Talent Status

We analyzed the current state of the blockchain industry, and next, let's take a look at the existing talent composition. If we categorize the current internet talent, it can be roughly divided into five categories:

Technical decision-makers, mainly referring to CTOs, technical directors, technical experts, etc.;
Code producers and maintainers, which refers to a large number of IT practitioners and development engineers;
Demand generators and synthesizers, such as product managers and requirement analysts;
Interaction and visualization, including front-end engineers, UI/UX, and visual designers;
Product operation, which involves direct contact with users to attract and retain them. The demand for talent in app wallets, trading tools for cryptocurrencies, blockchain information apps, and some simple blockchain app applications roughly aligns with the needs of the internet industry, meaning that all five categories of talent mentioned above are needed.

We can find that the model of blockchain products is still relatively singular and in a very early stage. However, even for these singular app applications, the workforce is insufficient.

Talent who understand traditional financial transactions while also being familiar with internet products. Traditional financial transactions often involve brokers or stock exchanges, and since blockchain is an emerging industry, comprehensive talents with cross-disciplinary knowledge are more popular.

Talent who understand community building and internet product operations while also being knowledgeable about digital currencies. The most lacking in this category is actually content operation; whether it is original content or edited content, solid blockchain knowledge is needed as a foundation. This type of talent is rarely encountered in recruitment, and companies generally choose to cultivate them themselves.

Top technical talents who understand large open-source project construction and are willing to communicate and share with the community. Many top technical people are not good at communicating with others, which can lead to misunderstandings or even biases from other developers during the process of participating in community projects.

If one does not understand which well-known and reliable digital currency trading platforms exist, then a longer training process will inevitably be required. Therefore, I suggest that job seekers try trading cryptocurrencies in their spare time and purchase a few blockchain-related books as a foundation for entry. Currently, the blockchain industry is mainly focused on digital currency trading, digital asset management, and information apps, which can be subdivided into mobile applications.

The second point is a shift in mindset. Many job seekers come with a herd mentality, trying it out because blockchain is hot. I think this is a good start; after all, taking the first step is important. However, during the actual interview process, this group of job seekers may have a shallow understanding of economics and finance, leading to some misconceptions. Such talent, even if they have just entered the blockchain industry, may be scared away. The early stage of the blockchain industry has high returns but also high risks; everyone must recognize their risk tolerance before making plans.

The third point is that some job seekers resist digital currencies, believing that digital currencies are bubbles and that blockchain technology is the future. However, when I ask why blockchain technology is the future, they cannot provide a clear answer. This may stem from a fear of the significant risks associated with digital currencies or a bias arising from unwillingness to engage with and understand them. Digital currency, as the largest application of blockchain, must be objectively accepted as a prerequisite.

The fourth point is that job seekers think that applying for blockchain positions requires a very deep understanding of blockchain and technical reserves. However, this group of job seekers often comes to interview for blockchain positions after only reading a few articles online.

Core developers of public chains: solid programming language fundamentals, easily readable code style, proficient in writing documents in both Chinese and English, fluent in spoken English, and understanding the basics of blockchain technology.

Wallet app and other infrastructure developers: familiar with mainstream language development kits, understanding the development and listing process of mobile internet products, and understanding blockchain private key management.

Community operation: internet product community operation, passionate about digital currencies and open-source communities, familiar with common online and offline operation methods.

Wallet app product operation: internet product operation, which is relatively close to financial management apps.

Digital asset trading platforms: this type of talent is in the highest demand and will generally cover the five types of talent reserves mentioned above.

Blockchain research: this can be divided into industry strategic research and technical research, with the former being similar to the consulting industry and the latter mainly involving CTOs, architects, and other high-end technical communities and open-source technical communities.

