

Token Price = Market Cap ÷ Circulating Supply

Example:

• Uniswap market cap: $10 billion
• UNI circulating supply: 600 million tokens
• UNI price = $10B ÷ 600M = ~$16.67 per UNI

If demand increases to $20 billion market cap, UNI price jumps to ~$33.

But here’s the catch: If supply increases (more tokens created), the price can drop even if market cap stays the same.

Real-world example: Bitcoin halving (2024)

• Before halving: 900 BTC created per day (miner rewards)
• After halving: 450 BTC created per day
• Supply dropped 50%
• Demand stayed the same
• Result: Bitcoin price increased significantly (less supply = higher scarcity)

This is why cryptocurrency projects watch their tokenomics closely. Too much new supply, and the token price tanks even if the protocol is doing great.

The Dark Side of Tokenomics: Pump & Dump

Not all tokens are created equal. Some are designed to extract value from users, not create it.

The classic scam:

1. Create: New token launched with huge promises (“Revolutionary AI + Blockchain!”)
2. Hype: Team markets aggressively, influencers promote, price goes up 100x
3. Distribute: Team and insiders sell their tokens (they got them for free at launch)
4. Crash: Token price drops 99%, retail holders left with worthless tokens
5. Disappear: Team goes quiet or moves to the next scam

Red flags:

• No real utility for the token (just speculation)
• Founders keep 50%+ of supply
• Promises of guaranteed returns
• No clear roadmap
• Team is anonymous

Good tokenomics:

• Clear utility (you need the token for something)
• Transparent distribution (you know who owns what)
• Founders have “skin in the game” (they’re locked in for years)
• Real adoption metrics (actual usage, not just price)
• Public roadmap and governance

Learn more about avoiding scams

Connecting Back to Your Journey

Remember Day 10 (DeFi)? I explained how Uniswap and Aave work as smart contracts.

Now you understand why those protocols created tokens in the first place:

• UNI: Uniswap needed a way to let users vote on protocol changes (governance)
• AAVE: Aave needed a way to distribute early adoption incentives (rewards)

And you understand why token prices change:

• Bitcoin’s price is partly because of the halving (supply decrease)
• Ethereum’s price is affected by burn rate (supply destruction)
• Smaller tokens crash because insiders sell all at once (supply shock)

This is why tokenomics matters. It’s not just abstract economics — it’s literally how the blockchain ecosystem is designed.

Key Takeaways

• Tokenomics = the design and economics of how tokens are created, distributed, and used.
• Three main types: Governance (voting), Utility (needed to use protocol), Reward (incentive to participate).
• Token value depends on supply + demand. More scarcity + more utility = higher price potential.
• Distribution matters. If founders keep most tokens, they control the protocol. If they distribute widely, it’s more decentralized.
• Bitcoin’s design: Fixed 21 million supply, halving every 4 years, creates artificial scarcity.
• Ethereum’s design: Unlimited supply, but burn mechanism keeps it in check, prioritizes flexibility.
• Red flags: No utility, founders keep everything, anonymous team, guaranteed returns promises.

What Happens Next?

By now, you’ve learned:

• Days 1–7: The fundamentals (blockchain, Bitcoin, Ethereum, wallets, gas, Layer 2s)
• Days 8–9: How code works (smart contracts, deployment)
• Day 10: How DeFi protocols move money (Uniswap, Aave)
• Day 11: How NFTs create ownership (smart contracts for digital assets)
• Day 12 (today): How tokens are designed and why they have value

Tomorrow (Day 13), we’ll explore consensus mechanisms — the actual technology that keeps blockchains secure. You’ll understand Proof of Work, Proof of Stake, and why Ethereum switched from one to the other.

But tonight, think about this: Every token you see — Bitcoin, Ethereum, any random coin — is designed by humans to solve a specific economic problem. Some solve it well. Some are designed to scam you. Learning tokenomics helps you tell the difference.

Understanding Tokenomics — Why Token Design Matters was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.

NFTs Explained Simply — What’s Actually Happening in 2025?

Welcome back to the 60-Day Web3 Journey. This is Day 11.

