100,000 Questions and Answers about Cryptocurrencies 82

What is a smart contract?

A smart contract is a self-executing contract with the terms of the agreement between buyer and seller being directly written into lines of code. These contracts are stored on the blockchain and automatically enforce the terms of the agreement.

How do smart contracts work?

Smart contracts work by allowing users to define the terms and conditions of an agreement in code. Once the contract is deployed on the blockchain, it becomes self-executing and automatically enforces the terms of the agreement. When certain conditions are met, the contract automatically executes the predefined actions, such as transferring funds or executing a transaction.

What is Ethereum Virtual Machine (EVM)?

Ethereum Virtual Machine (EVM) is a runtime environment for smart contracts in Ethereum. It allows developers to write and deploy smart contracts on the Ethereum blockchain using a Turing-complete programming language.

How does EVM work?

EVM works by executing smart contracts on the Ethereum blockchain. When a smart contract is deployed, its bytecode is stored on the blockchain and becomes executable by the EVM. The EVM interprets and executes the bytecode, allowing the smart contract to interact with the blockchain and perform predefined actions based on its code.

What is sharding in blockchain?

Sharding in blockchain refers to the process of dividing a blockchain network into smaller, more manageable pieces, called shards. Each shard operates independently and contains only a portion of the overall network's data and transactions.

How does sharding work?

Sharding works by dividing the blockchain network into multiple shards. Each shard contains a subset of the overall network's data and transactions and operates independently. Nodes in each shard validate and process transactions for that shard, reducing the computational burden on the entire network. Cross-shard communication protocols allow shards to interact and share data as needed, maintaining the integrity of the overall blockchain network.

What is a sidechain?

A sidechain is a separate blockchain that is pegged to a main blockchain, allowing for the transfer of value and data between the two chains. Sidechains provide increased scalability, flexibility, and interoperability compared to the main chain.

How do sidechains work?

Sidechains work by utilizing a two-way peg mechanism to connect them to the main blockchain. This mechanism allows users to lock their tokens on the main chain and mint corresponding tokens on the sidechain, and vice versa. Transactions on the sidechain are processed independently from the main chain, providing increased scalability and flexibility. Cross-chain bridges or atomic swaps allow for the secure transfer of value and data between the main chain and sidechains, maintaining the integrity of the overall ecosystem.

What is Layer 2 scaling?

Layer 2 scaling refers to off-chain scaling solutions that aim to increase the throughput and efficiency of blockchain networks without modifying the underlying blockchain protocol. These solutions operate on top of the base layer (Layer 1) and utilize techniques such as payment channels, state channels, and rollups to offload transactions and data from the main chain.

How does Layer 2 scaling work?

Layer 2 scaling solutions work by executing transactions and computations off-chain, reducing the burden on the main blockchain. Payment channels and state channels allow users to conduct multiple transactions between each other off-chain, with only the net results being settled on the main chain. Rollups bundle multiple transactions into a single transaction on the main chain, reducing the number of transactions that need to be processed on-chain. These off-chain solutions can significantly increase the throughput and efficiency of blockchain networks, enabling faster and cheaper transactions.

What is the Lightning Network?

The Lightning Network is a Layer 2 scaling solution for Bitcoin that enables fast, low-cost, and scalable payments between participants. It utilizes payment channels to conduct off-chain transactions and settles the net results on the Bitcoin blockchain.

How does the Lightning Network work?

The Lightning Network works by establishing payment channels between participating nodes. These channels allow nodes to conduct multiple transactions off-chain, with only the opening and closing transactions being recorded on the Bitcoin blockchain. The network utilizes a routing algorithm to find paths between sender and receiver nodes, allowing for the transfer of value across the network. The Lightning Network significantly increases the scalability and efficiency of Bitcoin payments, enabling faster and cheaper transactions.

What is the difference between public and private blockchains?

Public blockchains are decentralized networks that allow anyone to participate and view the ledger, while private blockchains are permissioned networks that restrict access and participation to authorized users. Private blockchains offer increased privacy and control but sacrifice some of the decentralization and immutability of public blockchains.

What is a consortium blockchain?

A consortium blockchain is a type of permissioned blockchain that is governed and maintained by a group of organizations rather than a single entity. Consortium blockchains allow for collaboration and data sharing between participating organizations while maintaining a degree of decentralization and security.

How do consortium blockchains work?

Consortium blockchains work by utilizing a permissioned network that restricts access and participation to authorized organizations. These organizations jointly govern and maintain the blockchain, allowing for collaboration and data sharing. Nodes in the network validate transactions and maintain the ledger, ensuring the integrity and security of the blockchain. Consortium blockchains offer a balance between privacy, control, and decentralization, enabling organizations to leverage the benefits of blockchain technology while maintaining their autonomy and security requirements.

What is interoperability in blockchain?

Interoperability in blockchain refers to the ability of different blockchains or blockchain-based systems to interact and exchange data with each other. This allows for the seamless integration and collaboration between different blockchain networks and ecosystems.

How can blockchain interoperability be achieved?

Blockchain interoperability can be achieved through various techniques and solutions. Cross-chain bridges allow for the secure transfer of value and data between different blockchains. Sidechains and relay chains provide a two-way peg mechanism to connect blockchains and enable cross-chain transactions. Interoperability protocols define standard interfaces and communication mechanisms that allow different blockchains to interact and exchange data. These solutions enable blockchain networks to collaborate and interoperate, unlocking the full potential of distributed ledger technology.

What is zero-knowledge proof?

Zero-knowledge proof is a cryptographic technique that allows one party to prove to another party that a statement is true without revealing any additional information beyond the fact that the statement is indeed true. In blockchain, zero-knowledge proofs can be used to enable privacy-preserving transactions and computations.

How do zero-knowledge proofs work?

Zero-knowledge proofs work by utilizing cryptographic algorithms to generate proofs that verify the truth of a statement without revealing any sensitive information. The prover generates a proof that contains sufficient information to convince the verifier of the statement's truthfulness but does not reveal any details about how the prover knows the statement to be true. This allows for privacy-preserving transactions and computations in blockchain networks, enabling users to prove ownership or eligibility for certain actions without revealing their identities or other sensitive information.

What is a decentralized autonomous organization (DAO)?

A decentralized autonomous organization (DAO) is an organization represented by rules encoded as a smart contract on a blockchain. DAOs are governed and operated by the network of participants rather than a central authority, enabling transparent, autonomous, and decentralized decision-making.