Goals and Scope First, we need to know the goals to be achieved and define the scope of work based on those goals. Considering that we cannot build a large P2P network like Bitcoin, nor do we have much energy to implement a fully functional full node wallet in the true sense, and that a complete full node is too complex and may cause learners to get lost in the details. Therefore, our goal is to build a full node client that includes only basic functions; it may not have very cool UI pages or complex commands, but it can provide the following functions:

Provide P2P node discovery and block synchronization functions;
Provide the function to create public and private key pairs;
Provide the function to send transactions;
Provide the function to query transactions;
Provide the function to query balances;
Provide mining functions, allowing single-machine mining to be initiated at any address;
Provide basic logs for easy tracking and monitoring.

Detailed Functions After selecting the technology, we will further break down the target functions.

P2P Network: node discovery, node maintenance, persistent storage, block synchronization.

Public and Private Key Pairs: command line, create public and private key pairs and generate addresses, provide private key storage, public and private key verification.

Sending Transactions: command line, send successful verification, input is the transaction hash.

Transaction Query: command line, JSON format transaction query return, input is a specific address.

Balance Query: command line, JSON format balance query return, input is a specific address.

Mining: command line, JSON format mining information return, input is a specific address.

Ethereum 401 - Decentralized Finance

Undoubtedly, DeFi is currently the most successful use case of Ethereum, with over $100 billion in assets locked in Ethereum's DeFi protocols.

The DeFi field is also adept at using some confusing terminology. In this section, I will define DeFi from a broad perspective, delve into these confusing terms, and explain how Uniswap operates as a decentralized exchange on Ethereum.

Decentralized Finance (DeFi) - Decentralized finance refers to any financial application, exchange, and system that operates entirely on the blockchain without a central gatekeeper.

Today, hundreds (if not thousands) of DeFi projects are active on various blockchains, ranging from decentralized exchanges to lending protocols, options, and futures contracts, covering a wide range of applications.

The primary goal of DeFi applications is to rethink how to provide the financial services offered by traditional banking systems in a world system without central bank control.

Some cases provide answers; readers can imagine the scenario of buying shares in the stock market. When Sally buys a Tesla stock through a broker (like Robinhood, Charles Schwab, or Vanguard), that stock will pass through multiple intermediaries before Sally can obtain it. Generally, when the system is functioning normally, this behavior of passing through multiple different intermediaries goes unnoticed by the general public. However, sometimes bad situations occur (for example, the 2008 global financial crisis or the 2021 Gamestop stock incident), leading to system collapses (such as negative oil prices and canceled trades).

After a system collapse, people want to find the culprit behind the chaos. But when they start digging, they find that the traditional financial market is far less transparent than they thought.

Decentralized Exchanges (DEXs) - They are the first major building block of DeFi. Blockchain has activated a new type of exchange that can trade directly with smart contracts without going through opaque intermediaries and semi-official institutions.

Using Sally's example of buying Tesla stock again, she no longer needs to buy stocks through a brokerage (like Charles Schwab), which would trade with market makers (like Citadel), both of which are constrained by U.S. clearinghouses (like DTCC). Instead, she trades directly with the Uniswap smart contract! The code of the smart contract is transparent and public, so she can see the flow of funds and will not be blinded by opaque intermediaries.

These decentralized exchanges use blockchain technology and economic incentives to essentially build a market for any two currencies (like BTC and ETH, or USD and EUR, etc.). Below, I will explain how Uniswap, as the DEX with the largest market share, operates.

To understand how these decentralized exchanges work, we need to define some additional terms:

Liquidity Providers (LPs) - In the above Sally example, the opaque intermediaries described play an effective role in the traditional financial system: providing liquidity to the system. In the traditional financial system, Sally can sell her stocks at any time, almost at any time or at least during regular trading hours, because intermediaries are hired to provide liquidity for Sally and other shareholders.

So, where do the assets for trading come from in the smart contracts of decentralized exchange protocols? The answer is liquidity providers. DEX allows individuals to profit by providing liquidity; when a user trades assets with a smart contract, the system gives liquidity providers a small portion of the transaction fees generated.

