100,000 Questions and Answers about Cryptocurrencies 43
What is a multi-signature wallet?
A multi-signature wallet (multi-sig wallet) is a type of digital wallet that requires multiple private keys to authorize a transaction. This adds an additional layer of security by requiring multiple parties to agree on the transfer of funds.
How does a multi-signature wallet work?
A multi-signature wallet works by requiring a specified number of private keys to sign a transaction before it can be broadcast to the blockchain. For example, a 2-of-3 multi-sig wallet would require any two of the three private keys to authorize a transaction.
What is a cold wallet?
A cold wallet is a cryptocurrency wallet that is not connected to the internet. It stores private keys offline, significantly reducing the risk of theft or hacking. Cold wallets are often considered more secure than hot wallets.
What is a hot wallet?
A hot wallet is a cryptocurrency wallet that is connected to the internet. It allows for easy access to funds but also increases the risk of theft or hacking. Hot wallets are often used for daily transactions and smaller amounts of cryptocurrency.
What is an oracle in blockchain?
An oracle in blockchain is a trusted third party that provides real-world data to smart contracts. Since smart contracts cannot directly access external data sources, oracles are used to feed information into the blockchain environment.
How do oracles work in blockchain?
Oracles work by retrieving data from external sources, such as APIs or data feeds, and then securely delivering that data to smart contracts on the blockchain. The data is typically verified and authenticated before being used in smart contract executions.
What is a DApp (Decentralized Application)?
A DApp (Decentralized Application) is an application that runs on a blockchain network. DApps are decentralized, meaning they are not controlled by a single entity or organization. They utilize smart contracts and often offer unique functionalities and incentives compared to traditional applications.
How do DApps differ from traditional apps?
DApps differ from traditional apps in several ways. They are decentralized, meaning they are not controlled by a single entity or organization. They utilize blockchain technology and smart contracts, enabling new functionalities and incentives. Additionally, DApps often have built-in mechanisms for user ownership and governance.
What is Ethereum's Virtual Machine (EVM)?
Ethereum's Virtual Machine (EVM) is a runtime environment that allows developers to execute smart contracts on the Ethereum blockchain. The EVM is a Turing-complete machine that enables complex computations and interactions between smart contracts.
How does the EVM work?
The EVM works by executing bytecode instructions contained within smart contracts. When a transaction is sent to a smart contract, the EVM fetches the contract's bytecode, executes it, and returns any results or actions specified in the contract. The EVM ensures the secure and deterministic execution of smart contracts on the Ethereum blockchain.
What is layer 2 scaling?
Layer 2 scaling refers to solutions that operate on top of existing blockchains to improve scalability without changing the underlying consensus mechanism. Layer 2 solutions handle most transactions off-chain, only interacting with the main blockchain for settlement or data availability.
What are some examples of layer 2 solutions?
Examples of layer 2 solutions include payment channels, state channels, rollups (e.g., zero-knowledge rollups and optimistic rollups), and sidechains.
What is Interoperability in blockchain?
Interoperability in blockchain refers to the ability of different blockchains to communicate and interact with each other. It enables the transfer of value and data across multiple blockchains, promoting cross-chain collaboration and increased liquidity.
What are some challenges with blockchain interoperability?
Challenges with blockchain interoperability include technical complexity, security risks, regulatory considerations, and economic incentives. Achieving secure and efficient interoperability across heterogeneous blockchains remains an ongoing area of research and development.
What is a digital identity in blockchain?
A digital identity in blockchain refers to a unique identifier or representation of an entity (e.g., a person, organization, or device) on a blockchain network. Digital identities enable secure authentication, authorization, and access control for blockchain-based applications and services.
How are digital identities used in blockchain?
Digital identities are used in blockchain for various purposes, including user authentication, access control to smart contracts and DApps, permissioning and governance of blockchain networks, and secure credential management.
What is a liquidity pool?
A liquidity pool is a collection of funds locked in a smart contract that enables decentralized trading on automated market makers (AMMs). Traders can add or remove liquidity from the pool in exchange for trading fees and liquidity provider tokens.
How do liquidity pools work?
Liquidity pools work by using an algorithm to determine the price of assets based on the relative amounts of each asset in the pool. Traders can swap one asset for another by interacting with the smart contract and providing or removing liquidity from the pool. Trading fees are charged to maintain the liquidity of the pool and are distributed to liquidity providers.
What is an ERC-20 token?
An ERC-20 token is a standard for fungible tokens on the Ethereum blockchain. It defines a common set of rules and functions for tokens, enabling compatibility and interoperability between different Ethereum-based projects and applications.
What are the key functions of an ERC-20 token?
The key functions of an ERC-20 token include totalSupply (to retrieve the total number of tokens in circulation), balanceOf (to retrieve the balance of tokens for a specific address), transfer (to transfer tokens from one address to another), and approve/transferFrom (to allow another address to spend tokens on behalf of the token owner).