05 Blockchain 02

Question 1

Describition of PoW

Answer 1

–>including transaction on the ledger requires computational effort and thus is costly
* Miners solve cryptographic puzzle to maintain the ledger
* These puzzles consists of finding a nounce–>this is a special number that results in a hash of that block with a particular pattern

Question 2

POW: What is a Nounce

Answer 2

Nounce= a special number that when added to the block results in the hash of that block

Question 3

POW: NOunce characteristics

Answer 3

• the hash has to start with a certain number of zeros that depends on the difficulty of the network
  —>This difficult level is adjusted automaticaöy every 2016 blocks to keep the average time between two blocks at about 10 minutes
  –>finding the correct nounce is done by try and error

Question 4

What is done after finding the Correct Nounce?

PoW

Answer 4

–>The miner broadcasts the solution to the network
* it appends the block of transatiom, including the nounce, to the ledger
* The other miners (nodes) can verify the nounce results in a correct hash is computationally easy

Question 5

Describe the 51% Attack in context of blockchains bitcoin with PoW

Answer 5

The blocks are all cryptographically linked by including the hash of the previous block in the new block
* to make changes or minor modifications to a previous block would require to re-do all the work starting with that block
–>this can in the long run only happend if the person controls 51% of the computational power of the network

Question 6

What are the two mining incentives?

Answer 6

1. Block rewards through newly generated coins
   * successful miners receives bitcoins these reward halves rougly every four years
   * in about 2140 the reward is expected to be zero
2. Transaction fees from users
   * capacity in each block is limited —>users can optinally pay a fee to minizers to incentivize them to include their transaction in a block
   –>During times of blockchain congestion, the fees can reach very high levels

Question 7

What is included in the Block header? Bitcoin

Answer 7

The Block header contains:
* Bitcoin protocol number
* CUrrent difficult level
* Timestamp
* previous block header hash
* Merkle root hash of hased transactions
* Nounce

Question 8

What is Unspent Transaction Output

Answer 8

Nodes track unspent transaction output (UTXO)
* the bitcoin transactions list input and output addresses
–>UTXO is the output of a transaction and exists until it is used as input for another transaction
–>How many UTXTO´s reside in a given address is computed by counting all prior UXTOs that list this address as their destination

Question 9

What is Unspent Transaction Output

Answer 9

UTXO means Unspent Transaction Output and

describes how Bitcoin for example tracks the amount of bitcoins a wallet has, furthermore it is a technology that explains how transactions are made on the blockchain.

UTXO model behaves more like cash instead of a bank account

Question 10

Explaing the unspent transaction output

Answer 10

Works like a wallet, if one has 50 BTC, 1- 30 BTC and 1-20 BTC and wants to send 35 btc
–>Will use both addresses (30 BTC and 20 BTC) and send that to the other addresses, additionally there will be a new “change address” created where the remaining “Unspent transsaction outpu” go in (30+20 - 35) = 15 BTC

Question 11

What is a Mempool?

Answer 11

New transactions are broadcasted to the whole network, the ones that are valid wait to be included in a block
–>These waiting transactions (confiremed) are stored in the mempool

Question 12

What does the Mempool mean for the transaction within?

Answer 12

Everyone can see the transactions in the mempool:
* Trading intentions might be revealed
* Front running poses a serious problem —> insider trading

Question 13

what does the Hashrate meansure?

Answer 13

The Hashrate measure the computing power within the Bitcoin network
* the total network hashrate has increased tremendously
–>The mining difficulty adjust automatically, but what matters for miners is their relative share of computating power

Question 14

why were Mining pools created in the first place?

Answer 14

For an individual miner it is extremely unlikely to get the block reward
–>Thus to get a more stable stream of income, miners join in mining pools
–>Each members of a pool contribute computational power

Question 15

How is reward in mining pools distributed?

Answer 15

• the rewards are typically distributed according to member´s contributed hashrate
• pool operators keeps a small percentage to cover administrative costs
  –>relatively few mining pools represent a large part of overall Bitcoin mining, raising concerns about centralization

Question 16

PoW Externalitites

Answer 16

–>electricity is the main input for PoW mining, thus miners tend to be located in areas with cheap energy
- uses vast amounts of energy
- energy market spillover effects to local businesses and households
- Bitcoin could have a considerable impact on the climate
–>a lot of the engery comes from gray energy

Question 17

Ethereum platform short describtion (provides…

Answer 17

Ethereum network proved a base layer computation platform based on a programmable blockchains
–>used for
- executing smart contracts
- runing decentralized applications (dApps)

Question 18

Ethereum Governance and difference to Bitcoin? conserning changes?

