Web3, Blockchain, and Cryptocurrencies Flashcards

Flashcards covering key concepts from lectures on Web3, blockchain technology, cryptocurrencies, and Ethereum.

Web3

The next evolution of the internet, promising to revolutionize content creation and financial transactions.

Web3 Key Terms

Terms key to Web3 include blockchain, cryptocurrency, NFT, decentralization, DeFi, and DAO.

Metaverse

A digital world where users interact with people and things through avatars.

Economic Foundation for Metaverse

Establishing a separate economy using blockchain-based cryptocurrencies.

Development Funding for Metaverse

Using DAOs that sell NFTs representing metaverse assets.

Promise of Web3

A vision for the future of the web focused on redistributing power to the individual user through decentralization.

How Web3 Achieves Decentralization

Placing all data on distributed blockchains and decentralizing storage.

Ideology Behind Web3

A pushback against centralized authority and surveillance capitalism.

Key Characteristic of Web3: Everything is a Transaction

Everything becomes a transaction stored forever on an immutable ledger.

Key Characteristic of Web3: Everything Has Value

Everything on the blockchain has tradable value because it is on the blockchain.

Decentralization Definition (Web3)

Distributing data control among users, solving issues like single points of failure.

Centralized Services

Rely on a single web or cloud host, easy and effective but with a single point of failure.

Decentralized Systems

Distributes data among all users, aims to solve issues of single points of failure.

Federated Decentralization

Uses multiple independent databases mapped to operate as one cohesive unit, users control their hosted data.

Absolute Decentralization

Full data copies distributed to all participants, every update is distributed to every node.

Subprime Lending (2008 Financial Crisis)

Banks provided mortgage loans to high-risk borrowers with adjustable interest rates.

Mortgage-Backed Securities (MBS)

Banks bundled mortgages into mortgage-backed securities and sold them globally.

Overleveraging & Deregulation

Financial institutions borrowed excessively to invest in housing-related securities; deregulation reduced oversight.

Credit Rating Agencies' Failures

Rating agencies inaccurately rated risky mortgage-backed securities as safe investments.

Liquidity Crisis (2008)

Banks stopped lending to each other, causing severe liquidity shortages and a freeze in credit markets.

Responses & Reforms (2008)

Governments implemented bailouts and economic stimulus packages; regulatory reforms like the Dodd-Frank Act were established.

Bitcoin's Purpose

Financial innovation born as a philosophical statement against financial mismanagement.

Blockchain Definition

A decentralized, immutable digital ledger that records transactions across multiple nodes.

Double-Spending Problem

Arises because digital items can be easily copied; blockchain addresses this by decentralizing transaction verification.

Decentralized Trust (Blockchain)

Introduced the concept of trust through computer code, eliminating the need for human oversight.

Trustless Architecture (Blockchain)

Blockchain offers a trustless architecture where trust is built into the software code.

Structured Databases

Store data in an organized and logical manner, like a contact database.

Unstructured Databases

Lack a consistent structure, managing various types of data like social media posts.

Centralized Database Architecture

Reside on a high-performance server with access to large storage in a data center.

Decentralized Database Architecture

Distribute data across multiple servers, improving performance and resilience to failure.

Central Authority in Traditional Databases

Typically have a central authority that governs access, storage, and deletion of data.

Blockchain Authority

Distributes authority among participants, eliminating the risks associated with centralized power.

Decentralized Database (Blockchain)

No central database or control, participants interact with an identical copy of the database.

Transaction Validation (Blockchain)

Miners validate transactions, ensuring security and eliminating the double-spend problem.

Immutable Records (Blockchain)

Once a transaction is added to the blockchain, it cannot be altered or deleted.

Decentralized Currency (Bitcoin)

Exists outside the banking system, independent of governments and regulators.

Digital Transactions (Bitcoin)

Transactions are recorded in identical copies of a blockchain database on a distributed network.

Limited Supply (Bitcoin)

A finite number of 21 million Bitcoins are introduced gradually through mining.

Pillars of Monetary Value

Supply, demand, utility and trust.

Addition to Blockchain

The approved transaction is added to blockchain databases across the network, completing the process.

Centralized Exchanges Definition

Centralized exchanges like Coinbase and Binance offer user-friendly interfaces, but funds are held by the exchange.

Decentralized Exchanges Definition

Decentralized exchanges like Uniswap allow direct trading without a centralized intermediary, giving more control over assets.

Decentralized Exchanges

Allows users to trade cryptocurrencies directly with each other without the need for a centralized intermediary.

Peer-to-Peer (P2P) Definition

Platforms like LocalBitcoins allow direct buying and selling with other individuals, avoiding centralized exchange fees.

Everyday Transactions (Cryptocurrencies)

Becoming increasingly popular for everyday transactions, used to buy goods and services or send money.

Staking

Hold (stake) cryptos for a specified period of time

Non-Fungible Tokens (NFTs)

Unique, indivisible digital assets that represent ownership of real-world or digital items.

Decentralized Finance (DeFi)

Makes the financial system more open, accessible, and transparent, built on smart contracts.

Hashing Definition

Ensures data integrity and links blocks securely using unique, fixed-length hash values.

Digital Signatures Definition

Guarantees security, authenticity, and integrity by using public/private key pairs.