So far, you’ve gone from “What is blockchain?” and “Why was Bitcoin a big deal?” to understanding Ethereum as a programmable blockchain, wallets and gas, smart contracts, and finally DeFi — where code replaces banks for trading, lending, and earning. Yesterday’s DeFi article showed how smart contracts can move billions of dollars without a traditional bank in sight.

Today, we’re staying with the same building block (smart contracts) but switching the use case: ownership, not just money. That’s where NFTs come in.

A lot of people say “NFTs are dead.” The truth in 2025 is more nuanced: the speculation bubble around cartoon JPEGs popped, but some very specific NFT use cases quietly kept going and even grew. This article will stay neutral: no hype, no funeral — just what NFTs are and where they actually make sense now.

What Is an NFT, Really?

NFT stands for non-fungible token. In normal language:

• Token: A record on a blockchain that says “this wallet owns X”.
• Non-fungible: Each token is unique, not interchangeable 1:1 like money.
• Smart contract: The piece of code that defines the rules for those tokens — who owns what, how transfers work, what metadata is attached.

If a fungible token (like ETH or USDC) is like a dollar bill — every unit is the same — then an NFT is like a concert ticket with your seat printed on it. Both are pieces of paper, but one is interchangeable and one isn’t.

Technically, an NFT is:

• A smart contract (for example, ERC-721 or ERC-1155 on Ethereum) deployed to a blockchain.
• A token ID inside that contract that maps to:
• an owner address, and
• metadata (image, traits, ticket info, etc.).

The important part: the NFT itself is the on-chain entry in the contract that points to some data. The picture or asset can be on IPFS, Arweave, or even a centralized server. The contract + token ID is what you truly “own.”

What Actually Happened to NFTs After the Hype?

The 2021–2022 cycle was dominated by:

• Profile picture (PFP) collections.
• Massive trading volumes.
• Floor prices driven more by speculation than by actual utility.

Then the market corrected hard. Global monthly NFT trading volume fell from tens of billions in 2021 to well under a billion in some months of 2023–2024. Many collections went to near-zero and mainstream interest moved on.

By 2025, the picture is more mixed:

• Overall trading volumes are far below the peak, but no longer in freefall.
• A few blue-chip collections still have active communities and liquidity.
• The “mint anything and flip it tomorrow” meta is mostly dead.
• Utility-focused NFTs — gaming items, tickets, loyalty passes — are growing as separate, quieter categories.

So if by “NFTs” you mean the speculative PFP casino, then yes, a lot of it is dead. If you look at NFTs as a tool for digital ownership and access, the story is different.

Real NFT Use Cases in 2025 (Beyond JPEGs)

Here are the areas where NFTs actually make sense today.

1. Gaming Items and In-Game Assets

In Web3 games, NFTs represent:

• Characters, skins, weapons, land, or in-game items.
• Assets that can be traded on open marketplaces instead of being locked inside one company’s database.

Why this matters:

• If designed well, your items can be sold or transferred even if the original game shuts down.
• Some ecosystems experiment with interoperability: using the same NFT across multiple games or experiences.

Gaming already had digital items with real emotional and monetary value; NFTs mostly change how they’re owned and traded.

2. Tickets and Access Passes

NFTs are increasingly used as:

• Event tickets for concerts, sports, conferences.
• Membership and access passes for DAOs, online communities, and clubs.

Why organizers care:

• Harder to forge than PDFs or screenshots.
• Easy to verify at the door with a wallet scan.
• Secondary markets can be tracked, and in some ecosystems, creators can enforce royalties on resales (depending on marketplace and chain support).

By 2025, there are live pilots and products using NFT ticketing for festivals, sports events, and Web3 conferences, with some platforms reporting reduced fraud and better tracking of resales.

3. Loyalty, Rewards, and Token-Gated Commerce

Brands are using NFTs as:

• Loyalty passes that unlock discounts, perks, or early access.
• Token-gated commerce, where only NFT holders can buy certain products or access private storefronts.