For LPs, the most well-known model is Uniswap's, where they need to deposit two tokens of equal value into the smart contract. To reiterate, LPs deposit into the smart contract to earn a portion of the transaction fees. LPs can withdraw the tokens they deposited as liquidity at any time, but in doing so, they obviously cannot receive dividends from future increases in transaction fees.

Automated Market Makers (AMMs) - This is a category of DEX. Automated market makers refer to smart contracts that set prices using algorithms. Here, Uniswap's constant product formula (x*y=k) is the most well-known, but that is beyond the scope of this guide. AMM is merely a formula or mechanism that does not require human price setting.

Stablecoins - Stablecoins are digital representations of real-world currencies, representing the value of the currency to which they are pegged, but circulating only as digital currencies on the blockchain.

DeFi enables users to leverage crypto assets, but it is difficult for users and investors to manage their assets within fixed price ranges due to the volatility of crypto asset prices. On trustless and decentralized blockchains, stablecoins exist as a less volatile asset while also serving as a reference price for comparing crypto assets.

Generally speaking, stablecoins are pegged to the US dollar, but there are also other stablecoins. Whether centralized or decentralized, each type has its own mechanism to maintain a 1:1 price peg with the currency to which it is anchored. Indeed, cryptocurrencies are disrupting the global financial system, yet major global currencies (such as the US dollar, euro, and yen) still serve as effective reference prices.

Total Value Locked (TVL) - TVL refers to the total value locked in smart contracts on a specific platform. The concept of TVL can also be applied in contexts outside of DEX smart contracts, as other applications besides exchanges may also have liquidity provision mechanisms (like lending platforms). Uniswap's total locked value reaches billions of dollars, and by early 2022, the combined TVL of various applications on Ethereum exceeded $100 billion.

Sidebar - How does Uniswap work?

First, let's talk about user experience. When users want to exchange tokens using Uniswap (or other exchanges), they only need to operate on a simple front-end interface, which is built on more complex smart contracts.

As shown in the figure below, users can exchange ETH (or other tokens) for other assets, just like using a vending machine. Users can connect their wallets and exchange any token for another. Very simple!

Image Source: Understanding Ethereum

However, what happens behind the scenes? Let's take a look at the blue box in the diagram. This is Uniswap's smart contract, where liquidity providers store their tokens (in this example, using Token A and Token B).

The left side of the blue box describes the relationship between LPs and the staking pool; LPs deposit two types of assets, and in exchange, they receive staking pool tokens, which serve as a certificate that liquidity providers can redeem their staked assets. Staking pool tokens can be redeemed for the assets originally staked in the smart contract (here, traders should be cautious of the "impermanent loss" mentioned next).

On the other end of the diagram is the user. Users enter the interface and exchange one token for another in the staking pool without needing to interact with the staking pool LPs. Additionally, users will pay a small fee, which will be evenly distributed among all LPs in the staking pool.

Source: Uniswap documentation

This mechanism is cool. I started learning financial knowledge early in my career, so when I learned about decentralized exchanges, it intrigued me more than Bitcoin's "digital gold" and Ethereum's "world computer" metaphors.

Without the existence of public chains as trustless infrastructure, Uniswap would just be a pipe dream. What else might we not dare to imagine today but could become mainstream tomorrow?

As of early 2022, Uniswap's monthly trading volume was about $60 billion.

The terms mentioned next (as well as content beyond the introductory definitions in the text) may require readers to explore further on their own. However, they may also be the first batch of terms and concepts that new users encounter when stepping into the Ethereum circle, so I firmly believe they will greatly impact new users and leave them confused. Therefore, they can check out more resources at the end of the text.

Yield Farming - As the name suggests, yield farming refers to the act of "harvesting" returns by providing liquidity to DeFi applications. These applications offer enticing rewards as a return for usage. If a friend tells you that their annual yield in DeFi reaches 100,000%, they are talking about yield farming.

Many DeFi applications require significant capital injection into the platform (liquidity, as mentioned earlier) as a key feature reflecting their application value, regardless of the function (such as trading assets, lending, etc.).