Encryption Definition

Secures data during transmission, preventing unauthorized access and data breaches.

Hashing in Blockchain Definition

A one-way process where the hash value cannot be reversed to generate the original data.

Encryption: Securing Data in Blockchain

Data (e.g., wallet info) encrypted, transmitted securely, then decrypted by the recipient.

Wallet Encryption security

AES (Advanced Encryption Standard) for wallet data

Public Blockchains Definition

Public blockchains known as Use open access, decentralization, high security, and transparency.

Private Blockchains Definition

Use restricted access, centralized control, faster speeds, and more privacy

Consortium Blockchains Definition

Semi-decentralized and governed by a group of organizations rather than a single entity.

Hybrid Blockchains Definition

Combines elements of both public and private blockchains, offering flexibility in controlling access and visibility.

Non-Fungible Tokens (NFTs) Definition

Unique, indivisible digital assets representing ownership of real-world or digital items, stored on a blockchain.

Decentralized Finance (DeFi) Definition

Aims to revolutionize the financial system by making it more open, accessible, and transparent, without traditional institutions.

Previous Block Hash Use

Maintains chain integrity by linking to the preceding block stored within the block header.

Merkle Root Use

Summaries all transactions in the block header efficiently.

Nonce Use in Block Header

Used in Proof of Work consensus to find a valid hash.

Characteristics of Genesis Block

Hardcoded, no previous hash, fixed rewards and transactions, unique role

Block Identifiers Definition

Derived from block headers, these provide unique cryptographic hashes.

Transaction Identifiers (TXID) Use

Ensuring each transaction is distinctly identifiable by these unique hashes.

Wallet Identifiers (Public Addresses) Use

Derived from private keys, these serve as destinations for receiving cryptocurrencies and help by providing Anonymity.

Cryptography Definition (Blockchain)

Cryptography ensures security, privacy, and integrity in blockchain networks.

Value of Blockchain Identifiers

Blockchain identifiers ensure traceability and verifiability within the system.

Block Identifiers- Hashing Benefits

Uses cryptographic hashes, ensuring tamper-proof records and unique block fingerprints

Merkle Trees Uses and Explaination

Hashed outputs from individual transactions, that are then hashed with other leaf nodes to create new root hashes, this process continues until the root hash is produced.

Wallet Definition

Software or hardware solutions for storing, sending, and receiving cryptocurrencies.

transactions (Blockchain) Definition

records of asset movement between addresses on the blockchain, these provide a method for key management.

Private Keys Blockchain Use

Must be kept confidential as it represents full control over associated funds via signing transactions and recovery

Public Keys Blockchain Use

Derivation, Verification and address generation are enabled by the public Key .

Addresses Use

Generated from the public key through a series of cryptographic operations. A hashed version of the public key encoded in Base58 is the format utilized for this

Transaction Signing Steps

Create transaction, Sign with Private key, Broadcast to network, Verification with the public key

Deterministic Wallets Definition and Use

A single seed generates all keys and addresses. Only the seed phrase needs to be backed up to recover the entire wallet.

Non-Deterministic Wallets Uses and Definition

Each key pair is generated independently, and for that reason must have its only back up. While these are simple their complexity is not scalable.

Hierarchical Deterministic (HD) Wallets Use

A structured approach to key and address management with enhanced privacy and easier backup, make them are most popular due to their utility.

Cross-Chain Communication Definition

Protocols enabling different blockchains to exchange information and assets

Atomic Swaps Definition

Trustless exchange of cryptocurrencies across different blockchains.

Layer 2 Solutions Blockchain

Off-chain scaling solutions like Lightning Network for faster transactions.

Benefit of P2P Blockchain networks

Peer-to-peer structure eliminates reliance on centralized authorities.

Consensus algorithms Definition

Essential for ensuring trust and security by establishing agreement among network participants.

Blockchain security

Blockchain security maintains confidentiality through encryption methods; digital signature authenticate the transaction.

DApps

Decentralized applications (DApps) run on blockchain networks, offering new possibilities for efficiency and access.

P2P Network Architecture

Peer-to-peer network architecture is fundamental to blockchain, enhancing decentralization.

Non-repudiation Use

Message authenticity with digital signatures.

Hashing function

Hash functions create a unique identifier for each transaction- a Unique Private Key.

Blockchain Framework

Symmetric encryption, Asymmetric encryption

The blockchain process

Each block’s hash includes the previous block’s hash, creating an immutable chain.

Modern Cryptography on Blochchain

Hash functions, symmetric encryption, asymmetric encryption, are all types utilized within blockchain.

Blockchain system Utilizations

Hashing, Cryptography, and Consensus, all work together on a blockchain network to ensure full functionatility.

hashing

Arbitrary Length - Hashing is not Encryption; it is one-way cryptographic function Convert data GBs to Bits hash

Famous Hashing Algorithms

MD (Message Digest), MD2, MD3, MD5, SHA (Secure Hash Algorithem)

Integrity on Blockchain

Maintains data accuracy

Blockchain transaction steps

Node C and D validates the transaction.

Consensus Mechanisms in Blockchain

Ensures that all nodes in the network agree on the current state of the blockchain and protects from malicious actors trying to manipulate the blockchain.

Consensus on Blockchain

Process of achieving agreement across a decentralized network where Consensus Ensures Participants all have the same view.