(Blockchain Theory) and protocols such as proof-of-work, proof-of-stake, liquidity pools, DEXs, Block construction, TX propagation and mempool, Nodes and clients, other EVM blockchains, AMMs, lending, collateral, staking, and DeFi protocols
This repo is supposed to be a blog style repo explaining blockchain concepts in a simple manner, in my own terms. Star this repo if you find it useful!
Cryptocurrency is a token, it is a token that can be used like normal currency but through the internet, worldwide. It is a technology that is powered by blockchain. It uses cryptography to carry out secure transactions digitally.
Like the name says, it is a chain of blocks. Every block consists of transactions and tracks assets. It is a database that is shared across all the nodes connected to the blockchain. Blockchain is mainly used for security and openness of transactions. PS: haters call it is a glorified global linked list
The goal of a blockchain is to expand itself by adding more blocks at the end. At the end, once a block is added, it is difficult to change the blockchain contents and state of the previous blocks unless a common consensus has been achieved. Depending on the protocol, this is how the next block is constructed:
- PoW or Proof of Work
If miners solve a complex math problem with the help of cryptography. Once solved, the block is available for transactions and the miner is rewarded with cryptocurrency.
- PoS or Proof of Stake
Based on an individual’s stake, a validator is chosen at random and makes cryptocurrency transactions to add a new block to the blockchain. Much more cost efficient and energy efficient than PoW.
Clients, especially in Ethereum refer to software program that holds all the info about all transactions to ensure security of the data. Nodes are computers that are connected together on the blockchain and run the same client.
A mempool is short for memory pools. It can be considered a “waiting area” for transactions on the blockchain. For example, let’s suppose that A wants to send some ETH to B on Ethereum. This transaction doesn’t happen directly, instead, there is some waiting time during which the transactions are getting verified and validated. These transactions are stored temporarily in the mempool and that’s when they get verified. Once verified, the transaction becomes successful.
Bitcoin is a blockchain network that enables users to do peer to peer transactions which means that people can use the cryptocurrency as an alternative to cash payments digitally.
Similar to Bitcoin, it’s a blockchain that provides for peer to peer transactions and also additionally hosts applications code in “smart contracts”. The apps deployed to Ethereum are called Dapps short for decentralized applications.
Ethereum virtual machine or EVM is software that is responsible for executing all the smart contracts on Ethereum and gets the state of the Ethereum blockchain after every new block is added to it.
Decentralized Finance or DeFi is the form of lending, borrowing, paying and receiving of payments on the blockchain to be secure, fast and selectively public.
A decentralized exchange or DEX is a platform where users can exchange their cryptocurrencies for other cryptocurrencies. Transactions occur directly among the traders since it’s a peer to peer network.
Liquidity pools are smart contracts filled with crypto currency that allow the traders to trade tokens and coins even when there are no buyers and sellers.