Lesson 7: blockchain components

Question 1

What are the four components of blockchain technology?

Answer 1

The ledger (a blockchain), peer-to-peer network, consensus mechanism, incentive mechanism

Question 2

What are the characteristics of the ledger?

Answer 2

Append-only ledger of transactions; records ownership changes; links blocks of transactions to previous transactions with a hash

Question 3

What is a peer-to-peer network?

Answer 3

Compute nodes that can go offline without affecting whole network; all nodes record entire blockchain; distributed security; no central maintenance party

Question 4

What is the consensus mechanism?

Answer 4

A proof-of-work algorithm; miners agree on one version of blockchain without knowing or trusting the other nodes

Question 5

What is the incentive mechanism?

Answer 5

Anyone can participate, no permission needed; proof-of-work algorithm rewards miners who solve for the hash of a block; may or may not be profitable

Question 6

What is reward halving?

Answer 6

Every four years the number of bitcoins of reward for solving the hash gets cut in half. In 2009, the reward was 50 Bitcoin. In 2020, the number had dwindled 6.25