blockchain

What is a Blockchain

A constantly growing ledger that keeps a permanent record of all transactions securely, chronologically, and immutably.

Blockchain Components

The five main components of blockchain are Hash Cryptography, Immutable Ledger, Distributed P2P Network, Consensus Protocol, and Mining.

Genesis Block

The first block in a blockchain, with a previous hash set to zeros because no blocks precede it.

Hash Cryptography

A technique ensuring data integrity by converting input data into a fixed-size hash.

SHA-256

A Secure Hash Algorithm developed by the NSA that generates a 256-bit hash.

Properties of Hash Functions

Hash functions must be One-Way, Deterministic, Fast Computation, exhibit the Avalanche Effect, and withstand collisions.

Immutable Ledger

A feature ensuring that once a transaction is recorded, it cannot be altered or deleted.

Distributed P2P Network

A decentralized system where all nodes maintain a copy of the blockchain, ensuring security and consensus.

Mining

The process of validating transactions and adding them to the blockchain by solving complex cryptographic puzzles.

Nonce

A number that miners adjust to find a valid block hash under the target threshold.

Proof of Work (PoW)

A consensus mechanism requiring miners to solve cryptographic puzzles to validate transactions and create new blocks.

Proof of Stake (PoS)

A consensus mechanism where validators are chosen based on the number of coins they stake.

Byzantine Generals’ Problem

A problem in distributed systems where actors must reach consensus despite potential traitors.

Byzantine Fault Tolerance (BFT)

The ability of a system to reach consensus even when some nodes act maliciously or fail.

51% Attack

A security risk where an entity controls more than 50% of the network’s mining power, allowing manipulation of the blockchain.

Competing Chains

Occurs when two miners solve a block simultaneously, requiring the network to adopt the longest chain.

Orphaned Blocks

Blocks that were valid but discarded because another chain became longer.

Merkle-Damgård Paradigm

A method of constructing a hash function for long messages from a collision-resistant function for short messages.

SHA-256 Hash Process

Involves padding the message, appending length, initializing hash buffer, processing message in 512-bit blocks, and producing a final 256-bit hash.

Compression Function in SHA-256

Uses chaining variables and message schedule arrays to iteratively transform data.

Security of SHA-256

Achieved through its deterministic nature, resistance to collisions, and unpredictable output.

Blockchain Use Cases

Applications include Supply Chain Management, Humanitarian Aid, Real Estate, Insurance, and Cryptocurrency.

Consensus Protocol

A mechanism ensuring agreement on the blockchain state among distributed network participants.

Mining Rewards

Miners receive newly minted cryptocurrency and transaction fees for successfully mining a block.

Attack Resistance

Blockchain security relies on cryptographic hashing, decentralization, and consensus mechanisms to prevent fraud.

Target Hash

The threshold below which a valid hash must fall for mining to be successful.

Proof of Work (PoW) Disadvantages

If one mining pool controls more than 51% of the total mining power, the entire blockchain security is at risk. A DDoS attack can put the network’s trustworthiness at risk.

PoW Profitability Issue

As mining difficulty increases, profits decrease, reducing the incentive to mine coins. Ethereum had to implement a "difficulty bomb" and transition to Proof of Stake (PoS) for scalability.

PoW Energy Consumption Issue

PoW is considered unsustainable due to high electricity consumption and slow transaction speeds compared to other consensus mechanisms.

51% Attack in PoW

A mining pool controlling 51% of hashing power can double-spend coins by removing transactions after spending.

Tragedy of Commons in Bitcoin

Fewer miners will remain as block rewards decrease, making the network vulnerable to 51% attacks.

Proof of Stake (PoS) Introduction

Created in 2012 as an alternative to PoW, PoS relies on staking coins rather than energy-intensive mining.

PoS Consensus Mechanism

Stakeholders are chosen to validate transactions based on the number of coins they stake, reducing energy costs.

PoS Security

A 51% attack in PoS requires an attacker to own 51% of the staked cryptocurrency, making attacks economically disadvantageous.

PoS vs. PoW

PoS achieves consensus with lower energy and cost than PoW, but DDoS attacks and fraud are still possible.

Delegated Proof of Stake (DPoS)

A democracy-based consensus mechanism where stakeholders vote for block producers instead of random selection.

Bitcoin Definition

A decentralized digital currency using blockchain technology to enable peer-to-peer transactions without intermediaries.

Bitcoin Layers

Bitcoin operates on three layers—technology (blockchain), protocol (Bitcoin network rules), and token (BTC currency).

Types of Tokens

Cryptocurrency tokens (BTC, ETH), utility tokens (BAT, FIL), security tokens (represent assets), stablecoins (USDT, DAI), governance tokens (UNI, MKR), and NFTs (CryptoPunks, BAYC).

Mining Difficulty in PoW

The target hash value defines mining difficulty, increasing as more leading zeros are required in the hash.

Probability of Finding a Golden Nonce

Extremely low; miners rely on massive computational power to generate valid hashes.

Mining Difficulty Adjustment

Adjusted every 2016 blocks (~2 weeks) to maintain a block creation time of ~10 minutes.

Mining Pools

Groups of miners combine their hashing power to increase their chances of finding a valid block and earning rewards.

Nonce Range

A 32-bit number (0 to ~4 billion) used in mining. When exhausted, timestamp changes allow a new nonce search.

Timestamp Role in Mining

Changes every second, enabling miners to restart nonce searches to find valid hashes.

MEMPOOL in Bitcoin

A temporary storage for unconfirmed transactions before they are added to a block.

Transaction Selection in Mining

Miners prioritize transactions with the highest fees to maximize earnings.

Mining Pool Algorithm

Distributes nonce values among miners, prevents duplicate work, and selects transactions efficiently.

Transaction Fees in Bitcoin

As block rewards decrease over time, transaction fees will replace them as miners' main income.

CPUs vs GPUs vs ASICs

Different types of mining hardware used to solve cryptographic hash puzzles.

CPU (Central Processing Unit)

General-purpose processor handling various tasks, capable of around 10 million hashes per second.

GPU (Graphical Processing Unit)

Specialized in parallel computations, more efficient than CPUs for hash calculations, capable of up to 1 billion hashes per second.

ASIC (Application-Specific Integrated Circuit)

Highly specialized for SHA-256 hashing, capable of over 1000 giga hashes per second.

Cloud Mining

Renting mining equipment remotely and paying a fee to use someone else's computing resources.

Mempool

Temporary storage for unconfirmed transactions in a peer-to-peer blockchain network.

How Mempools Work

Transactions are stored in mempools until they are added to a block by miners.

Orphaned Blocks

Valid blocks that are not part of the main blockchain due to competing chains.

51% Attack

Hypothetical scenario where a miner or group controls over 50% of network hash power to manipulate transactions.

Transaction Fees

The difference between input and output values goes to miners as a fee for transaction processing.

(eq.) Probability of Finding a Golden Nonce

represents the probability of randomly picking a nonce that results in a valid hash

(eq.) Mining Difficulty Calculation

difficulty adjuests every 2016 blocks (~2 weeks) to maintain a blocktime of ~10 minutes

(eq.) Bitcoin Inflation Formula

coinbase (the amount of BTC released per block); as the block reqards decrease due to halving, Bitcoin experiences deflation

(eq.) Time Needed to Exhause Nonce Range for a Modest Miner

a modest miner can try 100 million hashes per second; it takes ~40 seconds to go through all possible nonce values