Things you need to know about the web3 ecosystem

General
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Web3 is an evolved internet ecosystem that is trustless, decentralized and open, and a whole lot of technology is associated with the web3 such as the cryptocurrency and the NFTs.

While the web3 is an interesting ‘phenomenon’ to study, understanding a number of terms associated with it would be helpful in having a good understanding of what happens in the web3 space.

Here are a few basic terms:

  • Ethereum: It wouldn’t be nice to mention web3 without talking about Ethereum. Ethereum is a decentralized, open-source blockchain network that was launched in 2015 by its founder, Vitalik Buterin. Ethereum is the leading smart contract-enabled blockchain in the world, and its native token, ETH. It is the second largest digital asset by market cap.

  • Arbitrage: This basically means the same thing as in the traditional business world. In the real world, Arbitrage is usually possible due to the differences in physical realities (for instance, the price of a device maybe higher in City A than in City B) but it is made possible in web3 by the value of assets within different web3 ecosystems; let’s say, a situation where the price of Ethereum is $2300 on Uniswap, but it is $2250 on Metamask. So, arbitrager can take advantage of this gap by buying ETH on Metamask to resell on Uniswap, instantly pocketing $50 per ETH (minus gas fees). Arbitrage is a key factor in MEV.

  • MEV: (Miner Extractable Value or Maximal Extractable Value) represents the value derived from controlling transaction inclusion and ordering into a block. Searchers use some MEV tools to extract value from the transaction queue by identifying opportunities and submitting a package of transactions to miners to be executed.

  • NFT: Non-fungible token (NFT) is a digital asset based on Ethereum’s ERC-721 token standard that can be used to represent ownership of a variety of digital assets including art, photography, music, amidst others.

  • BLOCKCHAIN: is a distributed database that is shared among the nodes of a computer network storing a constantly growing historical ledger of information such as accounts and transactions into blocks.

  • BRIDGE: is an application that connects two (or more) blockchains. Bridges allows users to send digital assets from one network to another. This also commonly referred to as a “cross-chain” swapping.

  • NODE: A full node is any computer or server that downloads the entire Ethereum blockchain, address states, and validates new blocks.

  • DEX: is an abbreviation for Decentralized Exchange. This is a type of crypto exchange that enables users to transact in a direct peer-to-peer manner without any intermediary.

  • Gas fees: are the fees users must pay in Ethereum’s native currency – Ether (ETH) – to complete a transaction, while the gas price is the amount of ETH a user is willing to pay for every unit of gas required to complete a transaction. It is denominated in Gwei, which is one of the smallest denominations of ETH that is equivalent to one-billionth of an Ether.

  • Max Fee: is the absolute maximum amount a user is willing to pay per unit of gas (gwei) to get a transaction included in a block, while the Max Priority Fee ‘optional’ additional fee that is paid directly to miners. It incentivizes miners to include your transaction into a block.

  • Layer 1: This refers to the main blockchain in a multi-level blockchain network. Layer 1 blockchains offer security to the other layers of blockchain.

  • Layer 2: This refers to a secondary framework or protocol that is built on top of an existing layer one blockchain. Layer 2 blockchains typically improve transaction speeds and cost efficiency.

  • LIQUIDATION: This basically occurs when the collateral used for a loan by a borrower no longer covers the value of their debt. In the web3 ecosystem, liquidations occur automatically at the smart contract level and any participant in the ecosystem can repay the debt and claim liquidated collateral.

  • LIQUIDITY: is how quickly and easily an asset can be converted into cash or another asset. Most decentralized exchanges have liquidity pools where asset holders can deposit their assets where traders can buy and sell them in a decentralized way in exchange for rewards.