Answer 18

Much more so than Bitcoin, the Ethereum protocol is subject to changes
e.g:
- changes to how fees, difficulty, or block rewards are calculated
- increasing scalability, privacy, efficiency, and flexibility
- switich to different consensus mechanism

Question 19

How are changes in the Ethereum like protocol implemented?

Answer 19

Changes are usually implemented via a “hard fork”

Question 20

Hard fork and soft fork

Answer 20

hard fork: is a change to the protocol that requires the creation of a new blockchain using the updated protocol, where miners pick the chain they want to continue by appending to that chain
soft fork: is a forward-compatible change to the rules.
–>It doesn’t create a new blockchain simply updates the protocol without splitting the network into two separate chains

Question 21

How does the governance model of Ethereum work?

Answer 21

• Users suggest changes to ethereum using off-chain channels of Ethereum Improvement Proposals (EIP) and Ethereum Requests for Comment (ERC)
• EIP´s are discussed (particulary among core developers)) and then suggested for adoption via a fork or dropped

Question 22

Critism in the governance model of Ethereum

Answer 22

• Some critize the governenance model as being too centralized and dependent on a core team of developers and the founder Vitalik Buterin

Question 23

Which tracking method for accounts and balance does Ethereum use?

Answer 23

Etereum uses an account-based model that tracks the balance of each account (as part of the “global state”)

Question 24

Advantages of the ACcount-based model over UTXO

Answer 24

• The account based model may be more intutive thant UTXO
• need to keep track of order of transaction from an account (every transaction has a number)
• UTXO may offer more privacy
• Obtaining the current state of the nework is easier for “liegt” clients/nodes in an account-based model

Question 25

Account types in the Ethereum network

Answer 25

There are two types of accounts:
1. Externally owned accounts (EOAs)
2. Contract accounts
–>All accounts can eqully access and interact with the Ethereum network

Question 26

What does each Account in the Ethereum network have?

Answer 26

• unique, crpytopgrahic address
• nounce
• Current ether balance
• Contract code
• Data storage

Question 27

What are External owned accounts?

Answer 27

Controlled by (human) end users that have access to the private key for sending transactions
* have a balance and can send transactions
* do not have associated code

Question 28

What are contract accounts?

Answer 28

=Completely controlled by associated code that can contain pretty much any type of calculation.
–>once set up the code itself cannot change
* Contract account have a balance and can transfer ether (or other tokens)

Question 29

How is a execution of the code in a contract account triggered?

Answer 29

Only trigged by transactions from EOAs or from other contract accounts
* contacts do not just run in the background
* everything that is happening in the network is always set in motin by EOAs

Question 30

How are Transactions between contact accounts called?

Answer 30

They are called “internal transactions or “messages” and will not be permantly put on the blockchain

Question 31

How does Ethereum prevent a programm from running to long on the blockchain?

Answer 31

–>Put a price tag on computing resources
* Chrage a fee called gas for using the network
* Transactions have to include the amount of gas and the price the sender is willing to spend on executing the transaction.
Gas prices typically expressed in gwei

Question 32

Transaction execution and gas?

Answer 32

As the transaction is excetued, gas is used for every computational step
- unspent gas is retunred to the sender
- if exection not finished an gas is not enough, everything is reversed and gas is sent back

Question 33

What are the functionalities of Contract accounts?

Answer 33

• Transfer funds
• Create new digital tokens
• Exchange different tokens (as in decentralized exchanges)
• Trigger code from other contract accounts
• Construct derivatives with automated payouts

Question 34

Are these smart contacts smart?

Answer 34

These “smart contracts” are permanently kept on the blockchain
–>They are not really smart and not necessarily a (legal) contract
–>more like a vending machine
–>Code is law

Question 35

What is the main use of smart contracts?

Answer 35

The main use of smart contracts is the creation of new tokens, many of whcih are utility tokens
–>Ethereum contains several standards for new tokens that use the Ethereum blockchain

–>ERC-20 for fungible tokens
–>ERC-721 for non-fungible tokens
–>ERC-1400 for security tokens