Since our project is to complete the decentralized exchange for cryptocurrencies, cryptocurrencies are the first concept we need to figure out, and I would like to use a specific and representative cryptocurrency like ETH as a starting point for our research.
First of all, when mentioning ETH, we have to explain cryptocurrency first. A cryptocurrency is a medium of exchange protected by a blockchain-based ledger. By extension, a medium of exchange is an item that is widely accepted by the public and can be used to pay for everything (goods and services), which I think can be understood as “money”. A ledger is a data storage system that records transactions, and in relation to what I explored earlier, blockchain allows users to transact on a ledger without having to rely on a traditional trusted third party to manage and maintain it, which greatly reduces the cost in terms of time and money.
So, according to the common explanation of cryptocurrencies, we can learn that ETH is the cryptocurrency used on the Ethereum network and is the only acceptable way to pay transaction fees in the Ethereum network. ETH has many roles, such as being used as the main form of collateral in the DeFi lending market, the main unit of account in the NFT market and providing services. On the flip side, since developers need to share a limited pool of computing power when creating decentralized applications, Ethereum needs to identify a mechanism to ensure that users do not make malicious uses that result in consuming all the network resources, and this is where ETH comes into its own. When a user wants to complete a transaction, they must pay ETH to have their transaction recognized by the blockchain, so even if a user uses it maliciously, it will eventually result in the paid ETH being depleted, thus allowing the Ethereum network to return to normal.
The creation of ETH is called mint and refers to the process of creating new ETH on the Ethereum ledger. The new ETH is created by the underlying Ethereum protocol and a single user cannot make a creation of ETH. In the Ethereum network, there is a part of people called miners who can earn ETH by mining. When a miner creates a new block on the Ethereum blockchain, a new Ether is minted, and since miners invest their time and money in mining, as an incentive, the Ethereum protocol sets a reward in each block accordingly.
The destruction of ETH is called burning, which refers to the permanent withdrawal of ETH from circulation. ETH users are assigned an address to send and receive ETH, which we can think of as an email address, and when ETH is sent to a wallet address that can only receive ETH, the ETH is burned. This helps keep the value of the token.
Next, I will work with my group to determine our work division for this quarter, and then start focusing on solidity and implementing the features of our project one by one.
References
https://ethereum.org/zh/developers/docs/consensus-mechanisms/pow/mining/
https://www.investopedia.com/tech/cryptocurrency-burning-can-it-manage-inflation/