These DeFi applications have only two paths: raise $1 billion and provide liquidity through the application, or offer liquidity providers substantial rewards and make these yield farmers the liquidity providers for the platform.

Wait a minute? Where do these substantial rewards come from?

Well, these applications are promoting these high rewards as a new incentive mechanism, but the reality is that these rewards are often just (expensive) customer acquisition costs. In other words, the tokens of these applications represent the value of the application to some extent, and they allocate rewards to users through the application (customer acquisition costs). These rewards are a mix of native tokens and other types of tokens.

Therefore, yield farming refers to the practice of seeking such returns and injecting funds into the applications with the highest profit potential, which can almost be seen as a form of angel investment in DeFi applications.

Staking - This term is used in various ways, but in reality, staking simply refers to locking assets for a period of time and profiting from the lock-up.

Generally, this concept is applied in centralized finance, where users stake tokens in exchange for rewards, but staking can also be applied in other areas. Many DeFi protocols use staking to control the liquidity supply of their native tokens, similar to how central banks attempt to manage the money supply. Incentivizing investors to lock their tokens for a short period for economic rewards sounds like bonds.

Impermanent Loss - This concept refers to the potential risk that liquidity providers need to bear when supplying two or more tokens.

In the Uniswap example above, liquidity providers deposit two equal-value tokens into Uniswap and receive staking pool tokens. When LPs want to withdraw funds, the staking pool tokens can be used to redeem their two tokens.

The subtlety here is that the two tokens deposited by LPs have their own prices (and price fluctuations). When LPs want to redeem their two tokens using staking pool tokens, the prices of the two may have diverged significantly: one token may have dropped by 5%, while the other has risen by 10%.

The price gap between the tokens may suggest that LPs would be better off holding only one of the tokens rather than the staking pool tokens that benefit from transaction fees. Importantly, impermanent loss is labeled "impermanent" because this loss is merely a "paper loss" until LPs actually redeem their staking pool tokens.

In other words, if LPs choose not to redeem the tokens but continue to provide liquidity until the prices of the two tokens converge, then the impermanent loss disappears.

Quality introductory readings on different types of staking pools, DEXs, LPs, and impermanent loss can be found here. Daily DeFi's impermanent loss calculator demonstrates several examples.

Layer 2 and Proof of Stake Mechanism

2022 is colloquially known as "the year of Ethereum's L2," with the highly anticipated transition to the proof of stake mechanism expected to take place in the summer. This section will delve into the "trilemma" of blockchains, the future of Ethereum, and how rollups operate.

Blockchain Trilemma - Every blockchain involves trade-offs between three concepts: decentralization, scalability, and security. The general consensus is (as of early 2022) that Ethereum performs well in decentralization and security but is somewhat lacking in scalability (gas fees are so high! Ugh!).

There are hopes for some improvement plans to address Ethereum's blockchain trilemma in the near future. Below are considerations for these three aspects, which are crucial for understanding the impact of balancing the three on a single blockchain.

Decentralization - The Bitcoin white paper accurately explains the concept of decentralization (I bolded it myself): "It requires an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party."

The blockchain serves as an infrastructure layer, enabling users worldwide to interact with each other using their computers without going through intermediaries.

Decentralization in blockchain is akin to a spectrum; if a blockchain can be shut down by a few users, or if the cost of participating in the network is too high (gas fees or the cost of configuring a computer to participate in the network), then the blockchain will lean towards the centralized end. The higher the degree of centralization, the greater the risk of power monopolization and exploitation.

Security - Security refers to the difficulty of the underlying chain being attacked or controlled from the outside. An effective rule of thumb is the 51% majority principle; if someone can control 51% of the computers processing transactions on a specific chain, they may be able to illegally invade and compromise the network's security.

There are deeper technical considerations here, but the 51% share helps users clarify the trade-offs between security, decentralization, and scalability. The more independent computers there are packaging transactions for a specific blockchain, the higher the degree of decentralization and security (more computers = lower probability of someone controlling 51% of the network nodes).