Examples:

• A coffee chain issues NFT loyalty cards that upgrade as you hit spending milestones.
• A fashion brand drops limited-edition items only accessible if your wallet holds a specific NFT.

Here, the NFT isn’t about “collectible art”; it’s a programmable access key sitting in your wallet.

4. Certificates, Identity, and Collectibles

Other emerging uses include:

• Certificates for course completions and on-chain credentials.
• Proof-of-attendance tokens (POAPs) for events and conferences.
• Digital collectibles tied to physical products (for example, buying a physical sneaker and getting a matching NFT to prove authenticity).

These aren’t trying to be speculative investments. They’re just new formats for receipts, badges, and mementos.

Are NFTs Dead or Just Different?

To stay neutral, separate the hype era from the infrastructure.

Where NFTs clearly failed:

• As a guaranteed investment class that “always goes up”.
• As a universal tool for speculation across any random picture collection.
• As a shortcut for projects with weak fundamentals to raise large amounts of money.

Most 2021–2022 PFP collections are illiquid or near worthless. Many promised metaverses, airdrops, and lifetime perks that never materialized.

Where NFTs are quietly working:

• In gaming ecosystems where digital items already had meaning and NFTs simply give them tradability and ownership outside a single platform.
• In ticketing and access, where NFT-based passes help with verification and resale tracking.
• In loyalty and memberships, where NFTs act as programmable keys and dynamic membership cards.
• In enterprise and infrastructure contexts, where companies treat NFTs as a generic standard for unique digital assets rather than speculative products.

Market data in 2025 supports this split:

• Overall NFT market cap and volume are much lower than 2021 highs, but not zero, with signs of stabilization and modest recovery in some segments.
• Gaming, utility, and ticketing NFTs show more consistent growth compared to pure art/PFP collections.
• Institutional focus has shifted more toward DeFi and real-world assets, but NFTs remain a part of the broader Web3 stack, especially where unique digital objects are needed.

Connecting Back to Your Journey

For your 60-day series, you can frame NFTs like this:

• Day 8–9: You deployed a simple smart contract and saw that it can store and update data on-chain.
• Day 10: DeFi showed how smart contracts manage money — balances, trades, loans, interest.
• Day 11 (today): NFTs show how smart contracts manage unique things and access — tickets, in-game items, loyalty passes.

A simple mental model for your readers:

• DeFi = smart contracts that manage numbers (who has how much).
• NFTs = smart contracts that manage identities of things (which token ID belongs to whom, and what it represents).

Both use the same underlying technology. The difference is in what the contract is tracking.

Key Takeaways

• An NFT is a non-fungible token: a unique entry in a smart contract that maps a token ID to an owner and metadata.
• The 2021–2022 hype around PFP collections largely collapsed, and many speculative projects died or lost most of their value.
• In 2025, the healthier parts of the NFT space are:

1. Gaming items and in-game assets.
2. Ticketing and access passes.
3. Loyalty, memberships, and token-gated commerce.
4. Certificates, collectibles, and identity-like use cases.

• Market data shows a smaller, more utility-focused NFT market, not a booming casino but not a graveyard either.
• For your Web3 journey, NFTs are best understood as an ownership layer on top of the same smart contract foundations you already used, not as magic internet lottery tickets.

NFTs Explained Simply — What’s Actually Happening in 2025? was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.

Welcome back to the 60-Day Web3 Journey.

If you’ve been following along, you know what we’ve covered so far. Day 1, I introduced why I’m learning Web3 in public — to transition into Developer Relations and help non-technical people understand blockchain. Days 2–4, we broke down the fundamentals: what blockchain is, why Bitcoin was revolutionary, and how it challenged traditional money. Days 5–7, we went deeper into Ethereum — the programmable blockchain — and learned about wallets, gas fees, and why Layer 2 solutions exist to solve Ethereum’s scaling problems. Day 8, we understood smart contracts and dApps (decentralized applications) — the actual code that powers everything. And Day 9? We got our hands dirty. We deployed our first real smart contract on Sepolia testnet, felt the transaction cost, and saw how code lives permanently on a blockchain.

Now comes the moment where it all clicks.

