Ethereum and Smart Contracts

What threatens Ethereum’s position as the leading utility blockchain?

Fewer transactions mean less token burning, reducing deflationary pressure and increasing overall ETH supply.

Why is Solana gaining traction over Ethereum?

It offers faster, cheaper transactions and grew rapidly due to meme coin trading activity.

In which areas does Ethereum still dominate?

Stablecoins, decentralized finance (DeFi), and tokenization of real-world assets.

What is tokenization and how does it help Ethereum?

Converting real-world assets into blockchain tokens increases institutional usage and network value

What’s the forecast for Ethereum’s position in the blockchain space?

It’s likely to stay dominant short term, but faces intense competition from scalable, low-fee networks.

How did Vitalik transition from Bitcoin to Ethereum?

He first wrote about Bitcoin, co-founded Bitcoin Magazine, and later realized crypto projects were too narrow — leading to Ethereum’s creation as a more general blockchain.

What’s the difference between application-specific and universal systems?

Application-specific systems (like washing machines) only perform limited tasks, while universal systems (like Ethereum) can execute any programmed logic.

What was Vitalik’s main innovation behind Ethereum?

Turning blockchain into a universal computer where developers can build any type of decentralized application.

What is a smart contract?

An automated agent on Ethereum that executes code when triggered by a transaction.

What happens when a smart contract is activated?

It runs code, may modify internal state, send transactions, then shut down.

What are the main components of a smart contract?

Wallet (holds ETH), code (functions), and optionally data sources.

What programming language is used for Ethereum smart contracts?

Solidity (Turing-complete, similar to assembly).

Why are gas fees required?

To compensate for computation and prevent abuse of network resources.

What does ERC-20 stand for?

Ethereum Request for Comments #20 — the standard for fungible tokens.

Why are ERC-20 tokens important?

They ensure tokens are interoperable across all Ethereum dApps.

List key ERC-20 functions.

name, symbol, transfer, balanceOf, totalSupply.

Can ETH natively hold other tokens?

No, only ETH — other tokens require smart contracts.

What does the mint() function do in a token contract?

Creates new tokens for an address; only the contract owner can call it.

What does transfer() do?

Moves existing tokens from one wallet to another, checking balances.

Is ETH meant to be a store of value like Bitcoin?

No — it’s designed as a utility currency to pay for computational gas fees.

Why isn’t ETH scarcity strict?

Its supply adjusts to support network operations, not scarcity-based valuation.

Can smart contracts be changed?

Code is immutable, but data can reference new code (via proxy contracts).

How does a proxy contract work?

It forwards function calls to another “implementation” contract at address X. Changing X updates behavior.

What are the security and legal risks of upgradable contracts?

Developers might alter behavior (security) or be held liable (legal).

What’s the tradeoff in contract design?

They can be either public + immutable or private + upgradable, but never both.

How can you verify what a smart contract does?

Each contract stores a code hash of compiled bytecode; developers can publish source code so others can match it to the hash.

Can you reverse the hash to see the code?

No, only verify correctness if the developer submits the source.

What platform allows verification of contracts?

Etherscan — it displays verified source code and compiler data for transparency.

What kind of system is Uniswap?

A set of Ethereum smart contracts functioning as an Automated Market Maker (AMM).

What equation defines Uniswap’s pricing?

X times Y = k — constant product rule ensures liquidity balance.

What happens when one token’s price changes?

The contract automatically rebalances by adjusting token ratios to keep k constant.

Why was the Tornado Cash developer arrested?

For allegedly enabling money laundering through autonomous smart contracts.

What does the Tornado Cash case show about DeFi?

Even if contracts are autonomous, developers can still face legal risk.

What was Uniswap sued for?

Allegedly enabling unregistered securities and fraudulent tokens on its decentralized exchange.

Why was the Uniswap lawsuit dismissed?

Because the protocol is decentralized, and token issuers couldn’t be identified — no clear defendant.

How does Uniswap defend its structure to the SEC?

Claims it’s an autonomous AMM, not an exchange “controlled by any individual or entity.”

What ensures Uniswap’s prices trend toward equilibrium?

Arbitrage — traders exploit differences between pool and market prices, keeping the constant product formula balanced.

Who provides liquidity on Uniswap?

Liquidity Providers (LPs) who deposit equal-value token pairs to earn trading fees.

What is Anthony’s main argument about DeFi’s growth?

DeFi acts as a substitute for governments, likely thriving where state enforcement is weak.