However, the more independent computers in the network, the more each computer needs to communicate with a larger computer network, leading to slower operation...

Scalability - ...slower network operation means we need to find solutions to improve scalability. When transaction demand on the blockchain increases, the network becomes exceptionally congested. For example, Ethereum has experienced periods of skyrocketing gas fees, especially when network demand is at its peak. This demand causes the cost of packaging transactions on-chain to rise, resulting in network congestion and slower network operation.

Zero-Knowledge Proof - This concept is not a specific scaling solution, but it is an important concept to clarify before discussing scaling solutions. Zero-knowledge proof is a cryptographic method that allows verification of the validity of something without obtaining specific information.

For example, suppose I am a buyer on Craigslist, planning to buy a TV from any user on the network. At this point, someone privately messages me, saying they have the TV I am looking for, and their information is anonymous.

As a buyer, I want to ensure that they really have the TV before meeting the seller. However, the seller does not want to disclose their personal information (driver's license, home address, indoor pictures) to random users on the network. Most importantly, the seller also wants to know if I am a real person! But neither party wants to share personal information.

Through zero-knowledge proof, I can prove to the seller that I am a real person without telling them who I am. On the other hand, the seller can also prove that they indeed own a TV and are a legitimate seller without disclosing any sensitive personal information.

This involves intricate cryptographic elements, so the above is just a very brief introduction. In most cases, zero-knowledge proofs can address security, scalability, and privacy challenges in the cryptographic world.

Layer 2 Scaling Solutions - Users are very eager to leverage Ethereum, as it is the most decentralized and mature smart contract computing platform in the world. Ethereum has attracted the most widely distributed developer network to create blockchain-based applications. However, the consequences of these creation activities sometimes lead to high gas prices for packaging transactions on the Ethereum blockchain, which means that using Ethereum is both slow and expensive.

The blockchain trilemma suggests that any blockchain optimized for security and decentralization will make concessions in scalability. Since decentralization and security play crucial roles in the vision commitment of blockchains, scalability becomes the most challenging part to solve. Ethereum is betting on a wave of improvements to address scalability issues.

One such improvement is shifting from users interacting with the Ethereum blockchain itself (i.e., "Layer 1") to interacting with Layer 2 scaling solutions. Fundamentally, this means that most transactions and applications on the Ethereum mainnet will move to Layer 2, inheriting Ethereum's security and decentralization but with several orders of magnitude higher throughput than Ethereum itself. Ethereum Layer 1 will be responsible for consensus issues, while its Layer 2 will handle transaction execution and code.

Rollups - Rollups will process a batch of transactions on their independent blockchain. After executing these transactions on their chain, Rollups compress all transactions into a small data packet. These small data packets will be "sent" to Ethereum's Layer 1, indicating that Rollups have expanded the number of transactions they can handle while inheriting Layer 1's security (because the information is compressed).

This may sound like a compromise on decentralization. However, a key point of Rollups is that Ethereum can only verify the proofs rather than proving every single transaction, saving an exponential amount of work (thus making Ethereum more scalable!).

Since Ethereum has the final authority to decide whether Rollup transactions can be published on-chain, all Rollup transactions are still secured by Ethereum without compromising decentralization.

Below are various types of Rollups. The main difference lies in how they prove the validity of transactions to Ethereum.

Optimistic Rollup - This type of Rollup keeps a record of transaction proofs and only presents these proofs to Ethereum when specifically requested.

Optimistic Rollups do not prove the validity of every transaction to the Ethereum mainnet but provide proofs when necessary, alleviating scalability issues.

ZK Rollup - This type of Rollup does not display all the details of transactions but verifies the validity of transactions using zero-knowledge cryptography. The concept of zero-knowledge proof has been explained above, and the focus is that these Rollups only present smaller zero-knowledge proofs rather than the entire transaction process, thus saving a lot of block space.

Sharding - Sharding refers to the process of splitting the blockchain into smaller shards to reduce congestion. Sharding makes Ethereum more accessible. Essentially, nodes only need to store the data of the specific shard they are connected to, rather than the entire Ethereum blockchain data, making Ethereum more scalable.