You just deployed a smart contract on Ethereum and saw how code can live on a blockchain. Now comes the real question: what are people actually doing with these contracts?

The answer: they’re building an entirely new financial system. It’s called DeFi — Decentralized Finance — and it’s where smart contracts stop being abstract and become the backbone of how people trade, lend, borrow, and earn money without banks.

This is Day 10 of your 60-day Web3 journey. Let’s see what you’re about to enter.

What Is DeFi, Really?

DeFi is finance without a middleman. Instead of a bank holding your money, a smart contract does. Instead of a broker matching your trade, an algorithm does. Instead of a lender deciding if you qualify, code does.

Here’s the core idea: take every financial service you know — trading, lending, borrowing, investing — and rebuild it as code that anyone can use, anytime, from anywhere.

That’s DeFi.

The key difference from traditional finance:

Traditional Finance:

• A bank holds your money.
• Bank decides lending terms.
• You need approval to borrow.
• Trades happen during market hours.
• You trust the bank won’t fail.

DeFi:

• A smart contract holds it
• Algorithms and math decide lending terms.
• You need collateral (held by code)
• Trades happen 24/7/365
• You verify the code is secure.

How DeFi Actually Works

Let me walk you through the three biggest types of DeFi protocols right now:

1. Decentralized Exchanges (DEXes) — Swap Tokens Instantly

A DEX is like a vending machine for crypto. You put in one token, you get another token out. No human operator. No waiting. No fees to a company.

The most famous is Uniswap. As of December 2025, Uniswap has over $5.7 billion locked in it — that means people have deposited $5.7B in tokens across thousands of trading pairs. Here’s how it works:

1. Someone (a “liquidity provider”) deposits two tokens into a smart contract — say, $1 million in ETH and $1 million in USDC.
2. The contract now has a “pool” of both.
3. You come along and want to swap 10 ETH for USDC.
4. You send your 10 ETH to the contract.
5. The contract automatically calculates the price and sends you USDC back.
6. The liquidity provider earns a tiny percentage of every swap — their reward for putting in capital.

No middleman. No trading desk. No commission. Just code.

Uniswap v4 (their newest version, launched mid-2025) hit $1 billion in TVL in just 177 days and has processed over $1 trillion in annual trading volume. That’s real money moving through smart contracts.

2. Lending Protocols — Earn Interest, Take Loans

What if you could deposit your crypto and earn interest — without a bank? That’s Aave.

Aave is the biggest lending protocol in DeFi. As of mid-2025, it has over $60 billion in deposits and $29 billion in outstanding loans. It controls roughly 60% of the entire DeFi lending market.

Here’s the flow:

1. You deposit 100 USDC into Aave.
2. Aave lends it out to someone who needs to borrow.
3. That borrower pays interest (let’s say 5% APY).
4. You earn that interest minus a small cut for the protocol.
5. You can withdraw your money + interest anytime.

If you want to borrow, you do the reverse:

1. You deposit collateral (say, 1 ETH worth $2,500).
2. Aave lets you borrow up to 70% of that ($1,750 in USDC).
3. You pay interest on your loan.
4. When you repay + interest, you get your collateral back.

No credit check. No bank manager. No waiting for approval. Just math: if you have collateral, you can borrow.

In August 2025 alone, Aave saw its TVL grow by 55%. In Q2 2025, the protocol generated $122 million in fees. Real money. Real usage.

3. Yield Farming — Stake Tokens, Earn Rewards

This is the newcomer to the DeFi toolkit, and it’s wild.

Yield farming is when you lock up tokens in a protocol and earn rewards in return. Sometimes the rewards come from protocol fees. Sometimes they come from newly minted tokens the protocol gives you as an incentive to provide liquidity.

Example: You deposit ETH and USDC into Uniswap’s liquidity pool (the vending machine from section 1). For providing that liquidity, you earn a share of trading fees plus UNI tokens as a bonus. That’s yield farming.

It sounds simple, but it’s powerful: DeFi protocols can incentivize behavior they want (liquidity provision, borrowing) by paying users with newly minted tokens.

