What is a blockchain?
Blockchain is an immutable, digital ledger that facilitates the process of recording transactions and tracking assets in a network; it is updated and shared across many computers in a network.
How does a blockchain work?
Each transaction that occurs is recorded as a “block” of data. Each block is connected to the ones before and after it, forming a chronological “chain” of data as an asset moves or ownership of an asset changes. The blocks confirm the exact time and sequence of transactions, and the blocks link securely together to prevent any block from being altered or a block being inserted between two existing blocks. Each additional block strengthens the verification of the previous block and hence the entire blockchain, making the blockchain immutable.
But how does it really work? Blockchain networks are driven by systems of aligned incentives. A well-functioning public blockchain requires a community of users, node operators, developers, and miners, who all play roles in a mutually beneficial network ecosystem. A blockchain is maintained by a distributed network of parties (“miners” or “validators,” depending on the kind of chain). These parties produce blocks jointly via consensus. In simple terms, the parties vote on how to process a set of transactions—or in other words, how to construct the next block. The block with majority support is the one that is written permanently onto the chain.
What are nodes?
Nodes are the “boots on the ground” of blockchain networks. They are the physical computer hardware that runs their respective platform’s blockchain software. Nodes serve several critical functions:
What is ~Ethereum~???
Ethereum is a decentralized, blockchain-based global supercomputer that launched in 2015 to serve as the foundation for an ecosystem of interoperable, decentralized applications (dApps) powered by token economies and automated smart contracts.
What are smart contracts?
Smart contracts are programs (chunks of code) stored on a blockchain that automatically execute when predetermined conditions are met. Smart contracts are typically used to automate execution of an agreement so that all participants can be immediately certain of the outcome, without any intermediary’s involvement or time loss. Smart contract applications include everything from games to logistics tools to DeFi dapps.
What is composability?
Composability allows anyone in a network to easily build on top of and around existing products and services to devise new use cases; use cases that many did not know were possible until they were invented. (Think about Excel, and how chaining functions creates an enormous number of potential computational pipelines, add Excel’s power and flexibility grows with each additional function.) Ethereum’s composability has allowed users a high degree of freedom in being able to affect relatively complex transactions under one security framework, on one chain, and with relative ease.
What are gas fees?
Gas fees are essentially the transaction fee people pay to submit a transaction to the block. Gas fees go towards incentivizing miners to spend the money required, in the form of hardware and electricity, to solve the puzzle and create the block.
Gas fees are typically measured in GWEI:
Wallets & Keys
What are dApps?
Decentralized applications (dApps) are digital applications or programs that exist and run on a blockchain or P2P network of computers instead of a single computer, and are outside the purview and control of a single authority.
dApps are most commonly used for:
What are tokens?
At the simplest level, tokens are just code that lives on a blockchain. But unlike other forms of money, they’re digitally native, programmable, and secured by one’s crypto wallet and private key. Cryptocurrencies are just one type of token.
What are DAOs?
A DAO (Decentralized Autonomous Organization) is a mechanism that enables online communities to form and coordinate economically. It is a new kind of digital and economic entity that runs as code and is owned and controlled by its members. DAOs make it possible for an online group with members from anywhere in the world to pool capital and hard-code rules — entirely in software — for how that capital will be managed and deployed. Those rules are then enforced by the underlying blockchain.
Consensus Mechanisms
Proof of Work
Under PoW, a distributed network of miners around the world race to solve increasingly difficult cryptographic problems in order to create a new block on the blockchain containing the new transactions. Solving these problems requires a lot of energy. When a block is entered into the blockchain, the transactions in it officially become part of the record. Miners who successfully create a block are rewarded with freshly-minted tokens and all of the transaction fees within the block.
Proof of Stake
Under PoS, participants (validators) deposit a certain number of native coins as stake into the network of validator nodes. If a node is chosen to validate the next block, they'll check that all the transactions within the block are valid. If everything checks out, the node signs off on the block and adds it to the blockchain. As a reward, the node receives the fees associated with the transactions inside the block and freshly minted tokens. If a validator approves fraudulent transactions, they’ll lose a part of their stake. As long as the validator’s stake is higher than what they receive from transaction fees, they can be trusted to correctly do their job. Proof of History (technically not a consensus mechanism).
Proof of History
Proof of History uses cryptographic timestamps to sequentially order each transaction that occurs on Solana to provide verifiable ordering without requiring all nodes to agree simultaneously.
Learn more: PoW, PoS, PoH
What is staking?
Staking refers to the process of actively participating in transaction validation on a proof-of-stake (PoS) blockchain. In the context of Ethereum, stakeholders (called validators) contribute ETH to a staking pool in exchange for rewards in proportion to the size of their stake. The Ethereum network selects a winner based on the amount of ETH each validator has in the pool and the length of time they’ve had it there (rewarding the most invested participants). After the winner has validated the latest block of transactions, other validators can attest that the block is accurate; after consensus is reached, the blockchain is updated, and all participating validators receive a reward in ETH.
What is Yield Farming?
Yield farming is the practice of staking or locking up cryptocurrencies within a blockchain protocol to generate tokenized rewards. Many DeFi projects rely on yield farming to incentivize users to contribute to the network's liquidity and stability since these projects do not rely on a centralized market facilitator.
What is TVL (Total Value Locked)?
Total value locked (TVL) is a metric that measures the aggregate value of all crypto assets locked in decentralized finance (DeFi) protocols via smart contracts. TVL can also refer to the amount locked on a specific protocol (such as Aave or Uniswap).
What are stablecoins?
A stablecoin is a digital currency created with the intent of holding a stable value. The value of most existing stablecoins is tied directly to a predetermined fiat currency or tangible commodity. However, stablecoins can also achieve price-stability through collateralization against other cryptocurrencies or algorithmic token supply management.
What are sidechains?
A sidechain is an external secondary blockchain protocol that is connected to a primary blockchain network (mainchain).
Sidechains are typically designed to allow for the transfer of data and value between themselves and the mainchain, and oftentimes use a different consensus mechanism than the mainchain. As a result, sidechains can allow for a higher degree of flexibility and scalability, given that systems with a significant sidechain interoperability component are often designed to cater to a broader range of enterprise and individual users.
What is a bridge?
A bridge allows independent blockchains to communicate with each other.
Ex. On the Polkadot network, a bridge is used to attach parachains and the main Relay Chain to other external blockchain networks such as Bitcoin and Ethereum. Polkadot data transmits from its main Relay Chain to parachains, attached to which collator nodes assemble all the transactions
What is a fork?
A fork happens whenever a community makes a change to the blockchain’s protocol, or basic set of rules. When this happens, the chain splits — producing a second blockchain that shares all of its history with the original, but is headed off in a new direction.
Most digital currencies have independent development teams responsible for changes and improvements to the network (much in the same way that changes to internet protocols allow web browsing to become better over time), so sometimes a fork happens to make a cryptocurrency more secure, add functionality, or to resolve a disagreement within the community about the cryptocurrency’s direction.
What is sharding?
Sharding is a mechanism that is used to partition a blockchain network or other type of computer network or database. Its purpose is to distribute the network's computational and storage workload across a broader set of devices, or nodes, in order to increase the throughput and transaction speed of the entire system.
What are Layers 1 and 2?
Layer 1’s
Layer 2
Layer 2 Scaling Solutions
Roll-ups
In short, Rollups are solutions that perform transaction execution outside Layer 1 but make transaction data available on Layer 1. By moving computation off chain, they free up more space on-chain. Onchain data availability is crucial, since it allows Ethereum to double check the integrity of rollup transactions.
Plasma & Validium