Why might DeFi thrive in countries with ineffective governments?

Dysfunctional legal systems increase demand for neutral enforcement; weak governments can’t easily block blockchain adoption.

What might limit DeFi adoption in such countries?

Poor infrastructure, limited Internet access, and capital concentration in developed economies.

What is the “market for promises”?

The system through which society enforces trust in commitments (financial, legal, or social).

What is the oracle problem?

The challenge of bringing accurate, trusted real-world data into blockchain systems.

What is the “real-world asset” (RWA) problem?

Figuring out how to represent and verify physical assets/events on blockchains.

What do oracles do?

Serve as trusted third parties that report off-chain data to blockchains (e.g., Chainlink, Pyth).

What’s the next frontier for blockchain promise systems?

Creating hybrid models combining rule-based automation with limited discretion — like token courts or DeFi “kill-switches.”

What do liquidity providers do in an AMM?

Deposit two tokens (A and B) into a pool, earning a portion of swap fees.

What does K represent?

The constant total liquidity of the pool.

Formula for output tokens (dy) when input dx is traded?

dy = (Y times dx)/(X+dx)

What does the formula show about price movement?

The more you trade (dx↑), the less favorable the rate — price moves against you.

Why does this happen?

Because as you add Token X, its marginal value decreases — the denominator X + dx increases faster.

What is slippage?

The difference between expected and actual trade price due to pool size and trade volume.

How does liquidity affect slippage?

Larger pools (higher liquidity) make slippage smaller — price remains more stable.

Why does high liquidity stabilize price?

When X and Y are large, dx and dy become small fractions of the pool, so the price curve flattens.

Why does Ethereum charge gas fees?

To prevent infinite computation and overuse of storage — users pay for the resources their smart contracts consume.

What is the EVM?

The Ethereum Virtual Machine — executes smart contract bytecode.

What is the Halting Problem’s relevance to Ethereum?

It’s impossible to predict if code will stop, so gas limits ensure all programs eventually halt.

Why can’t Ethereum have voluntary fees like Bitcoin?

Because its contracts can loop infinitely; mandatory gas ensures control and fairness.

What happens if you don’t provide enough gas?

The transaction stops mid-execution; no result, but you still lose the spent gas.

What causes gas prices to spike?

High transaction demand (like NFT drops or DeFi events).

Why do gas prices spike?

Because block space is limited — when many users want to transact, they bid higher gas fees to get priority.

What caused the $44k gas example?

Demand from the Bored Ape Otherside NFT mint overloaded the network.

Why doesn’t proof-of-stake fix speed issues?

It changes who validates, not how many transactions can be processed at once.

What are rollups?

Layer-2 solutions that bundle transactions off-chain and post results back on Ethereum to improve throughput.

What’s a mnemonic phrase?

A 12–24 word recovery seed that regenerates your private keys.

How is Web3 composability different from Web2?

Web2 apps are closed systems (e.g., Google Maps API), while Web3 apps are open and interoperable.

What are Soulbound Tokens (SBTs)?

Non-transferable tokens that represent identity or achievements, proposed by Buterin et al. in 2022.

Why are SBTs important?

They enable Web3 identity systems — proof of credentials, reputation, or rights.

Is Ethereum’s blockchain data public or private?

100% public — anyone can view all transactions and contract states.

Why is Ethereum data hard to use directly?

It’s stored in complex, low-level formats that need to be decoded and indexed by tools like Etherscan or Dune.

What was The Merge?

Ethereum’s 2022 upgrade that switched from Proof of Work to Proof of Stake.

What were the main benefits of The Merge?

Cut energy use by 99%, made Ethereum more eco-friendly, and replaced miners with stakers.

How does Proof of Stake select validators?

Randomly, but weighted by how much ETH is staked (more stake = higher chance).

What is the major issue with Ethereum staking today?

It’s too concentrated — a few staking providers control a large share of the network.

What are Ethereum L2s?

Scaling solutions that process transactions off-chain and periodically submit them to Ethereum for final settlement.

Why do L2s exist?

To reduce Ethereum’s high gas fees and increase throughput.q

How do rollups work?

They batch many off-chain transactions into one on-chain transaction to save space and cost.

What’s the difference between Optimistic and ZK rollups?

• Optimistic Rollups: Assume transactions are valid unless challenged.

• ZK Rollups: Use cryptographic proofs to instantly confirm validity.

How much value is locked in L2s today?

Around $30 billion total.