Why Does This Matter? (2025 Context)

DeFi isn’t theoretical anymore. Here’s what’s actually happening:

Scale:

• Over 14.2 million wallets have used DeFi protocols by mid-2025 (Source: CoinLaw DeFi Statistics 2025).
• DeFi TVL across all protocols is $123.6 billion, a 41% increase year-over-year (Source: NASSCOM Blockchain Community).
• Weekly transaction volume exceeds $48 billion (Source: TradeSanta DeFi Trends 2025).
• The average DeFi user conducts 11.6 transactions monthly — it’s becoming routine (Source: CoinLaw DeFi Statistics 2025).

Adoption:

• Gen Z (ages 18–25) now makes up 38% of first-time DeFi wallet users in 2025 (Source: Brave New Coin — Gen Z and DeFi).
• Mobile DeFi wallet usage grew by 45%, now accounting for 58% of all users (Source: CoinLaw DeFi Statistics 2025).
• DeFi search interest on Google Trends hit 92 out of 100 — its highest in 18 months (Source: CoinLaw DeFi Statistics 2025).
• Active DeFi users reached 20 million unique wallets globally — a 2,000% increase since 2021 (Source: CoinLaw Crypto Demographics 2025).

Institutional Money:

• Real-world assets (RWA) lending surged to $1.9 billion for commodity-backed tokens (Source: CoinGecko RWA 2025 Report).
• Tokenized private credit now exceeds $12 billion in TVL (March 2025), representing over 50% of the RWA market (Source: Antier Solutions — Top Performing Tokenized Assets 2025).
• Aave founder Stani Kulechov launched Horizon (RWA-backed lending platform) which surpassed $500 million in deposits as the fastest-growing platform for institutional RWA-backed loans (Source: Chainlink Today — Stani Kulechov).

This isn’t a niche anymore. This is infrastructure.

Deep Dive: Watch This

If you want a structured breakdown of everything DeFi, YouTuber faixal_abbaci released a comprehensive 32-minute DeFi Masterclass (December 2025) that covers:

• What DeFi is and why it matters
• How DEXes, lending protocols, and liquidity pools actually work
• Staking, yield farming, and real-world asset tokenization
• DeFi security risks and best practices
• Advanced strategies and the future of finance

The Connection to Your Deployed Contract

Remember your SimpleStorage contract from Day 9? It stored a number permanently on the blockchain.

That’s the mechanism behind DeFi. Aave, Uniswap, all of it — they’re just more sophisticated smart contracts doing exactly what yours did: storing data and executing rules when triggered.

The difference:

• Your contract stored one number.
• Aave stores thousands of lending positions, interest rates, and collateral amounts.
• Uniswap stores thousands of token pairs and liquidity pools.

But the principle is identical: code running on a blockchain, with no middleman, doing the job that bankers used to do.

What’s the Catch?

DeFi is powerful, but it’s not without risk:

1. Smart contract bugs — If the code has a flaw, money can get stuck or stolen. Aave has been audited hundreds of times, but risks remain.
2. No insurance — If Aave crashes tomorrow, your deposits are gone. Banks have FDIC insurance. DeFi doesn’t.
3. You need to understand what you’re doing — There’s no customer service to call if you send your tokens to the wrong address.
4. Gas fees — Every transaction costs money to execute on Ethereum.
5. Price risk — If you borrow against ETH and the price crashes, you might get liquidated (forced to pay back your loan).

These are real risks. But as of 2025, millions of people believe the upside (financial access, high returns, no middleman) outweighs the downside.

Hands-On: Try It Yourself

Want to see DeFi in action? Here’s the simplest starting point without spending money:

1. Go to Uniswap (https://uniswap.org) — don’t trade, just explore.
2. Look at the pools, the trading volume, the pairs being swapped every second.
3. Connect your MetaMask wallet (read-only is fine).
4. Pick a token pair — say ETH → USDC — and see the swap price.
5. Click on the “Pool” section and see where liquidity providers have deposited capital.

Notice that there’s no login page, no terms and conditions, no “sign up” button. It’s just code. Open to everyone. Available 24/7.

