Ethereum Flashcards
What is Ethereum?
It is a crypto currency but not just a crypto currency. It’s a block chain application platform as well that allows you to build/develop decentralised applications i.e. Dapp
What is block chain?
Block chain is a technology that allows running of programs via smart contracts on peer to peer network consisting of nodes. Each node stores the blocks of data in a chain form hence the term block chain.
You can either connect to any existing node of a network or have your own node to work on your behalf.
What is mining? i.e. proof of work
On a network of nodes, some nodes act as miners i.e. they solve the crypto graphic puzzles & get rewarded in the form of crypto currency. Multiple nodes (miners) try to solve this cryptographic puzzle and the one which solves the puzzle first and write the transaction in blockchain gets rewarded by the sender of the transaction.
For example, if UserA sends 10 ETHs to UserB, multiple miners start solving the cryptographic puzzle and the one node (miner) that solves this first and write the transaction in the blockchain is rewarded by UserA some of the cryptocurrency (ETH).
These miners use the blockchain consensus algorithm a.k.a Proof Of Work to submit their work to be written on the blockchain transactions.
How mining: proof of work consensus algorithm works?
When a user wants to send a crypto currency to some other user, they make the transaction and also pay some of the fee i.e. gas fee (in crypto) and submits to the network. Blockchain network creates a cryptographic puzzle which then miners take and start solving with the digital guesses based upon the given challenge. This guess is then executed against the puzzle (challenge) to validate it’s correctness. The miner whose guess is correct as per the puzzle first, gets the fee submitted by the payer before sending transaction and this transaction is then written on the blockchain network. During writing on the blockchain network, the sender’s account will be deducted by the crypto amount sent & the fee and the receiver’s account will be addition by the sent crypto minus the fee.
How are transactions secure if anyone can access the data?
Because it’s nearly impossible to tamper with the data written on the block chain since if you want to change the data of an account, you will have to start changing from the very beginning of the transactions for this account that made the account balance of this account like this. For every transaction in the past, you will have to calculate the hash and based upon that hash, you will have to calculate the next transaction of the account until all transactions are done. But since then there are other nodes in the network too that have the similar data but now with the tampering it no longer matches.
In order to really change, you will have to have a 51% attack i.e. 51% of the nodes should have the similar data as of your node.
What is gas & gas station?
Gas is a small fee paid by the sender who wants to create a transaction on the network. Gas is actually not in ETH but in GWEI that is a more basic unit of ETH and it’s value is usually 1 GWEI = ~0.00000001 ETH (note approximation)
The transaction time depends upon the gas fee that you are willing to pay, lower the gas, slower the transaction.
You can also specify gas limit which will make sure that your transaction does not pay more than the specified limit. For example;
Gas Fee = 10 GWEI and Gas Limit = 21000
This means that you will not pay more than 21000 gas for this transaction and you are willing to pay 10 GWEI per unit of Gas.
Gas station is ethereum’s built-in website that helps you identify the current gas fee and also helps you calculate how much gas if you pay will take how much time to reach to the receiver. https://ethgasstation.info
What is a smart contract?
Smart contract is a program that runs on a ethereum blockchain network. This is called a contract because it’s an agreement that is going to do something in return. These contracts are like micro services running on the machines and processing requests. These contracts are visible on the ethereum block chain network via some UI. They are more like vending machines.
Smart contracts are written in solidity programming language that is similar to JS.
What is an ethereum token?
Ethereum allows you to build your own crypto currency without creating your own blockchain. You can build your ethereum based tokens that run on ethereum’s block chain network.
How Ethereum tokens should work?
Ethereum uses Eip 20 token standard that explains what each token should have, what functions each token should provide. More details on https://github.com/ethereum/EIPs/blob/master/EIPS/eip-20.md
What is Ethereum 2.0?
With Ethereum there were some limitations:
- 15 transactions per second (TPS) - the network could only process 15 transactions in a second clogging the network. How many transactions can fit through at one time.
- Block Time - Once transaction gets processed through step 1, it then took some time to solve the puzzles and actually write the transaction in the block
- Duplicate responsibilities - it takes the entire network to complete the transactions.
Solutions:
- Layer 1 - actual improvements on the block chain network.
Sharding is layer 1 solution that creates group of nodes to solve a particular responsibilities. This way multiple groups can handle multiple responsibilities and work at the same time concurrently and helps resolving transactions per second limitation.
Proof of stake a.k.a casper is also a layer 1 solution which is a different consensus algorithm where nodes lock up ethers that validates the proof of work. It reduces block time and helps scaling.
- Layer 2 - solutions built on top of layer 1 solutions that allows creating extra functionality on top of layer 1.
Plasma is a layer 2 solution that allows for some of the computational activities of the network to be processed on the side chain. This side chain takes the activity on the side to help main network work smoothly without any blocks. When work is completed, it’s put back to the main network.
State channels is also a layer 2 solution that works similar to Plasma or side chain but its a bi-directional communication where you send back and forth the transaction and once you get the answer you put it back on main network.
Example;
I send 5 ether
You send 2 ether back
I send you 1 ether
Result: I have 1 Ether and you have 4 ether
Usually the above example is done on the main network of ethereum block chain but we can use state channels to do that and once we get the result we put it back on the layer 1 which is ethereum itself that handles all this in a single transaction.
There is a lot more than in Ethereum 2.0 but the overall vision is to make ethereum faster & efficient.
