100,000 Questions and Answers about Cryptocurrencies 26
What is gas in Ethereum?
Gas in Ethereum refers to the fee required to conduct transactions or execute smart contracts on the Ethereum blockchain. It represents the computational effort required to process a transaction and is paid in Ether (ETH), the native currency of the Ethereum network.
How does gas work in Ethereum?
When a transaction is sent on the Ethereum network, the sender must specify a gas price (the amount of ETH per unit of gas) and a gas limit (the maximum amount of gas the transaction is allowed to consume). The transaction fee is calculated by multiplying the gas price by the amount of gas used. If the transaction consumes more gas than the specified limit, it will fail and any unused gas will be refunded to the sender.
What is gas limit?
Gas limit is a parameter set by the transaction sender that specifies the maximum amount of gas a transaction is allowed to consume. It serves as a safety mechanism to prevent a transaction from consuming an excessive amount of gas and potentially draining the sender's account.
What is an ERC-721 token?
ERC-721 is a standard for non-fungible tokens (NFTs) on the Ethereum blockchain. It defines a unique interface for tokens that represent ownership of digital or real-world assets. ERC-721 tokens are used for various applications, including digital art, collectibles, gaming items, and more.
How does ERC-721 differ from ERC-20?
ERC-721 and ERC-20 are two different token standards on the Ethereum blockchain. ERC-20 defines a common interface for fungible tokens, which are interchangeable and divisible. In contrast, ERC-721 tokens are non-fungible, meaning they are unique and not interchangeable. Each ERC-721 token represents a distinct asset, while ERC-20 tokens represent a quantity of a fungible asset.
What is a sidechain?
A sidechain is a separate blockchain that is connected to the main blockchain, typically through a two-way peg mechanism. Sidechains enable the transfer of assets between the main chain and the sidechain, allowing developers to experiment with new features, consensus mechanisms, or token standards without affecting the main chain.
How do sidechains work?
Sidechains operate independently from the main chain but are connected through a two-way peg mechanism. This allows assets to be locked on the main chain and minted on the sidechain, or vice versa. Transactions on the sidechain are validated separately from the main chain, enabling developers to experiment with different consensus mechanisms or token standards.
What is liquidity mining?
Liquidity mining is a process where users provide liquidity to decentralized exchanges (DEXs) or liquidity pools in return for rewards. By depositing funds into a liquidity pool, users enable others to trade those assets and earn a share of the trading fees generated by the pool. Additionally, liquidity providers often receive tokens or other rewards for their contributions.
What is impermanent loss?
Impermanent loss refers to the potential loss of value experienced by liquidity providers in decentralized finance (DeFi) protocols. It occurs when the price of one asset in a liquidity pool moves relative to the other asset, causing the value of the liquidity provider's share to temporarily decrease. However, impermanent loss is only realized if the liquidity provider withdraws their funds from the pool before the prices revert to their original ratio.
What is a yield farming?
Yield farming is a strategy in decentralized finance (DeFi) where users deposit their cryptocurrencies into various protocols or liquidity pools to earn rewards. These rewards can come in the form of interest, trading fees, tokens, or other incentives. Yield farming aims to maximize returns by optimizing the deployment of funds across multiple DeFi protocols.
What is a flash loan?
A flash loan is a type of loan in decentralized finance (DeFi) that allows users to borrow funds without collateral and repay the loan within a single transaction. Flash loans enable users to execute complex transactions that require temporary access to large amounts of funds without incurring high interest rates or the need for collateral.
How do flash loans work?
Flash loans work by allowing users to borrow funds from a liquidity pool and execute a series of actions within a single transaction. If the transaction is successful and the borrowed funds are repaid in full, the loan is considered settled. If the transaction fails or the funds are not repaid, the transaction is rolled back, and no changes are made to the blockchain state.
What is a Layer 2 solution?
A Layer 2 solution is a technology that aims to improve the scalability and efficiency of blockchains by offloading some transaction processing to a separate layer. Layer 2 solutions operate on top of the main blockchain (Layer 1) and enable faster, cheaper transactions while maintaining the security and decentralization of the underlying network.
What are some examples of Layer 2 solutions?
Examples of Layer 2 solutions include state channels, plasma chains, rollups (zero-knowledge rollups and optimistic rollups), and sidechains. These technologies have different approaches and trade-offs but share the common goal of improving the scalability and efficiency of blockchains.
What is a blockchain oracle service?
A blockchain oracle service is a third-party provider that supplies real-world data to smart contracts on blockchains. Since smart contracts operate in a closed environment, they cannot directly access external data sources. Oracle services bridge this gap by fetching and verifying data from external APIs, web scraping, or other sources and securely delivering it to smart contracts.
Why are blockchain oracle services needed?
Blockchain oracle services are needed because smart contracts on blockchains operate in a closed environment and cannot directly access external data sources. Oracle services enable smart contracts to make decisions based on real-world events and data, expanding their capabilities and usefulness.
What are some examples of blockchain oracle services?
Examples of blockchain oracle services include Chainlink, Band Protocol, and Provable. These services offer different features and capabilities but share the common goal of securely delivering real-world data to smart contracts.
What is a DAO (Decentralized Autonomous Organization)?
A DAO (Decentralized Autonomous Organization) is an organization that is run by rules encoded in smart contracts on a blockchain. DAOs are governed by their members, who can vote on proposals and make decisions using tokens as a means of participation and governance. DAOs aim to provide a decentralized alternative to traditional organizations and enable transparent, fair, and efficient governance.
How do DAOs work?
DAOs work by encoding their rules and governance mechanisms into smart contracts on a blockchain. Members of the DAO can interact with these smart contracts to vote on proposals, make decisions, and execute actions. Token holders often have voting rights proportional to their token holdings, allowing them to participate in the governance of the DAO.
What are some examples of DAOs?
Examples of DAOs include MakerDAO, which manages the Dai stablecoin system, Compound Finance, which offers decentralized lending protocols, and Aragon, which provides a platform for creating and managing DAOs. These organizations demonstrate the potential and versatility of DAOs as a decentralized governance mechanism.