That’s the revolution.

What Happens Next?

You now understand:

• How smart contracts power a new financial system.
• Why DeFi is growing faster than traditional finance in adoption.
• How the biggest protocols (Uniswap, Aave) actually work.

Tomorrow (Day 11), we’ll talk about NFTs — which, like DeFi, are powered by smart contracts but solve a completely different problem.

But before you go, here’s a thought: if DeFi lets you trade, lend, and borrow without permission, then what’s stopping someone from doing the same thing with digital art, game items, or concert tickets?

That’s NFTs. That’s Day 11.

Key Takeaways

• DeFi = Finance without a middleman, powered by smart contracts.
• Three main types: DEXes (Uniswap for trading), Lending (Aave for earn/borrow), Yield Farming (staking for rewards).
• Real scale: $123.6 billion TVL, 14.2 million users, $48 billion weekly volume as of mid-2025.
• Real adoption: Gen Z makes up 38% of new DeFi users; mobile usage is 58% of total.
• Institutional growth: RWA sector at $12 billion TVL, Aave Horizon crossed $500M in deposits.
• Connection to your work: Everything you deployed in Day 9 is the foundation for DeFi protocols.

DeFi 101: Decentralized Finance was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.

Why Ethereum Needs Layer 2s (for Curious Builders and Beginners)

By now, Ethereum looks like a powerful shared computer — smart contracts, dApps, wallets, and gas all running on one global network. The catch is that this base layer gets crowded and expensive, especially when everyone tries to use it at once. Day 8 is about Layer 2s: helper networks that sit on top of Ethereum to make things faster and cheaper without throwing away its security.

The problem: Ethereum is powerful, but crowded

Ethereum’s base layer (Layer 1) is built for security and decentralization first. Every node replays the same transactions, and each block has a gas limit that caps how much computation it can contain. That keeps the system honest, but it also means throughput is limited.

When demand spikes (NFT mints, DeFi activity, market volatility), you get:

• Congestion: more transactions waiting to be included.
• Higher gas prices: people effectively bid more to get into upcoming blocks.

This makes small actions (like a $5 on‑chain transaction) feel unreasonable and locks out many users and use cases.

What is a Layer 2 in simple terms?

A Layer 2 (L2) is a separate protocol that sits on top of Ethereum and processes many transactions off the main chain, then posts a compressed summary back to Ethereum.

You can think of it as:

• Doing lots of small calculations “off to the side”.
• Bundling or “rolling up” the results into a single batch that gets written to Ethereum as one transaction.

Ethereum stays the final source of truth and security anchor, but much of the day‑to‑day work moves onto these helper networks.

Rollups: the main L2 approach today

Most mainstream Ethereum L2s today are rollups — they process transactions off‑chain and then post batched data or proofs to Layer 1.

Two big families show up over and over:

Optimistic rollups (for example, Optimism, Arbitrum):

• Assume transactions are valid by default.
• Give the network a “challenge window” where anyone can prove fraud; if no one objects, the batch is accepted.

ZK‑rollups (for example, zkSync‑style systems):

• Generate cryptographic validity proofs that the batch of transactions is correct.
• Ethereum verifies the proof, so it doesn’t need to replay every transaction itself.

Both styles keep most computation off‑chain and use Ethereum mainly to check and store results.

What changes for normal users?

From a user’s perspective, an L2 often feels like “another network” you select in your wallet.

Concretely, you might:

• Bridge assets from Ethereum mainnet to an L2: send ETH or tokens through a bridge contract so they appear on the L2.
• Use dApps deployed on that L2, enjoying cheaper and often faster transactions while still ultimately inheriting Ethereum’s security.
• Later, bridge back to mainnet if you want to move funds into the broader Ethereum ecosystem.

The visible differences:

• Gas fees are usually much lower on the L2 for similar actions.
• Withdrawals from some rollups (especially optimistic ones) can take longer because of challenge periods, while many ZK‑based systems offer faster finality.

Why Ethereum Needs Layer 2s (for Non‑Technical People) was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.