Sharding is part of Ethereum's blockchain improvement plan and will play a crucial role after The Merge.

Beacon Chain - The Beacon Chain is the foundation for Ethereum's transition from PoW to PoS. Currently, the Beacon Chain and the Ethereum blockchain run in parallel, and the Beacon Chain introduces a staking mechanism, which is a prerequisite for transitioning to PoS.

Soon, the Beacon Chain will merge with the current Ethereum blockchain, officially introducing PoS consensus as the consensus mechanism for the Ethereum blockchain, marking an important turning point for Ethereum's future.

The Merge - The term The Merge aptly concludes this guide. In the coming months, the Ethereum mainnet and the Beacon Chain will merge, which is the most highly anticipated event in the blockchain industry to date.

In just a few months, the PoW era of Ethereum will come to an end, and the repercussions of this consensus mechanism transition could be extraordinarily sensational. If, for some reason, The Merge fails, it will undoubtedly cause a huge uproar in the entire crypto community. But if the merge is successful, it means we are closer to Ethereum becoming the global settlement layer.

That's it! This is a simple guide to getting started with Ethereum.

Before delving into specific blockchain features, we first understood what blockchain is and why it is so important.

Next, we explored some top applications built on the Ethereum blockchain: wallets, DeFi, DAOs, and NFTs.

After that, we concluded this guide with a discussion of Ethereum's future, primarily exploring the transition of the proof of stake consensus mechanism and outlining how Ethereum hopes to solve the blockchain trilemma.

All these definitions are simplified versions of complex topics, but I hope this guide can inspire readers to delve deeper into the world of Ethereum. Below, I have gathered some resources for readers who wish to learn more. If you would like to ask me questions or provide feedback, feel free to message me on Twitter!

General Resources

➤ What is Ethereum? | ethereum.org - A link to learn about this topic, covering some cutting-edge topics (https://ethereum.org/en/what-is-ethereum/)

➤ ETHHub - This community maintains resources covering a wide range of Ethereum topics (https://docs.ethhub.io/)

➤ Ethereum Foundation Youtube Channel - Ethereum talks and community developer conference calls (https://www.youtube.com/channel/UCNOfzGXD_C9YMYmnefmPH0g)

➤ Devcon archive - Archive of all videos and talks from the annual Devcon conference (https://archive.devcon.org/archive/)

➤ Scott Sunarto’s Working in Web3 Handbook - A handbook covering many topics (https://web3.smsunarto.com/)

➤ Blockchain@Berkeley Courses - Free online courses on cryptocurrencies (https://blockchain.berkeley.edu/courses/)

➤ Finematics - Videos explaining many topics on Ethereum, such as web 3, defi (https://www.youtube.com/channel/UCh1ob28ceGdqohUnR7vBACA)

➤ Fellowship of Ethereum Magicians - A forum providing a space for the cryptocurrency community where anyone can participate, create topics, and discuss past EIPs and technical challenges in the Ethereum ecosystem. (https://ethereum-magicians.org/)

➤ Ethereum Wiki - A Wikipedia covering various Ethereum-related topics. (https://eth.wiki)

➤ Week in Ethereum News (https://weekinethereumnews.com/)

➤ Paradigm Research (https://www.paradigm.xyz/writing)

➤ The Defiant (https://newsletter.thedefiant.io/)

➤ Bankless (https://newsletter.banklesshq.com/)

➤ The Daily Gwei (https://thedailygwei.substack.com/)

➤ The Block (https://www.theblockcrypto.com/)

➤ Decrypt (https://decrypt.co/)

➤ Dark Star (https://darkstar.mirror.xyz/)

➤ Messari Research Hub (https://messari.io/research)

➤ a16z Crypto Canon (https://a16z.com/2018/02/10/crypto-readings-resources/)

➤ Linda Xie’s Beginner Guides (https://linda.mirror.xyz/)